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Time to Sell or Time to Buy?


While it is tough to be away from the office, some aspects of this temporary step back from my daily routine have been a breath of fresh air.  It has given me the opportunity to enjoy some bonus time with my family, take the dogs out for a few extra walks and do a lot less shaving.  I think my wife is ok with me being here all the time, but sometimes it is difficult to tell…

I can’t express how proud I am of our team’s resiliency and adaptability as we have risen to these new challenges.  In a funny way, I find us bonding through distance as we communicate via webinars and phone calls from our homes in our casual clothes.  I have no doubt we will emerge from this stronger and closer than ever, just like the rest of our society and our economy. 

In the meantime, investors are watching minute-by-minute as their retirement assets alternate between downward spirals and ferocious rebounds, seemingly every day.  As of the time this was written, the Dow Jones has dropped 30% from its previous high just over a month ago.  The two biggest questions we are getting these days are if it is time to sell, or time to buy?

During troubling times, human instinct is typically to shift to safety.  For investors who are feeling uneasy, sometimes the right answer IS to sell and reduce risk.  After a 10+ year bull market, many have forgotten what it really means to take on market risk.  I can pound you with investment fundamentals and principals all day long, but if you can’t sleep at night, it probably isn’t worth it.

If we are framing this question more tactically – if the overwhelming feeling is that this situation is likely to get worse before it gets better, why wouldn’t we move to cash now and then buy back in at a lower price?  While that sounds logical, there are a few flaws.

When volatility spikes, it typically spikes both ways.  If the market can drop 12% in one day, it is possible that it can come roaring back just as fast.  By the time the market seems more comfortable, you’ll probably be buying in at higher prices than where you sold.

When volatility spikes, the cost of making a mistake can be huge.  If you get it wrong and the market rebounds, when do you get back in?  That is a much tougher decision than when to get out.  When fear and panic set in, it is THE time to lean on our fundamentals and investing principals.  It is the worst possible time to throw the playbook out the window.

Naturally, the next question we typically hear is the opposite.  Stock prices have moved significantly lower, so shouldn’t we be increasing our exposure to equities?  While we love the opportunistic approach, it is important to be cautious with this decision as well.

In the words of Mark Twain, “It ain’t what you don’t know that gets you into trouble.  It’s what you know for sure that just ain’t so.”  When you catch yourself thinking, “I KNOW it’s going to go down, so…” or “I KNOW it will bounce right back, so…” don’t forget that you actually don’t know at all.  Since human instinct is usually wrong when it comes to timing the market, I like to turn this thought process inside out.

If you’re contemplating an opportunistic move to adjust your risk level – take a minute to try this exercise:  Assume that whatever decision you’re about to make will be wrong.  Which wrong decision can you live with?

While this might come across as the pessimist’s approach, I consider it the humble man’s approach.  If you increase risk and then the market drops another 20%, can you live with yourself?  If you stay put and then the market bounces back quickly, can you live with yourself?  If you make a move and it turns out being right, good for you.  If there is a scenario that will leave you kicking yourself, why not take it out of play?

So then, if timing the market doesn’t seem wise, what SHOULD you be doing right now?  While investment returns come and go, there are a few planning ideas that make sense for a lot of people.  With IRA values down, should you convert to Roth?  In taxable accounts, does it make sense to start harvesting losses?  Certainly, a mortgage refinance might be logical.

If you can’t control the market, why spend 95% of your personal finance effort watching it on TV and speculating?  Our advice is and always will be to focus on the things you can control, and the things that won’t leave you kicking yourself.


Adam Weingartner is a registered representative of LPL Financial. Securities and investment advisory services offered through LPL Financial., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through LPL Financial affiliates and other fine companies.

Past performance does not guarantee future results.

LPL Financial does not provide legal or tax advice.