Ask The Rational Investor: Is it Time to Sell?
With the stock market up nearly 27% year-to-date* many investors are wondering if they should get out before the next drop!
In these types of stock market environments, it is more important than normal to stay calm and focus on your long-term goals and risk tolerance.
Looking back almost a year, the stock market reached a relatively high point in early October 2018 and then declined 17% bottoming on Christmas Eve. During the fourth quarter of 2018 many investors were panicking and wondering if the next market crash was occurring. From Christmas Eve lows the stock market is up nearly 30%!
Stock market performance over the last two years is more common than you might think, as swings greater than 10% happen frequently.
Fidelity completed a study that looked at the growth of $10,000 invested in the S&P 500 from 1980-2018. Had the investor been invested every day during the 38 years $10,000 would have grown to over $700,000. Fidelity then looked at if investors had not been invested in the best 5, 10, 30, and 50 days during those 38 years.
You guessed it!
Missing the best days had a dramatic impact on your long-term returns. If the investor missed only 5 of the best days during those 38 years their $10,000 would have grown to $458,000. If an investor missed the 30 best days their $10,000 would have grown to only $135,000, a considerable difference from over $700,000 had they just stayed invested. Human beings are emotional creatures making it difficult to avoid getting swept up with the crowd.
Remaining emotion-free is hard work!
In stock market environments like today, a more appropriate approach would be to review your current mixture of cash, bonds, and stocks and see if they are in-line with your long-term targets.
If your stocks have appreciated over the last few years and are now 65% of your portfolio, but your long-term target is 60% perhaps it makes sense to meet with your portfolio manager and discuss reducing your allocation back down to the long-term target.
*S&P 500 Total Return as of 11/26/2019
Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.