Invest Your Money

7 Things To Consider Before Selling (and 7 Things to Do Now!)

One question that I get asked often in times of major market declines like the one we are in is, “Is it time to sell?”. It’s easy to say “NO!” but there’s a much lengthier discussion to be had.

Over the last month and a half or so we have essentially grounded to an economic halt here in the United States and globally. There is a lot of fear and anxiety.

Times like these when you look on the screen and you see the Dow down 10% and the next day it’s up 5% can be very frustrating. I get it!

The frustration is normal, although, freaking out is not! And what I mean by freaking out, is effectively saying, “Hey, I have to get out of the market, I have to sell everything.”

You’re faced with this overwhelming desire to just “stop the pain” because that’s the way that our brains work. You end up being faced with three decisions.

  1. You can sell, locking in losses (or gains if you’re lucky)
  2. You can stay the course
  3. You can say “Is there an opportunity here? Should I be buying? Should I be making some changes or adjustments in my portfolio that will put me ahead of the game as we come out of this forthcoming recession?”

The most important thing I can impart upon you right now is to RELAX!

My point is we’ve seen major market declines before. We’ve dealt with them, we’ve survived, we’ve thrived, and we will do the same with this one. There’s not a doubt in my mind. 

In times like these we’re quick to make decisions, so I wanted to point out a few though-provoking angles on timing the market.

1. Your investment goals haven’t changed

Your long-term investment plan and goals haven’t changed in the last month or two. The companies or mutual funds that you own haven’t changed. The sun still comes up, and the economy will thrive again . . . that hasn’t changed!

McDonald’s is still going to sell hamburgers (maybe not as many over the next few months) and Coke is still going to sell Coke.

Your financial dreams and goals for the future haven’t changed, and the truth is if you had a great financial plan in place your plan shouldn’t need to change either.

If nothing has changed, selling now is purely an emotional decision. These are the deadliest financial decisions of all! Never let emotion take control.

2. We’re not wired right

The reality is we’re not wired right to be successful investors. DALBAR is a company that studies the psychology of investing and investors. They put out the “DALBAR Quantitative Analysis of Investor Behavior” study each year.

Dalbar Study shows we're note good at investing
As humans, we’re just plain horrible at investing.

When you look at the average equity investor, the average bond investor, over 3, 5, 10 and 20 years, we typically underperform the indexes by around 3%. That’s right! Depending on how and when you slice-and-dice the stats you’re typically losing about 3% per year over what you could—and should—be getting!

So if the index increases 10% you’re getting 7%. Why? Because of everything happening around us.

You see red on the news when you’re watching TV, and you feel like you have to do something.

“Stop the pain, get me off this rollercoaster, right?”


It’s better to do nothing than do something . . . just for the sake of doing something!

As investors—actually as humans—we succumb to several mental and emotional biases. We sell low and buy high, jumping from stock to fund to ETF to whatever, constantly chasing something. In the end we short-change ourselves with poor market-timing decisions, excessive fees and transaction costs, and chasing what’s “hot” only to buy at the top.

3. You’re smarter than everyone else and the economy is dead forever

If you’re going to sell out of the market, that means you either:

  1. Believe the market will never come back to this level again (or higher), OR
  2. You’re smarter than everybody else and you can buy back in cheaper.

There is no other alternative, you must believe one or the other.

Let’s think about that for a moment. If you believe the economy is never going to push the market back to these (or higher) levels, that goes against every shred of economic reality we’ve ever seen. The economy—and the stock market—always come back. It certainly can take some time, but it always comes back.

Conversely, if you think you’re smarter than everyone else and can buy back in cheaper, you’re not looking at the facts I mentioned above in the Dalbar study. It clearly illustrates you’re likely giving up a third or so of your investment returns because you’re timing the market. Some people will certainly get lucky, but most people lose big! Mostly likely you’ll be buying back higher when things look “safe.” It’s a market-timing “death spiral” of bad decisions.

4. You have to be right TWICE!

Considering you’re picking a time to sell means you must eventually pick a time to re-enter the market (or stay out forever which can create other financially disastrous consequences). The odds are strongly against you buying back in at lower prices, as the stock market is positive about 3/4 years.

If you’re lucky enough to buy back in at lower prices, you’ll very likely confuse that “luck” with actual “skill.” Doing this will lead to overconfidence and you’ll be likely to time the market again someday, only to be unlucky that time.

Remember, even a broken watch is right twice a day!

5. For every seller, there’s a buyer

The stock market is no different than anything else. If you go to McDonalds to buy a burger they have to sell it to you. The supply and demand of those burgers determines the price (in a free and fair market anyway).

