The Market is Going Down and Could Go Lower, Should I Sell?

Probably not. For most, selling just because the market is experiencing a downturn is not the right thing to do. 

We all want to own stocks when they rise and not when they decline. It is difficult to time the market. The reality is that time in the market is more important than timing the market. Missing the top 10 days in the market over the past 20 years would have cut annual returns by nearly half¹. This means it is usually best to stay invested for the long haul and not let your emotions get the best of you.

Are there reasons to sell?

Yes. Here are some situations where selling may make sense for you:

• Needing cash for living expenses – We believe stocks are too volatile to be a regular source of funds, so we suggest keeping adequate reserves in less risky investments for easy access and income generation.
• Rebalancing your portfolio – Your investment plan was designed based on your circumstances, unique goals, risk tolerance, and financial needs. Recent stock gains may have shifted your asset allocation, making rebalancing a disciplined, strategic move – not an emotional one.
• Managing volatility concerns – If extreme market fluctuations are causing significant stress, adjusting your portfolio to include more conservative investments may be prudent.
• Recognizing profits – If stocks have appreciated significantly or a company’s fundamentals have changed, selling can be sensible.

The power of long-term investing

We believe that wealth is built through saving, investing, and allowing compounding to work over time. As Albert Einstein purportedly said, “Compound interest is the eighth wonder of the world.”

Market timing and emotion

People rarely ask about selling stocks when the market is going up. Why is that?

• Optimism & fear of missing out (FOMO) – Investors often expect further gains and want to sell at the highest possible price.
• Emotional attachment – Investors can develop strong emotional ties to certain stocks, making them difficult to sell.
• Tax considerations – Selling appreciated stocks in taxable accounts triggers capital gains taxes, which many prefer to avoid. 

A disciplined approach

Stocks remain a key component of long-term investment strategies because they have historically outperformed high-quality bonds and beaten inflation over time. However, since rising equity prices are not guaranteed, asset allocation and investment time horizon are critical to planning.

We also know that losses become permanent when you sell at the bottom. Selling at the wrong time for the wrong reason can be devasting to wealth creation. Long-term investing in great businesses in a capitalistic economy has provided good returns more often than not.

So, should you sell? The answer depends on your unique situation. PSG is here as your trusted steward, providing objective guidance to help you stay disciplined and avoid emotional decision making.

Call us at (914) 288-4900 or email info@psgwealth.com—we’d love to discuss.

1.  Source: As of 12/31/2021. Schwab Center for Financial Research with data provided by Standard & Poor’s. ↩︎