Should You Pull Money Out of Your Brokerage Account in a Recession?

You may be surprised at the answer.

Many experts warn that the United States is in danger of a recession. And the stock market has been trending down recently as a result of fears of an economic downturn.

If you're watching the economic indicators and are worried, you may be thinking about taking money out of your brokerage account. But is this really a good idea and something that you should do?

How should you respond to bad economic news?

While it's tempting to sell your investments due to fears of an economic downturn, this is usually a bad idea. In fact, it's generally better to stay the course, maintain your investments, and even consider increasing the amount of money that you put into the stock market. This seems counterintuitive, but it actually makes sense for a few key reasons.

One issue is that it's really hard to predict what exactly will happen with the economy, or how stocks will react when things go wrong. Some companies may perform very well in a recession. Or you may assume the economy is in trouble but in fact things could go well for longer than expected or conditions could improve.

If you sell your stock and turn out to have made the wrong guess, you could miss out on potential profits or even end up locking in losses that could have turned into gains if you'd just left your money alone.

Rather than opting to sell stocks when things seem to be going wrong, it's best to leave your existing investments undisturbed. Even if you suffer short-term price declines, any losses are only on paper until you've actually sold assets for less than you paid for them. Most times, as long as you have made smart investments and you hold on long enough, you'll find that your investments recover and you even end up making gains.

It can also be a good idea to actually invest more during tough economic times. You can buy shares of good companies at a discount during a recession or when things seem to be going wrong.

How to make sure you don't make the wrong investing choices during turbulent times

While it's easy enough to say you shouldn't stop investing or take money out of your accounts in a recession, it's hard to do this in practice because it can be scary to see your portfolio's value decline.

The good news is, there are ways to make sure you don't sabotage yourself by making the wrong moves. Specifically, you'll want to commit to being a long-term investor and you will want to have confidence in your investments. You'll also want to make sure you don't put your money into any assets you wouldn't be happy owning for years to come through all economic conditions.

If you follow these tips, you can hopefully ensure that you stay the course because you'll have planned and prepared for turbulent times and will know without a doubt that your portfolio is built to withstand them.