1. Sell individual stocks and equity funds. The most obvious and easiest way to decrease your stock market risk is to sell stocks. But selling stocks outside of your retirement accounts can lead to tax consequences. Selling stocks with gains will trigger a capital gains tax. To minimize capital gains tax consequences, sell stocks or equity mutual funds and exchange-traded funds in your tax-advantaged retirement accounts first and reallocate to non-equity funds. Another good strategy is to sell losing stocks in your taxable portfolio, which will help balance any gains for the year and benefit you at tax time.
2. Buy bond funds or ETFs. Another easy way to lower stock market risk is to reallocate a greater portion of your portfolio into bond funds or ETFs. Mutual fund companies allow you to simultaneously sell a fund and buy another, making the switch from stock funds to bond funds very simple. You can also use the cash proceeds from a sold equity fund or individual stock to purchase bond ETFs in your accounts. Aim to own funds and ETFs with low expense ratios to keep as much of your earnings as possible.
3. Purchase real estate. Once you’ve sold some equity holdings, you can use the after-tax proceeds to purchase real estate. Investment properties help protect against inflation and can be used to generate income. The more cash you invest as a down payment, the less risky the purchase. Consider your risk tolerance before borrowing to invest. Also, decide if you want to be a landlord. For a reasonable fee, real estate management companies can deal with tenants and repairs while you receive the monthly rent.
Another option is real estate crowdfunding sites. In recent years, these investment platforms have emerged to enable investors to own small portions of commercial and residential real estate properties. The platforms use technology and recent changes to securities laws to create investment opportunities for those looking for more real estate exposure.