Should I Sell My Stocks

Should I Sell My Stocks?

Should I sell my stocks? It was a hot topic during the last week of February. Today on Monday Morning Money, we’ll talk about reacting to extreme volatility in the stock market.  (Read more below)

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The "Stuff" Hit The Fan

At the end of February, the proverbial stuff hit the fan. We were coming off the worst week in the stock market since 2008. Prices dropped over 11% on fears of the Coronavirus. When extreme drops like this happen, our instincts kick in. The urge to protect what we worked so hard to save becomes very strong.

A week ago, had you typed the words “should I” into google, the first auto-generated question was:

Should I sell my stocks?

In our experience, the answer to that question most of the time is “no.”

It's not "sell low, buy higher"

Emotional reactions to these big moves tend to reduce your lifetime returns. The rule says, buy low sell high. When we react to these events we tend to do the opposite.

People wait until prices have dropped and then sell. Then when things look better, they get back in. But many times, they are buying at higher prices.

Should I Sell My Stocks
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The Impact of Emotional Reactions on Real-Life Returns

There is a company that tries to compute the impact of emotional reactions on real-life returns. DALBAR has been conducting their qualitative analysis of investor behavior for several years. The study tries to show the gap in performance between investments and investors. At times, this margin has been significant.

Imagine the impact on your nest egg if the emotional performance gap lowers your returns by 2%. Instead of earning 7% per year on a well-diversified portfolio, you earn 5%. Over a long period of time, the compounded difference will be significant.

The more often you make reactionary decisions, the more chances you have for errors. And those errors can be very costly to your future.

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The Price We Pay for the Growth We Need

Nobody likes to sit through the temporary declines, but they are the cost of the longer-term gains we depend on for growth.

I’ll close with this take I read recently. We don’t know which direction the next 20% move in the stock market will be. But we can be quite certain of the direction of the next 100% move in stock prices. We would hate to miss it.

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Do you have a question? Would you like to talk about how we can help you plan for a better retirement?
Click here to schedule a brief 15 minute call.  

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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