My Brokerage Account Is Way Down. Here's Why That's Not Such a Bad Thing

I'm not losing sleep over the losses I'm seeing on screen.

So far, 2022 is proving to be a pretty rough year for the stock market. The Dow Jones Industrial Average, S&P 500, and Nasdaq -- all major market indexes -- are down substantially year to date, and most investors are seeing pretty big losses in their portfolios.

In fact, when I recently signed in to check on my brokerage account, the numbers weren't pretty. Because I own a lot of tech stocks -- a segment that's been notably hit hard this year -- my portfolio is down about 30% since the start of 2022. Ouch.

Thankfully, I made one key financial move before investing in a brokerage account. And because I did, I don't have to panic about the losses I'm seeing.

How your emergency fund could make you a more secure investor

You'll often hear that building an emergency fund is one of the smartest financial decisions you can make. And that's definitely true. If you sock away a decent chunk of money in a savings account, you won't have to worry about racking up debt the second an unplanned bill lands in your lap.

Plus, having an emergency fund buys you some protection in the event of a layoff. If you lose your job, you'll have a means of paying your bills until you're employed again.

These are the reasons you'll commonly hear for why an emergency fund is so important. But in reality, there's another key benefit to having a solid emergency fund, and it's that it allows you to invest with more confidence.

A big reason I'm not so worried about my portfolio being down is that I have a lot of savings on hand. As such, I don't anticipate a need to liquidate assets in my brokerage account anytime soon. And if I don't need to sell any of my investments while they're down, I can wait for the market to recover and avoid actual losses, as opposed to the on-screen losses I'm seeing now.

Before the pandemic, the typical advice was to sock away enough money in savings to cover three to six months of living expenses. Nowadays, many experts advise having up to a year's worth of expenses in savings.

To be frank, I've always made a point to keep about a year's worth of bills in my savings, plus some extra money for home repairs, which tend to be costly. Being conservative in that regard has, through the years, meant losing out on some growth by tying up more cash in savings rather than investing that money for a higher return. But on the flip side, it's allowed me to invest with more confidence. And now, it's making an otherwise scary situation a lot more palatable for me.

Be sure to boost your cash reserves

If it's been a while since you've put money into your emergency fund, you may want to consider seeing how much cash you have and giving your savings a modest boost. This isn't to say that you absolutely need a full year's worth of bills. But if you have three months of expenses socked away, ramping up to four or five months' worth isn't a bad idea at all.

Meanwhile, if your portfolio is down this year, try not to panic. The stock market has a long history of recovering from downturns. If you leave your portfolio alone until things improve, there's a good chance you won't lose any money.