By Gary Silverman, CFP®

Today I want to talk to you who have money in the stock market and have a while before you need to use any significant amount of it. The lesson today assumes that you have at least three, preferably five years until you need the cash. (For those of you who will likely need to tap your stock investments soon, I’ll get to that starting next week.)

Fact: You have money in the stock market. Fact: The value of those stocks has gone down. Assumption: You don’t know what to do.

In situations where things are going crazy and you don’t know what to do the best course of action is to do nothing until you can size-up the situation. Running away is not always the best idea. Doing nothing by burying your head in the sand is not a good idea either. But doing nothing until you can take a little time to figure out what is going on is a good idea.

With this investment debacle we’re living through, the first thing to remember about your investments is why you have investments. Since I don’t know you (well, most of you), I will make up an example. Let’s say that a couple of years ago you sold your vacation home as you weren’t using it much anymore and wanted the money for when you retire in about five years.

Yet you look online at your account and your stocks are down 20-25%. What should you do?

Before we get to my answer, I’ll let you in on a little secret. I do not know what is going to happen in the future. I do not have any prophetic abilities that I know of. I do know that the market can go down farther, even for a couple more years, and that the market can take its sweet time climbing back up again.

Yet even knowing all of that I do not think that selling is the thing to do. In this case, the most conservative thing you can do is indeed nothing. That’s because between now and your retirement in five years it is very likely that the stock market will be quite a bit higher than it is now. And if it isn’t, it’s not like you are going to take all your money and spend it the first year. Rather you will spend a little every year for the rest of your life. Even if you were planning on buying another vacation home when you retire, the timing of that buy is optional so you could wait things out. Locking in a large loss will not help you in either of these scenarios.

A more moderate move is to rebalance your portfolio (this is what I do…am doing). You hopefully didn’t have only stocks in your portfolio, but rather a mix of stocks, bonds, and perhaps some other asset classes. Let’s pretend that you went into this with a 50-50 mix. With a 20% drop in stocks you now have only 45% in stocks. Rebalancing will have you sell off some of your bonds to buy stocks to get back to 50-50.

But what if the market keeps going down? See you next week.

 Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.