Personal Finance

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

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Close-up Of A Businessperson Pointing On Stock Chart Over The Tablet Screen

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?

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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.

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

Let’s discuss in the comment section below.

Nathaniel is an active real estate investor and entrepreneur. He served in the Marines from 2003 to 2007 and got his bachelor's in Mechanical Engineering from Cal State Long Beach in 2016. It was s...
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    Christopher Smith Investor from brentwood, california
    Replied 8 months ago
    No one has consistently been able to time the market. No one.
    Nathaniel Hovsepian Rental Property Investor from North Augusta, SC
    Replied 8 months ago
    Precisely!
    Peter Frautschy
    Replied 8 months ago
    I plan to buy more during a downturn.
    Brian Ploszay Investor from Chicago, ILLINOIS
    Replied 8 months ago
    I agree completely with the title " Why you shouldn't sell." But to buy is another story. Asset prices are really expensive these days.
    Nathaniel Hovsepian Rental Property Investor from North Augusta, SC
    Replied 8 months ago
    And they will almost certainly be more expensive in 10 years
    Deone Doctors
    Replied 8 months ago
    Between crypto and stocks, I've had a great couple of years. Something I try to always keep in mind is, after a double up, start to consider taking your original investment out. It helps tremendously on the emotional side of the equation if you know you are free rolling what you keep.
    Nathaniel Hovsepian Rental Property Investor from North Augusta, SC
    Replied 8 months ago
    I love that idea, and it is something that I implement myself. I may have first heard about this from the book Rich Dad, Poor Dad. You now own as asset that you didn't have to pay for. That is like the ultimate investment.
    Andrew Frishman from Ridgefield, Connecticut
    Replied 8 months ago
    I am convinced that the due to the low "cost of Money" properties are all selling at Top dollar... the best way to make money in this market is "value add" projects.... and careful attention to financials...
    Nathaniel Hovsepian Rental Property Investor from North Augusta, SC
    Replied 8 months ago
    Totally agree
    Rob Miller
    Replied 8 months ago
    Day after Fed presentation, more indications of an unscheduled Fed rate drop, and not a small one. Stock Market will resume upwards as Fed enables purchases. Dallas Fed President Robert Kaplan said that balance-sheet expansion was partly why asset prices are higher, calling the current program “a derivative of QE.” He added: “Growth in the balance sheet is not free. There is a cost to it.” Bloomberg TV’s Jonathan Ferro asked the “QE-or-not-QE” question to a range of high-profile executives in Davos, Switzerland, last week. Around 18 , including Morgan Stanley Chief Executive Officer James Gorman, sided with Kaplan. Others are correcting Chairman Powell saying QE can never end or the Fed will be responsible for a Taper Tantrum. Thursday morning on Bloomberg Europe, several guest discussed the Inverted Yield Curve will (not may) pressure the Fed into lowering rates sooner. While Fed Chair Powell claims the consumer is "healthy", his numbers appeared to exclude durable goods and other important purchases. Powell also claims >2% inflation is acceptable to the Fed with some disregard that inflation will exceed 70% of the work-force's real wage increases after the "excluded" rise in taxes, fees, food, insurance and other expenses. Another pressure on the Fed is the US Budget spending an $1 Trillion more than it expects to take in. Bloomberg Europe panel specifically expect a small rate decease is not likely, that the Fed must make a significant decrease. The Fed could introduce the same 30 year rate as today, but create a 50 year mortgage option. A Refi with HELOC would provide existing homeowners with extra money each month and new buyers with payments they can afford. Some call this Ben's HELOC-opter Money. A quick way to disburse new funds quickly and evenly across the country. The Fed will need to do something innovative and before the next scheduled meeting. existing home sales and a 3rd monthly decline in new home sales, pending home sales for December were expected to break the tie over the state of US housing with a continued rebound. However, they very much did not, with sales crashing 4.9% MoM, the biggest monthly drop since May 2010. This is not at all what Fed Chair indicated yesterday. As Bloomberg and Zero Hedge are indicating "We’re gonna need more lower-er rates to keep this train going!"
    Rob Miller
    Replied 8 months ago
