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We’re at a Market Top, But Here’s Why You Shouldn’t Sell

Nathaniel Hovsepian
3 min read
We’re at a Market Top, But Here’s Why You Shouldn’t Sell

With the stock market at record highs and trade wars ongoing, one might think that the first half of the headline to this article is true—and it very well might be. Is it really wise to sell your stocks though?

It may be a good time to skim some off the top if you have made profits, but I would argue that it is rarely the right time to sell everything and get out of the market entirely.

Timing the Market

Sure, people have been successful at “timing the market.” Those people are few and far between though.

It is far better for most investors to just keep calm and remain invested through the down times, as well as the up. Because in reality, most investors have no idea what the market is going to do (something that I will touch on more in a little bit).

Losing Dividends

By sitting on the sidelines, you are losing any dividends that you may receive from stocks that you hold. This may not seem like a lot, but if you are trying to time the market and wait for the next upswing, you could lose out on a lot of money that would be gaining interest over time—which adds up fast.

red down arrow on black and white grid indicating stock loss

Acting on Emotions

By thinking that the market is about to crash and selling your stocks, you are introducing emotions into your investing. This is a place where you should be doing everything in your power to remove emotion.

Related: Should Real Estate Investors Sleep Soundly Despite Stock Market Scaries?

Relying on a Broken Clock

There is an old saying that “a broken clock is right twice a day.” Well, if you are trying to time the market, you need to be correct twice—something that has proven to be very difficult.

You have to be correct that the market is at a high and has nowhere to go but down from here. Then, on the other end, you need to be correct when identifying that it has reached its bottom and decide it is time to get back into it.

Instead of being like a broken clock and trying to be right twice, why not just be a working clock and keep ticking along?

Reality Is, Nobody Knows What’s Going to Happen

If you have listened to anybody on the radio, TV, or internet over the past few years, you have been hearing that we are at a market top for sometime now.

Everyone panic! There is nowhere to go but down.

There were those who clamored in early 2017 that we were at a top when the Dow Jones and S&P 500 were at all-time highs. Yet, they kept climbing.

Some claimed it again at the onset of 2018, and the markets reacted by pulling back around 13 percent. But look where those same indexes stand today: about 15 percent higher than at the beginning of 2018.

Can You Outperform the Market?

It sure doesn’t seem like it. A study done by Dalbar shows that the average investor lost more than the S&P during the bad months in 2018 and gained less during the good ones.

Data show that, on average from 1996 to 2015, the S&P offered an annualized return of 9.85 percent per year, while the investing Joe only gained 5.19 percent.

find-deals-hot-market

What Is Dollar-Cost Averaging?

Dollar-cost averaging is setting a regular purchasing routine for a stock (or stocks) and sticking to it. With this method, you can invest small amounts each month that will slowly over time build into large amounts and gain the returns produced by the market over long periods.

Some months you will buy at a higher price and others lower. This is one of the best ways for investors to see returns on their money and mitigate risks of “timing the market.”

It allows you to take advantage of market downturns by investing all along the way. And once the market begins its march back upward, you continue to invest.

It will not be an easy thing to do once you start to see negatives each month, but you will have a plan that takes the emotions out of the equation.

Related: 5 Core Concepts in Both Real Estate and Stock Investing—and 5 Key Differences

Here’s a Theoretical Example

Chew on this: If you had purchased stock in an S&P tracker in October 2008, you would have been pretty devastated by April 2009.

But if you were a savvy investor, knowing that over the long haul the market would recover and far surpass what you had invested, your $1,500 investment would now be worth more than twice that.

The Bottom Line

Is the market going to recede at some point in the future? Of course it is—and it probably will recede pretty hard.

The trick is knowing that over the long haul, it will recover those losses and far exceed where it was when it started the plummet.

Stay the course, stick to your plan, and don’t let your emotions get in the way of your long-term gains.

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What’s your plan in the face of the (alleged) impending market downturn?

Let’s discuss in the comment section below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.