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I know it’s attempting to sell an investment that has lost money, but this could cause you to lose even more money in the long run. Instead, consider selling the investments only if the funds are needed immediately. This will allow you to keep your gains while reducing your losses. Let’s discuss three reasons you shouldn’t panic sell!
1. Don’t sell If The Economy Is Doing Poorly!
If you’re worried about the economy, you should avoid panicking and selling your investments. There are two reasons for this.
First, the U.S. economy will continue growing in the long term, so even though it may be turbulent in the short term, it (most likely) won’t self-destruct! And if it does, believe me, we would have bigger fish to fry as the country would face an insanely catastrophic event.
Second, if the stock market crashes, based on its history, it will correct itself. This means that, although the stock market’s prices fall, the market is bound to recover!
As long as your investment portfolio is diverse, using ETFs, Mutual Funds, or multiple stocks from different industries and sectors, a little turbulence is okay! The reason is that when portfolios are well diversified, they would likely consist of cyclical and countercyclical investments.
A cyclical investment typically performs when the economy is expanding (doing well). A countercyclical investment performs well when the economy is contracting (not doing well).
The Stock Market has endured many downturns since the 1950s and has returned to greater heights each time. The chart below really drives home the point that when investing long term, the need to panic and sell when the market downturns serve no benefit. If anything, buy more and take advantage of the lower-priced market!
2. It is impossible to Time The Financial Markets!
If you try to time the market, you will likely lose money. This is because the stock market moves based on supply and demand. In other words, if investors believe that a particular asset’s price will rise, they will buy more of it.
Conversely, if investors believe that an investment security will fall in value, then they will sell more of it. As such, it is impossible to predict when the market will move.
To reiterate how impossible it is to time the financial markets… Based on a Business Insider report, you should know that only 10% of active investment managers actually beat the stock market’s natural performance over the last 15 years!!!
An active investor is an investor who buys and sells investments based on a developed investment strategy. The opposite is a passive investor who typically buys and then holds investments while the financial markets run their course.
Knowing this fact, I think it would be absolutely absurd for the average individual investor with little investment knowledge to believe they could consistently beat the financial market.
The 90% of active investment managers that fail comprise some of the best educated and well-experienced. Wall Street firms have the best investment technology at their fingertips, and not even they can guarantee success!
Before you decide to panic sell your investments on a gut feeling, remember that no one knows when the best time is to exit and enter the market again!!!
3. Don’t Let Fear Rule Your Decision to Panic Sell!
The financial market can be an extremely volatile place. That’s because millions of investors are trying to predict the future. As a result, the stock market moves up and down based on how people feel about the economy, interest rates, inflation, and other things.
If you and I were to base our expectations of the financial markets on what we see in the media, we would be in a world of hurt. There will always be hype in the media. The hype could be from a raging meme stock, a tumbling cryptocurrency, to a wild political environment.
Don’t let these fears force you to panic sell your investments (or buy into ones you know nothing about)!
Even if you believe the information comes from a credible source, such as a seasoned economist, think twice before acting. Economists tend to use plenty of assumptions in their models to conclude where the economy is headed.
As you can probably imagine, it becomes less likely to be accurate when using plenty of assumptions to come to a conclusion. The World Economics Association even made an article stating why almost all econometric models are wrong.
This is not to say we shouldn’t hear these predictions, but we shouldn’t make knee-jerk investment decisions based on the fear of one source alone. As always, I highly encourage you to do your research before making any investment decisions.
To Sum things up!
A downturn in the economy or financial market is not the world’s end. The U.S. has repeatedly bounced back from economic downturns and financial market crashes. This is not a good reason to panic sell your investments, especially if you are in it for the long haul and have a diverse portfolio.
Panic selling to beat everyone else before the markets deteriorate is a bad idea! No one can predict when the markets will crash. This is a for sure way to lose some money, just stay the course and ride out the turbulence.
Don’t let fear consume you to sell investments on a whim! I know that when dealing with money can cause plenty of emotions. News outlets, social media, and the “Finance Gurus” will always project their thoughts, but don’t let this cause you to make an irrational decision. Persevere, my friend, let rationality prevail; this too shall pass.
What will you do now to prevent a panic sell during turbulence in the financial markets?