    Question: how can I find a flipper that wants rental or quick turn-around? I have good numbers. My past profession never introduced me to real-estate fixer upper types. UPDATE: More countries moving to negative interest. Fed REPO (purchase of BBB and below bank investments) on the increase. While stock market stock purchases rise from Fed assistance, transportation continues to fall with durable goods. The China virus has some influence we are still watching. The safety is in US Bonds, both domestic and foreign. When everyone runs to the safety of Bonds, why should they get higher interest? Some great forecasters with good track records on Fed bonds claim March is perfect for a rate decrease. They put it about 80%. Fed couldn't justify it last meeting. They must lower it in March as to appear nonpartisan. The lower rate will help banks on re-finance income and lower the National Debt interest payments. Given other countries are lowering rates, it is still competitive. I have two adjacent properties for sale in Denver. I lived in the house 20 years.The swing from buyers market swung 40 points to Sellers market. The chart difference is very significant. Given I am in the #1 School district (3 blocks walk to 2 of them) in the State, in a perfect location for Downtown or Denver Tech Center, its time has come for some family. My kids are out of college 5 years, doing well. I am going to sell high now. At 66 years old, there is a surplus of condos in communities for 55+, demographics show 15% low inventory for house, 17% over supply for townhome/condo. Several will rent to me with an option to buy in 2 years. I like that option for now. The price per finished sqft jumped $26 since Dec 2019. My goal is to locate somewhere with good medical facilities within 30 minutes drive. It needs to have wells producing Natural Gas. As a retired regulatory expert, there are permits to use natural gas within proximity of a well-head tax free. Recently, I designed advanced CBD greenhouses using advanced LED grow lights and hydroponics. My research indicates I can grow Vanilla Beans in 15 foot columns year round. The price of Vanilla due to ecological trends took the price up 10X in the last 2 years. I feel quality beans will rise another 3 times. It was nice working in a greenhouse. In a depression, people will want vanilla. In a economic boom, people will want high quality organic vanilla.
    Nathaniel Hovsepian Rental Property Investor from North Augusta, SC
    Replied 8 months ago
    Hey Rob, It is very hard to follow your comments, as they are written in one big block of text. You pack a lot of information in there though. Can I suggest that in the future you break the blocks up a little somehow. Just putting a space in between some of your thoughts like so would make it a much easier read. What do you mean by flipper? Are you talking about an actual house, or a person that does flips?
    Sonja Sevcik
    Replied 8 months ago
    Thanks Rob - I have been following this too ... but didn't have the housing numbers. Don't they say it takes about 6 to 9 months after housing sales start to decline? The one difference with today, relative to the past, is that the central banks aren't going to put any break on this high speed train - - i.e. I think they will start/continue to absorb government debt on balance sheet. 30% of US government debt is owned by the US government VS 40% in Europe and 50% in Japan - - i.e. the Social Security Surplus gets lent to the Fed who doesn't pay it back or owe interest on it. Everyone in power seems to believe we can keep doing this for a long time .... I hope they are right but it definitely makes it difficult to know when to buy stock. Valuations aren't tied to sustainable profits but to increases due to tax cuts and lower interest rates. For example, Tesla's sales number are great (and I love this stock - up until this week) but how much of the increase this week is due to the annual savings anticipated on their debt?
    Nathaniel Hovsepian Rental Property Investor from North Augusta, SC
    Replied 8 months ago
    So what you're saying is.....nobody knows what is going to happen in the next 1-3 years. Hmmmmmmmm sounds familiar
    Paul Gugger
    Replied 8 months ago
    If a Socialist is elected as president the stock market would crash like it was 1929. If I see Trump falling short I would immediately sell everything.
    Rob Miller
    Replied 8 months ago
    My grandmother, single with two kids made a lot of money and bought real-estate during the Great Depression. Granted, things were different back then. But, we never know how changes bring what opportunities.
    Nathaniel Hovsepian Rental Property Investor from North Augusta, SC
    Replied 8 months ago
    That's awesome. This article wasn't meant to keep people from realizing that there are great buying and selling opportunities, when the market is at certain levels. When there are significant declines or increases, there are always buying or selling chances to get in at new lows, or out at new highs. Having a consistent investing schedule/plan is a very good idea for most investors. It takes emotion out of the equation, and allows for long term growth opportunities that wouldn't be there if you were sitting on the sidelines.
