Don't Panic Over the Stock Market Sell-Off. Do This Instead

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Monday, Aug. 5, was not a good day for investors . That may be the understatement of the year. Not only did all three major indexes -- the S&P 500, the Dow, and the Nasdaq -- decline steeply, but the market clocked in its worst day since 2022.

What fueled Monday's massive sell-off, among other factors, was a lackluster July jobs report that came out the previous Friday. The U.S. economy added only 114,400 new jobs last month, which fell well below economists' expectations. The unemployment rate jumped upward to 4.3% from 4.1%.

Now, what's ironic is that in recent months, strong jobs data has also led to sinking investment values. The thought there was that a strong economy would keep inflation steady and prevent the Federal Reserve from moving forward with interest rate cuts.

This time around, jobs data was weak, but investors took it as a sign of a declining economy instead of looking on the bright side -- that the Fed is now way more likely to cut interest rates at its upcoming meeting, which is scheduled for mid-September.

All told, now's not the time to take a look at your brokerage account or IRA balance, as you may be looking at a much lower number than what you last saw. But that's also not a reason to panic.

Don't get spooked

It can be extremely unsettling to see the value of your investment portfolio drop. One thing you need to remember is that you don't officially lose money in the stock market until you actually sell your investments when their value is down.

Say your brokerage account balance was $12,800 a few weeks ago, and now it's $11,600. At first, it seems like you've lost $1,200. But did you? Not exactly.

It's true that your portfolio is now only worth $11,600. But if you don't sell any of your assets and sit tight instead, there's a good chance that in a few weeks or months, your portfolio will be back up to $12,800 -- and then keep growing beyond that point over the years.

In fact, one of the best things you can do when the stock market has a bad day, week, month, or year is nothing. Don't sell off any assets. Instead, take a deep breath and remind yourself that you're in it for the long haul.

If you're seeing a loss in your IRA , for example, but you're 35 years old, guess what? You can't even access that money penalty-free before age 59 1/2 anyway. And a lot can happen over 24 1/2 years. Heck, a lot can happen in the course of 24 1/2 weeks , so try your best not to get bent out of shape, even though it's not easy.

Use this as an opportunity

It's natural to look at a stock market sell-off as a bad thing. But if you have cash on hand, there's a hidden opportunity.

Some of the stocks you've been wanting to buy may finally be on sale after months of inflated prices. If you have money to invest, now could be a good time to add some shares to your portfolio.

Or, you could buy shares of an S&P 500 ETF, which lets you invest in the broad market, since the S&P 500 just took a dive and is cheaper to buy.

A stock market sell-off is rarely celebrated as good news. But it doesn't have to be the worst news, either. Keep calm, don't sell off assets out of fear, and buy discounted stocks if that makes sense for you and fits with your strategy. Try not to lose sleep over Monday's events. In the long run, they won't even matter.

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