For every share of stock you sell, someone else has to buy it. That means you think the stock—or the stock market—is going down, when the buyer of what you’re selling thinks it’s cheap and going higher.

Who’s right? You or him?

It’s no different with your mutual funds. If your manager thinks a stock is going lower and sells it, another mutual fund manager is buying it. Is your Wharton MBA mutual fund manager smarter than their Harvard MBA mutual fund manager?

Are you smarter than the person buying your shares?

6. You already took the risk, will you stick around for the reward?

Investing is a long term process . . . at least if you’re doing it right. My question is “you were in the market for the risk—the downturn—will you stick around for the reward?”

If you’re not willing to stick around for the reward, what’s the point of jumping in for the risk?

7. To wish away the risk is to wish away the return

Why does the stock market have a higher average annual return than the bond market over long periods of time? The answer is simple . . . it’s riskier!

Think about this logically. If the stock market was nice and safe what would the return be? Something much closer to the rate of bonds and CD’s. You get a higher return on your stock market investments over long periods of time because of that risk, not in spite of it!

If you wish away the risk, you wish away the return. You can’t have them both!

What to do now

Can the market go lower? Of course it can! I can’t predict the stock market’s movements from one day, month, or year to another. I can confidently say that over the next 10 years the market will very likely be substantially higher than it is today.

So, when you’re not sure “what to do” it’s really best to “do nothing.” That being said, there are a few sure-fire things you actually can do that don’t involve selling out of the stock market right now.

1. Re-read your investment policy.

I’d like to encourage you to reread your investment policy statement (IPS). Now, if you don’t have an IPS, you should! The IPS is a document that advisors like myself build for clients.

This document details how you will invest, for example:

  • Your asset allocation – The percentage of stocks versus bonds etc.
  • Investments you can use – Will you own stocks, buy mutual funds, or ?
  • When you’ll rebalance – Your asset allocation will drift, when will you review it for rebalancing back to target?

Reread your investment policy statement, if you don’t have one you NEED to get one! If it doesn’t say “freak out and sell everything when the market tanks” then perhaps you should turn off the TV and do nothing.

2. Review your financial plan

If you don’t have a real—comprehensive—financial plan established it is a HUGE PROBLEM! Investors with a comprehensive financial plan don’t worry nearly as much in market meltdowns like these because they have a strategy that was built on a solid foundation versus an emotional one. Some of the best retirement planning software out there is MoneyGuidePro, just make sure you have a qualified CERTIFIED FINANCIAL PLANNER™ guiding you along the process.

3. Consider tax-planning opportunities

You should be doing this regularly anyway, but volatile times like these present substantial opportunities. You should be looking at tax-loss harvesting and Roth conversions for starters.

4. Rebalance your portfolio

You most likely will be forced to buy stocks at depressed prices from bonds you sold at more stable values. This is a contrarian approach to what the general public thinks and does, but over time it will prove to steady your returns and keep your financial plan on track.

5. Buy more

If you can invest more money now . . . why not? Assuming you’re a long term investor and don’t need the money for 5 or 10 years, why wouldn’t you invest more now at these depressed prices?

6. Increase your allocation to stocks

Again, assuming you have a well-constructed and thorough financial plan, take a look at increasing your exposure to stocks. If you’re a 60% stock investor, and your financial plan is still fine with 70% allocation to stocks . . . nows the time to do it!

7. Turn off the TV, shred your statements

I know it’s hard. We have this innate desire to have control over things. We feel if we’re more educated we have more control. Sometimes it’s best just to turn off the “noise” and relax. The news makes money on sensationalism, and that very thing will cause you anxiety and frustration. Turn off the TV.

Another thing which can cause undue anxiety and frustration is your investment statements. If you don’t need the money now, why bother looking at the current value? You don’t pull your house value up on Zillow everyday do you?

In the end, we will survive, we will thrive, and we will be stronger for living through this bear market and recession. I hope these tips and thoughts help you make the best financial decisions in scary times like we’re living through now.

By Greg Phelps, CFP

With over 25 years of experience, Greg is an uber-passionate money coach, author, speaker, securities litigation expert witness, financial planner, and most importantly a steward of wealth who is dedicated to calming your nerves and teaching you how to retire with ultimate “money confidence!”

He holds his CFP®, CLU®, AIF®, and AAMS® designations, and is also a CEFEX certified fiduciary financial planner. When he’s not helping people squeeze every last dime from their retirement, you’ll find him mountain biking, running, walking the dogs or spending quality time with his wife and twin boys.

Leave a Reply

Your email address will not be published. Required fields are marked *