Don't Sell Your Stocks In A Bad Market
If you’re a stock or mutual fund investor, odds are you’ve had second (or third or fourth) thoughts about what to do in this mostly down rollercoaster of a market. Between episodes of popping Tums and chugging Pepto-Bismol, it’s likely that you’ve contemplated selling your stocks and waiting on the sidelines until things settle down a bit. CNN Money says that while this might seem like a wise path, it’s exactly the wrong thing to do. They list four reasons why you shouldn’t sell now, but the one that stands out among the pack is their reason no. 3 — you underestimate the risk of being out of stocks:
These days it’s helpful to remind yourself of this: In the long run the risk of missing stocks’ upside poses a graver threat to your wealth than taking hits on the downside does. There’s no denying that the big one-day drops we’ve seen recently are no fun, but if you hang in, the math works in your favor.
“Stocks go up and down,’ says Stephen Wood, senior portfolio strategist at Russell Investment Group. ‘To make money you need to capture their upward movements. The only way to do that is to stay invested in dicey times.”
Eventually, the market will turn around. Whether that’s in two days or two years, no one knows. But if you cash out now and sit on the sidelines, it’s highly likely that you’ll miss at least a good portion of the run-up in stock prices that’s bound to follow this drop. And if that happens, your investment returns will be significantly negatively impacted your investment returns will be significantly negatively impacted.
The best advice? Stay calm and remain fully invested. If you add to your portfolio on a regular basis, keep that up as well. Eventually you’ll be able to forget the Tums and Pepto as the market rebounds and you see the financial fruits of maintaining your course.
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