Close Your Eyes and Imagine … - Old Peak Finance

Close Your Eyes and Imagine …

January 13, 2014

2014_close eyes

Close Your Eyes and Imagine …

January 13, 2014

Close your eyes and imagine …

The stock market has fallen by 25% over a few months. Will you sell some of your stocks because you can’t accept any more losses?

Before you answer, let’s make this scenario a bit more realistic.

  • The stock market fall is blamed on an economic or political or social crisis we have never seen before.
  • The press is completely focused on this crisis. So is everyone you talk to.
  • The financial press thinks the market has only one way to go: down. Or at least it seems that way, based on which “experts” get all the media attention. Sure, some analysts urge you to hold, or even buy, but some of them were saying that before the crash, too. You’re not sure whom to believe.
  • If the market falls further, you worry retirement will be delayed for years.
  • Your adviser calls, pointing out that your investment portfolio is now under-weight stocks and suggesting you buy stocks.

Now … will you sell, hold or buy?

History tells us that the market won’t rise forever without some correction. It doesn’t tell us when we’ll have our next drop, how severe it will be, or how long it will take to recover. It does tell us the market will almost surely recover, but that may be little comfort in a time of stress.

The conclusion: if you think you’ll sell some of your stocks in the next market downturn, sell them now, before the downturn. Get to a more “comfortable” mix in which you won’t sell when stocks drop. Get to a mix in which you’ll buy stocks when they fall. Do it now — not because we know where the market will go, but because we don’t.

This article is not intended to provide tax, legal, accounting, financial, or professional advice. Readers should seek advice from qualified professionals who can review their specific circumstances. Old Peak Finance endeavors to provide information that is accurate and current. However, we cannot guarantee that this information has not been outdated or otherwise rendered incorrect by new research, legislation, or other changes. Old Peak Finance has no liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website.

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