For most of us, many of the market losses of the last decade, including the 2008 stock market crash, are becoming fading memories. In the end, investors who have experienced these tough times and stayed committed maybe come out in the best shape.
But market crashes and economic downturns don’t go anywhere-as the COVID-19 pandemic shows, market failure can obviously come from nowhere. Yet don’t despair, and don’t let feelings like fear and anxiety make you want to sell to a falling demand.
All these chances to hold on, or even buy more shares while rates are small, are lost to investors who sell during downturns in the market trying to curb their losses and wait on the sidelines. Below we are going over three strong reasons not to sell during a downturn in the market.
1. Downturns Tend to be Followed by Upturns
Comprehensibly, investors in down-markets are often overwhelmed by their impulses of “loss aversion,” believing that if they do not sell they will lose more money. The fall in the value of the asset is always temporary, however, and will go back up again.
On the other hand, if the buyer sells while the price is down, then he or she will lose out. It’s important to note that a bear market is temporary only. The next bull market erases its losses, which then extends the previous stock market gains.
2. You Can’t Time the Market
Market timing can be extremely difficult and investors engaged in market timing inevitably miss some of the market’s best days. Historically six of the best ten days on the market take place within two weeks of the worst ten days.
Rather than selling down on the road, why not try buying instead. Accumulating more shares in a regimented manner, even when stocks fall, helps you to average dollar costs, build your portfolio on a lower cost base, and get in while prices are low.
3. It’s Not Part of the Plan
If you stick to your long-term investment plan, emotions like fear and greed should not be allowed to alter your course of action. If you add a certain amount per month to your portfolio, keep on doing so! Re-allocate to restore the target weights at a relative discount when stocks go down if the target allocation is 80 percent stocks, 20 percent bonds.
