3 reasons you shouldn't sell stocks when everybody else is
Just when you started thinking stocks were safe and had nowhere to go but up, along comes a market sell-off that slaps the confidence out of you.
After rallying for weeks on hopes the economy could recover quickly from the coronavirus pandemic, the stock market fell hard on Thursday. The Dow Jones Industrial Average plunged more than 1,800 points, or 7%, and the S&P 500 dropped 6%.
Wall Street's worst day in three months was prompted by another 1.5 million Americans signing up for unemployment, gloomy forecasts from the Federal Reserve and reports of rising coronavirus cases in the U.S.
Money flowed out of stocks and into investments that are seen as safer, like Treasury bonds. The market turbulence may have you wondering if you should go even further — maybe sell all your stocks and just put the money in the bank.
Don't do anything hasty. Here are three reasons you shouldn't sell stocks when everybody else is doing it.
1. The market is resilient
Stocks always bounce back.
No matter how terrible things may look on a particular day or during a particular week, stocks generally make back their losses and keep going.
Just days ago, the S&P 500 Index erased all of its previous 2020 losses and returned to where it was at the very start of the year.
"In the short term, the stock market could fluctuate up and down," says Tenpao Lee, a professor of economics at Niagara University. "In the long term, the stock market will always move up."
Humans are emotional creatures, and we can react impulsively when afraid. Whether you're investing a lot of money or just your spare change, you've got to learn to shake off the panic and be confident that the market will come back.
2. You have goals
A downturn is a good opportunity to reflect on your long-term goals.
Aren't you invested for the long haul, working toward a big goal down the road — maybe a comfortable retirement? The worst thing is to go off track by ditching investments just because Wall Street has a rough day or two.
If volatility in your accounts keeps you up at night, maybe you need to reevaluate your investment mix. Your money should be diversified, to help you weather these storms.
The best approach is to avoid looking at your battered balances and keep your hands off your portfolio.
Consider enlisting the help of a financial adviser if you don't feel confident enough in your own decision-making skills during times of crisis, and don't get spooked by routine short-term fluctuations.
3. Market downturns are great buying opportunities
Go shopping -- for stocks at cheap prices!
On those days when the stock market takes a beating, don't think about what you're losing. Instead, focus on what you could be buying. A market plunge or "correction" makes stocks cheaper.
Back in February, when the market first started tanking, personal finance guru Suze Orman famously said investors should "rejoice." She later told The New York Times she bought up tons of stocks in February and March and made a "serious sum of cash" when she sold them.
Don't be afraid of taking on new investments whenever the overall market goes south. But be sure to maintain a well-diversified portfolio, favoring ETFs — exchanged-traded funds — so your risk is spread around when the stock market starts getting shaky.
Consider investing via a robo-advisor that will automatically adjust your investments in the face of changing market conditions and keep you focused in low-cost ETFs, to maximize your portfolio's diversity.
