Let’s take a closer look at those investment accounts.

Nonretirement accounts

After you’ve exhausted your emergency savings and explored an interest-free credit card, your next move is to consider any investment accounts you own that aren’t for a specific purpose. Think: a taxable brokerage account—not 401(k)s, IRAs, or 529s. If you work for an employer that offers some form of stock compensation, you could consider tapping any vested restricted stock, vested stock options, or shares you've purchased through an employee stock purchase plan.

Heads up: Selling stocks or other investments could affect the balance of investments in your portfolio and could trigger a tax bill.

Penalty-free retirement withdrawal

Next, turn to your retirement accounts, first aiming for penalty-free withdrawals. Here are those options for the 3 major account types:

• Roth IRA: You can withdraw as much as you’ve contributed after taxes at any time for any reason, but not any investment earnings. If you've had the account open for at least 5 years, you’re under 59½ years old, and you meet one of the exceptions for penalty-free withdrawals—such as using the funds for qualified education, birth, or adoption expenses—you may be able to withdraw earnings as well as contributions penalty-free.¹
• Traditional IRA: This may be an option if you’re at least 59½ years old, you’ve recently become permanently disabled, you’re facing significant unreimbursed medical expenses, or you meet one of the other IRS-specified exceptions.²
• 401(k): Only those at least 59½ years old can make penalty-free withdrawals. If you’re still working at that age, rules depend on your plan.

Heads up: Even if you avoid penalties, you may still have to pay taxes on your withdrawal. Because retirement is often one of the biggest goals to save for, you may want to boost your retirement savings to catch up to where you were before once your emergency is resolved.

401(k) loan

After the option of a low-interest personal loan, you could explore a loan from your 401(k). While a 401(k) loan shouldn't be taken lightly, it could be favorable to racking up high-interest credit card debt. The upside is that the interest you pay on the loan goes into your own 401(k), rather than to a bank or credit card issuer. And you don't owe taxes or penalties on the loan amount.

Heads up: Aside from missing out on potential tax-free growth on the money you borrow, different plans have different rules for 401(k) loans. Also, if you leave your employer before repaying the loan, you may have a short window to do so before being required to pay taxes on the outstanding balance and a 10% penalty if you’re under 59½.

Early IRA withdrawal

If money is very tight, you can choose to start pulling cash from your IRA early, or before age 59½.

Heads up: Withdrawing from your traditional IRA before age 59½, and without meeting one of the other specific exceptions, means you'll pay income taxes and a 10% penalty. If you have a Roth IRA, withdrawing your contributions is penalty-free, but if you must withdraw investment earnings before age 59½, you’ll owe a 10% penalty on those (again, unless you meet one of those exceptions). Plus, you’ll generally owe income taxes if you haven’t held the account for more than 5 years.

401(k) hardship withdrawal

Finally, you can see if you qualify for a 401(k) hardship withdrawal. Under IRS rules, you may qualify for one if you're facing an immediate and heavy financial need.³ It’s typically up to your employer to decide whether your personal situation qualifies.

Heads up: Even if you qualify, you’ll generally still owe income taxes and a 10% penalty on the amount you withdraw. This means you’ll have to withdraw more than you actually need to cover those deductions. You may also be prohibited from contributing to your 401(k) for a period of time afterwards, so you'd miss out on any employer match.

A diversified portfolio not only includes a range of investments—for example, stocks from many different types of companies and industries—but also a mix of investment types. (Just remember that diversification and asset allocation don’t ensure a profit or guarantee against loss.) Here are some key investment types and how they could raise or reduce risk in your diversified portfolio.

Stocks: Stocks represent a piece of ownership, or a share, in a public company. Stock prices go up and down all the time, depending on a number of factors, including company performance and the news. So while investing in stocks can be rewarding, they're also considered a riskier option. 

Bonds: Investing in bonds is like giving out loans to companies or governments that agree to pay you back with interest. Bonds are typically considered lower risk compared with stocks and are assigned credit ratings, so you can better understand the risk of each. 

ETFs: Buying an exchange-traded fund (ETF) means that you're investing in a group of securities (such as stocks or bonds) all at once. They're like an investment bundle and are often created to follow a theme or category. ETFs are considered less risky than buying individual stocks because of the built-in diversification. 

Mutual funds: Mutual funds pool money from many investors to buy a collection of stocks, bonds, or other investments. Like ETFs, mutual funds spread out your money across a mix of investments and so generally carry a lower amount of risk. Often, mutual funds are actively managed by a team of pros and follow a specific theme or investing objective. 

Your first step to building a portfolio should be determining the ideal mix of investment types that will best serve your needs (again, financial situation, time horizon, and risk tolerance). Then you can start researching, selecting, and purchasing investments to match that ideal mix. Don’t want to do it alone? Fidelity can help you form an investing strategy or manage your investments for you.

2. Stick to your plan

The mix of stocks, bonds, and other investments in your portfolio will determine your potential returns, but also how well you can weather market swings. Pick investments that align with your goals, investing timeframe, and financial situation. And keep in mind that things could—and probably will—get rocky at some point. Doing your homework upfront can help you feel better while waiting out the bad times.

3. Don’t try to time the market

It can be tempting to try selling out of stocks to avoid feeling the impact of market downturns. But it’s hard to time it just right. If you sell when prices are down and are still on the sidelines during a recovery, it can be difficult to catch up. Missing even a few of the best days in the market can significantly hurt your potential for investment gains.

4. Don’t stop believing—or investing

Some of the best times to invest have been when things seemed the worst. Investing consistently through ups and downs helps you buy investments, such as stocks, when they’re at their cheapest. Consider setting up automatic investments that align with your overall plan.

5. Get some help

Managing your investments doesn't need to be your full-time job—it‘s ours. Whether you want a gut check on setting up your portfolio or would rather hand the reins over to a robo advisor to do it all for you, you don’t need to face the next crisis alone.

Having a pre-planned exit strategy actually minimizes your risk by limiting emotion. By selling a stock once it hits a preset price, for example, you can potentially avoid holding on too long to a rising stock or panic selling a falling stock.

How to create an exit strategy

3 questions to consider when forming your exit strategy are:

1. How long am I planning to hold this investment? Or when do I need the money?
2. What will I use to measure performance—percentage gained or lost? Total dollar amount?
3. How will I know when it’s time to get out?

Having trouble with the last one? There's no one-size-fits-all answer. It depends on your own financial situation, how much you feel comfortable losing, and what your research tells you about the short-term and long-term prospects of the investment.

What if you need cash ASAP?

If you need to sell investments to raise cash, which investments you choose is up to you. You may want to cash in on a stock that's doing well or cut your losses on an underperforming ETF or mutual fund. Remember that selling stocks or other investments (including cryptocurrency) may generate a tax bill if you have realized gains, or you sold the investment at a higher price than you bought it for.

If you're selling at a loss, you may deduct those realized losses from your capital gains, which could lower your tax bill. Also keep in mind that short-term gains are taxed at a higher rate than long-term gains, so profits from an investment you've held less than a year could come with higher taxes than one you've held for longer than a year. Being thoughtful about the tax implications of selling could save you money at tax time.

Go deeper on tax tips for trading.