    Michael Migliaccio
    Replied 8 months ago
    The comment is so wrong on several levels. You don’t have to get out of the market at the exact top and you don’t have to get in at the exact bottom. I cannot stand when people say that ..all you have to do is get back in at a lower spot than you got out at. so although you have to time getting in and out to some degree it doesn’t have to be perfect and nor does it have to be the exact top or the exact bottom. Fidelity Investments told my father in 2008 “where are you going to put your money” and it went from 14 or 16,000 to 6000. if he would’ve put his money on the sidelines and put it back in anywhere after it hit the bottom he would’ve had roughly 10,000 points to be “perfect“. And Dollar cost averaging is a lot of bologna too because if you have $1 million portfolio but are only contributing $200 every paycheck your dollars are nominal compared to the loss that you would have experienced in 2009 when your million became 500,000. What did dollar cost averaging do for you then??! I’d love to see comments on this
    Sonja Sevcik
    Replied 8 months ago
    Michael, Agreed!
    Michael Migliaccio
    Replied 8 months ago
    Another comment about dividends .. it takes a year to make 3-4-6-8% in dividend. That could be lost in 1 day. So sitting in falling stocks for dividends is a fallacy
    Nathaniel Hovsepian Rental Property Investor from North Augusta, SC
    Replied 8 months ago
    I kind of feel like you missed the point of this article Michael, but that's ok. This is more about the mindset of taking emotions out of your investing and setting up a plan that you can continue to use even when the talking heads are telling you that we are at a top and there is nowhere to go down from here. You are correct about the dividends taking a year to make those promised returns, but remember, we are planning on being in the stocks or indexes that we choose for many many many years. We must stopped being so concerned with these temporary downturns and start being more concerned about picking long term investments that we will hold for years to come. Sure, you can buy something at 800, watch it go up to 1000, then sell when it hits 950. Watch it drop to 900, then rebuy when it hits 925, and so on and so forth, or you can buy it at 800. Buy it at 950. Buy it at 1100. Buy it at 1000. And 10 years from now when it's worth 3000 and you weren't concerned every time the stock dropped 5% you will have much more mental freedom to be doing the things that bring you more joy in life. (Unless tracking every movement of the market brings you that level of joy of course)
    Michael Migliaccio
    Replied 8 months ago
    Mot sure fallacy is the correct word there .. Its simply bad advice
    Arun V. Investor from Fremont, California
    Replied 8 months ago
    Suggestion to buy robotically at the current price using automated dollar cost averaging is the most repeated chant at the bogleheads forums. Do go read those forums if you are into stock mutual funds. Very active community However, does that apply to rental real estate purchases too? Would you buy a single family home robotically in your local area at your set frequency (every month quarter or year depending on cash) whatever be the price and whether the rent covers costs or not?
    Nathaniel Hovsepian Rental Property Investor from North Augusta, SC
    Replied 8 months ago
    I've never heard of these boglehead forums. Thank you for turning me on to another source for investment ideas though. I will have to check it out. I think that you are taking some things out of context here. This article is more about having the mindset of investing regardless of what "the market" is doing. This doesn't mean that you are just out buying anything and everything. You still have to run numbers and know what you are buying. When it comes to the stock market though, you can dollar cost average an index fund that tracks one of the major indexes. You can invest however you please, but as statistics have shown over the course of time, MOST people have too much emotions involved when investing, and dollar cost averaging provides a stable, emotionless way to stay invested through thick and think
    Michael Migliaccio
    Replied 8 months ago
    Real estate is an asset that can be used to ride out cycles however. If it’s performing, a property will still be spitting off cash and paying down the mortgage regardless of the market value at any given time and in any cycle. Dual City Investments is a very conservative syndicator of commercial real estate ..check it out
    Sonja Sevcik
    Replied 8 months ago
    Agreed!
    Tushar P.
    Replied 8 months ago
    Dollar cost averaging for real estate - genius idea!!!