Is Now the Time to Get Back Into Stocks?

Good Time to Buy Low

That means I need to take some money from cash and maybe a little from the bonds to buy some stocks to bring that portion back up to 85 percent.

You rebalance by selling the asset classes that have taken on a larger-than-desired position in your portfolio and by buying those that have shrunk below where they should be.

These moves run counter to our instincts, but once again it's a way to ensure we buy low and sell high.

Rebalancing is a way to take advantage of today's low stock prices even if you don't have extra cash on hand.

Related

Wall Street Woes: Where to Put Your Cash

WATCH: Wall Street Woes

Fannie, Freddie and Your Investments

Keep contributing. The worst possible reaction to the recent market slide would be to stop contributing to your 401(k) plan or other retirement savings vehicle. That is because the drop in stock prices means you are able to buy more mutual fund shares at a lower price than you could a couple of weeks ago.

For example, suppose you contribute $200 of each paycheck to a 401(k) plan. If a month ago, a share of Mutual Fund X cost $50 each, you could buy 4 shares. Now, if the share price of that fund is down to $40, you can buy five shares each pay period.

Armed with that extra share, you will be sitting pretty when prices recover. And if the market continues a downward spiral for some time, you will be buying future shares at an even lower price.

Meanwhile, your coworker who stopped contributing to the company 401(k) is missing out on sale prices and will end up paying more -- and earning less -- when he decides it is "safe" to contribute again.

Convert to a Roth: One way to make up for losses in your retirement portfolio is to lock in future tax savings by converting from a traditional IRA to a Roth IRA. As you may know, retirement-age withdrawals from a traditional IRA are taxed as ordinary income and are required after age 70½. Withdrawals from a Roth IRA, however, are tax free and not required at any age.

The federal tax code allows retirement savers to convert a traditional IRA to a Roth IRA and avoid taxation on those funds in retirement. That conversion, of course, comes with a cost. Income taxes are due on the conversion amount for the year the conversion takes place.