To Sell Everything, Or To Not Sell Everything

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You turn on the news…..

Banks failing. FUD everywhere. Interest rates rising. Yet the market seems alright. Is a crash coming? Will your bank fail? Will you lose all your money? Should you sell your investments while you can? Is cash now king?

Back to reality…..

Yes, you can yield 5.00% on a lot of CDs out there today. T-Bills are fairly close to 5.00% as well. And better yet, it’s backed by the US Government, meaning a T-Bill is virtually risk free.(Curious on what a CD or T-Bill is? Click here to check it out.) However, let’s consider if you let your intrusive thoughts win here and you sell your investments now.

😬The Opportunity Cost

The ‘cost’ is made up of two things here: Time and money. If you sell, you’re giving up time in the market, and the cost of any future gains those investment would have made.

Before looking at the stats here. Let’s talk about human nature. We are irrational beings. We want our cake and to eat it too. We all have our own little reality bubbles. We do things whether rational or not, and whether we know it consciously or not.

So - know that when you see the market going crazy, your instincts to sell, withdraw, etc are irrational, but rational to the way our minds are wired. Obviously, the argument I’m fighting for is that you shouldn’t touch your investments no matter what. Now let’s look at the stats.

Reason To Do Nothing #1 - The Fiscal Cost

JP Morgan Asset Management did a study on the impact of selling and the cost of that had you stayed invested from 1998 to the end of 2018 of an initial investment of $10,000. Stayed invested the whole time? That $10k would be nearly $30k. Had you missed the 10 best days over that nearly 20 year span? You now only have $15k. Missed the 20 best days? Now you have $10k. Are you going to let your emotions cost you a 3-6% annual return had you have sold? I don’t think so.

Also, don’t think you know something others don’t about what’s coming/happening. You or I aren’t that smart. I know I can’t time the market. There’s two sides of every trade: A winner and a loser. Abstaining from selling can make you a winner. Check out the graphic below. Stay the course, you’ll be just fine.

Reason To Do Nothing #2 - Markets Are Cyclical

They go up. They do down. Bear markets on average do not last as long as bull markets. According to Kiplinger and LPL Research, the average market downturn is -30%, but the average bull run is 116%. Not something you want to miss out on.

The markets are a lot like Six Flags. Strap in, baby.

Reason To Do Nothing #3 - The Journey is the Destination

The whole point of investing your money is for the long term! Not for the only-when-you-think-it’s-good-to-be-invested term! Now, obviously you would want be invested in assets that are appropriate for your risk tolerance. If you are already investing for your risk tolerance, then there is absolutely no reason to sell.

Live your life, invest in what you want, rinse and repeat. Turn off the news. It’s all junk anyways. Don’t check your portfolio. Up 10%? Don’t care. Down 20%? Doesn’t matter. Ignorance is bliss.

TL;DR: Don’t let your loss aversion get a hold of you. Don’t sell thinking you’ll save your money because you’ll end up losing more than if you hadn’t sold. That’s it.

Like Tom Petty said, It’ll All Work Out.

Want to try tracking your Cash Flow? I’ve developed a spreadsheet-based tool that works great manually, by dropping in your CSVs, or utilizing a service like Tiller. (I’m using tiller with my spreadsheet right now and it’s glorious.)

Stay frosty mis amigos,

Andrew

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