Time to sell?

The other day I had the unfortunate experience of meeting with a client invested in a low-risk portfolio that had decided it was no longer low-risk enough. Shortly after that meeting ended, my colleague entered sell orders for all of the client’s funds, moving them entirely to cash (despite our advice to continue to buy and hold).

I fear this conversation is currently playing out across the country, and my former colleagues at the largest 401(k) provide anecdotal evidence to support this thought. I have even heard of some people worrying the market will go to zero.

Turbulent Waters

For many, the past couple of months has been a nauseating experience, inflicting sea sickness on investors trying to fare through the crests and subsequent troughs that the current bear market has stirred up.

The S&P 500 started the year at nearly 4,800 but is now down almost 20% year-to-date. Resultantly, many are sailing towards the shore to wade out of the storm in cash.

While unsurprising, the unfortunate reality is that these investors experience a double whammy which entails losing the value of their money due to selling during the drop and subsequently losing the purchasing power of what remains due to record inflation. That is painful and most certainly a setback towards their goals, which likely entail retirement.

Puppet heads fear-mongering

The current investing environment looks bleak to many, and countless individuals have become stressed that they are now losing more money than they can annually save after years of unrelenting gains assuaged them to take more risks.

Unsurprisingly, many of the familiar investing programs and like-kind web pages that preached the wonders of the former bull market are now running countless stories on how to protect your money.

However, taking such advice is asinine. Why? Because the best advice doesn’t put people at ease, and it is boring. (Hint: it might just be to buy and hold)

Steady hands buy and hold

My net worth has plunged by over $80,000 over the past months. But I have done nothing with my investments. Further, when the markets started going down at the beginning of the year, I stopped regularly logging into my investment accounts. Why? Because the plummeting annoyed me more than anything else.

The countless Twitter voices, media heads, and various others with reputational authority like to focus on the chaos at hand because it is what drives repeat viewership and engagement. And unfortunately, if you listen to them enough, you may be so inclined to indulge in destructive tendencies.

You see, the secret to investing is patience and persistence. Neither of which are glamorous. Thus, by holding a steady hand and not selling when the market drops, you are the more likely to see success. All you must do is buy and hold. Because, after all, you cannot have the crests (gains) without the troughs (drops).

It starts with the right level of risk

When building your portfolio, only you can decide what level of risk is enough. Why? Because any advisor, Twitter handler, or another figure can discuss levels of risk and what may be appropriate for you.

But, at the end of the day, the buck stops with you.

Previously, I wrote about risk in my article: You’re Investing Wrong: How To Use Portfolio Construction. In it, I discuss that if you cannot tolerate the downside of a portfolio, you cannot handle its upside.

Therefore, it is up to you to know your behavior.

If you think you will likely sell your investments when they drop by more than 5, 10, 20, or even 40%, you must not invest that way, even if it means forgoing the gains. Why? Because trying to time the market does not work.

Buy and hold

The time-tested strategy that works during the separate periods of turmoil and riches is buying and holding for the long haul. Hence, it is why I advocate to Buy Now & Tomorrow, But Don’t Buy the Drop!

Investing success is partially due to luck, but it is primarily due to patience. Thus, if you can outlast the storm when investing in a diversified portfolio, the clearing of the clouds will be gorgeous.

So, stay strong and buy and hold.

As always, have a great day.