Panic Selling Is Not An Investment Strategy

READ TIME: 3 MIN 

Panic selling is not an investment strategy.  I repeat: panic selling is not an investment strategy!

Good days and bad days are a fact of life in the market. Sometimes it’s up and we celebrate. But when it dips, we worry…and if it tanks, forget it: the first instinct for most of us is panic, and we wonder if we should just get out of the market and protect what we have left. But history shows us that’s the worst thing we could do.

When market volatility is headline news and account values start to fall, it’s easy to understand why investors get jittery. Even with a boatload of historical data to support us, in times of stress we all struggle to overcome our natural tendencies to make poor decisions about money. Investors who pull the emergency brake and bail out during a market decline almost always lock in a loss on their investments. And if they stay out of the markets, chances are good they’re going to miss the recovery, which further compounds any losses. Selling at a low – and then buying back when prices are higher – has never been a winning financial strategy.

While it is totally natural to be concerned about portfolio performance during declining markets, we can learn a lot about how we should (and shouldn’t) react by looking at history. This informative article illustrates the various bear market declines and recoveries over the past 60 years. What does each downturn have in common? A robust recovery.

Remember, investing in the capital markets gives us a fighting chance to enjoy a comfortable life and a dignified retirement. But with it comes a dilemma: we must undertake risk to meet our financial needs, yet we are psychologically ill-equipped to do so. So how do we balance human needs versus human nature? This fascinating white paper from Virtus discusses a variety of behavior and cultural factors that influence the way we think and act about money, including fear, greed, expectations, discipline, luck, and much more. 

Investing in the stock market can sometimes feel like riding a rollercoaster, full of ups and downs. There’s the thrill and excitement when the market goes up, but also uncertainty and fear when it goes down. It’s important to steady your emotions and invest for the long-term, avoiding the quest for short-term gains. Take a look at the attached doc from AIG, “Emotions and Your Money” It provides five key tips for staying grounded when market volatility causes emotions to run high.

While it can be painful to ride out the storm, historically the most pessimistic periods often make for good long-term buying opportunities. Of course, past performance is no guarantee of future results, but we encourage you to carefully consider all options before taking any action with your investments.

If you have any questions or we can assist you in anyway please reach out. We always want to be sure you feel confident about your position today AND in the future. As always, we are here to help!