Since 2020, a record number of Brits have begun to invest in the stock market for the first time. Many of these newbie investors might have felt pleased with their decision, given the historic bull market that followed the initial shock of the pandemic economic crisis.
However, the stock market is in a very different position now, with indices and markets falling throughout 2022, and plenty more turmoil being predicted for the future. Some people are naturally tempted to sell their stocks during a downturn, in the hopes that they can reduce their losses and hold onto some gains.
However, an all-out selloff is not always a good idea. Here’s why.
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Investing is Long-Term:
This is the most important thing to remember. When you invest in stocks, you should be playing the long game. For most retail investors, the goal should be to grow your wealth over years and decades by investing a portion of your income into stocks and enjoying compound returns.
As this expert guide to first-time investing explains, if you invest with a wider time horizon, it can be better to leave your stocks alone from there. Selling up every time there is a market dip could set you back to square one, making it more difficult to build up a nest egg for your future. Of course, this depends on when you invested in the stocks and what your investment goals are.
You’re Selling at a Low:
This might sound obvious to some, but it bears repeating. When you sell during a downturn, you might be choosing to sell your investments for less, depending on what price you bought them for.
There are cases when it is appropriate to sell stock during a downturn since it is entirely likely that the value of your investment will drop to zero in some cases. However, panic selling at the first sign of trouble means that you are automatically committing to losses without first seeing if the market will pick back up again.
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The Market is Cyclical:
They say what goes up must come down. In the stock market, the reverse can also be true. By their very nature, markets are cyclical. Booms are followed by busts, which are then followed by booms again.
In fact, if you are investing in blue-chip stocks with a 50-year time horizon, you can expect the stock market to crash outright at least seven times, assuming that the next fifty years bear much resemblance to the previous fifty. Therefore, it is always worth remembering that, even if your blue chips are down, they might be up again in the future.
Getting Back on Track is Harder:
If you exit a particular market by selling off all of your assets in that market, then you may find it harder to get back in. If the market is picking up again in the future and you wish to buy once more, you may have to pay broker commission fees all over again.
What’s more, the barriers to entry might be higher if the market picked up substantially while you were outside of that market. This essentially means you have incurred losses twice over since you have sold at a loss and then paid more to buy the stocks back. This is why the “wait and see” approach during a bear market is recommended by some.
When it comes to investing, panicking is rarely a good idea. This is especially true for long-term investors, who must weather the peaks and troughs of the market cycle for decades in order to build a nest egg for retirement. Depending on your trading goals and your initial positions on certain assets, selling during a market downturn might not be the best idea.
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
