Don’t Be a Sell Out

by Stephanie Jacobs, MBA, AFIM®
Senior Wealth Advisor, Midland Wealth Management

I’m Stephanie Jacobs, Senior Wealth Advisor with Midland Wealth Management.

It’s hard not to give in to the fear of losing everything and liquidate your investments when the market is experiencing volatility. Our fight or flight instincts kick in and can sometimes push us into irrational decisions.

So before liquidating your investments and going to cash, here are a few things to consider:

1. The decrease in your investments is only a ‘paper loss.’ Yes, you’re going to see it on the statements, and it can be nerve-wracking. But once you sell an investment that has decreased below your original purchase price, you lock in that loss. Unfortunately, this can be difficult to recover from and will most likely take much longer to catch up to where you were before the decline.
2. Although having some cash on hand is a great way to ensure liquidity for short-term use and avoid the possibility of selling investments at a capital loss, it is no match for the downward force of inflation. Over time, the rate of inflation will erode your purchasing power and there is not much more you can do to prevent that, except to keep the cash that you don’t need invested.
3. Opportunity cost can be significant. According to a recent article by Fidelity, missing just five of the best market days from 1980 to 2021 would have accounted for a 38% lower growth rate; missing five more days would have set you back 55%. Investors who jump at the first sign of a major market decline tend to want to wait to see stability before reentering the market. Unfortunately, that’s usually after a large portion of recovery has occurred.
4. So once out of the market, when do you get back in? Selling everything and getting out of the market is easy; determining when to reenter is far more difficult. This is called, “Market Timing,” and if you weren’t able to say without reasonable precision where the top of the market was, then it’s highly unlikely that you will be successful in determining when to reenter the market.

So how do you steady your nerves and avoid giving in to the urge to sell?

• Keep a long-term view when thinking about investments.
• Avoid “buying high and selling low.” It’s counter to growing your assets.
• Try to keep things in perspective. Ups and downs in your investments are normal, but historically, the stock market has continued to provide gains more times than it has seen losses.
• Consider meeting with your Midland Wealth Management advisor to review whether you should adjust your asset allocation or change your mix of investments. This will ensure you’re at the appropriate level of risk to weather the current storm.

Midland Wealth Management is a trade name used by Midland States Bank and its subsidiary Midland Trust Company. Investments are not insured by the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank or any federal government agency, and are subject to risks, including the possible loss of principal.