SHOULD YOU PANIC SELL YOUR INVESTMENTS?
The hot question as we head into a likely recession is: Should I sell NOW, lock in some profits and then buy back later? Let’s go over a few reasons why this isn’t a great idea.
But first: Here’s when you might consider this. Are you over 50 years old? Been investing for 20-30 years and retirement is in sight? Then you might opt to consider SOME investments (always chat with your accountant first so they can tell you what your tax situation might end up being). And then take that profit and consider investing in bonds or sitting on cash.
You don’t wanna be within earshot of retirement and suddenly have to delay shit.
Not over 50? Let’s discuss why selling and buying back later is a loser’s game.
You’re a retail investor in your accumulation phase. Imagine being like, I’m gonna buy 10 shares every single month. Six months later, you have 60 shares. Your goal is 120 shares by the end of the year. So lemme get this straight. You’re gonna panic sell your 60 shares and then plan on HOPEFULLY buying them back later? And what if the stock doesn’t drop to below what you paid? Then what? You spend MORE money to buy back in at a higher price? Nah. Just accumulate. If markets take an absolute tumble, maybe that month you buy 15 shares instead of 10. Take advantage of accumulation.
a. Remember that emotions get in the way of good decision making. Don’t panic. Remain calm.
Let’s say you bought 100 shares at $50 a few years ago. Now it’s $150 a share. You sell those 100 shares, you have a huge profit. Congrats. But also: You might owe taxes depending on the type of account you’re in (remember the benefit is to hold over a year to avoid higher short term capital gains taxes). That sucks. You would also need that stock to drop from $150 ALLLLLLL the way back down to $50 — and below — for it to be a “deal.” Again, a better deal is to just keep an eye on it. If it drops, consider adding more. The only time you might consider is IF you bought 100 shares in an ultra high risk, speculative company. Now it has skyrocketed to $150 and you believe it’s mostly hype. Around the same time, they say recession is coming. Then in this case, you might OPT to sell and secure your profit. Or you might just opt to sell a percentage, say 25% or 50%.
The TLDR: trying to time markets is a loser’s game. It’s a guessing game full of what ifs. What if it doesn’t drop. What if it drops, but not enough? What if it drops but I get scared and hesitate and miss my opportunity to buy back in after I sold? Will I buy back in at a HIGHER PRICE that I originally paid? Will I owe taxes? What if I take a loss that I didn’t have to take? Too many questions, which is why for most investors, buy and hold is the better strategy + averaging into high quality investments when they take a big whooping.
And remember, markets have a 100% recovery rate from depressions and recessions. If we don’t recover, we’ve got way bigger problems than your investments. Take advantage of panic selling and remember that you’re investing for the long term.
