When should I sell my stocks and when should I buy more of them? This is the classic question that people may have trouble answering. A lot of the news will tell you when the stock is on a downturn to sell everything and move it all over. Similarly, on an uptick, they’ll say the opposite. Depending on your risk tolerance though, this may not be the best idea. It is always important to take a broad look at your portfolio and realize you are in it for the long haul.
Scary Stock Market News
Many sensationalist stock market news sites and programs can actually spread fear about the stock market with their quick judgements. For people who are just investing to retire, following all of this stock market news doom and gloom can be concerning. When managing your 401k or IRA, it is important to understand that you aren’t in it to make a quick buck. These types of investment accounts are meant for the long haul – think 30 years or more. Making a decision on these based on a few market movements can actually lead to damaging losses.
So what should you do during these times? Well, let’s first take a look at what the stock market looks like today. In the image below, we can see what the S&P 500 fund is doing (this is from Google Finance by the way). For some quick background, the S&P 500 is a stock index fund. This means that instead of being aligned to one company, it is instead composed of many different companies across different verticals. This reduces volatility and expenses and can better track true market valuations. These types of investments are typically recommended for most investors that wish to receive a steady gain in their retirement accounts.
Now if we look at this, you can obviously tell that a lot of stock market news sites were telling people to sell immediately and get out of their investments. The previous close price was $1,970.89 cents. It closed today at around $1,893.21. That’s obviously quite a loss. If you were to buy one share yesterday and then sell today, that would be a loss of nearly $80! Multiply this by 50 for instance and that is quite a sum of money. Unfortunately, many stock market news columnists tell people tell sell what they have during times like this.
When to buy and when to sell
Many stock market news sites don’t gear their advice toward retirement accounts. The problem, however, is many people will hear this advice then immediately move their investments in their long-term accounts. This causes the unrealized losses to turn into realized losses, which means you’ve actually lost money. If you are able to, it is much better to hold onto your money where it is at and weather the storm. At the end of it all, your money will be in a much better position. It is much more likely that the market will return and your losses will become gains again. If you are still early on in building your retirement accounts, this is actually a great time to buy. You essentially get discounts on your investments as you are spending less money per share.
These market downturns are also a good time to make sure your portfolio is balanced out according to your risk tolerance. For younger people, it is usually a better idea to have more of your portfolio invested in stocks (in indexes and mutual funds) and only a small percentage in bonds. As you get older, you want to start gradually moving these over to more stable investments. This is so that you will have a stable position to live off of while you’re in retirement. All the more reason it is imperative to remain calm and to take the advice from the big stock market news sites when they start saying SELL SELL SELL.
Do you have any advice on what to do during little blips like this? How do you keep a calm head and maintain course for your retirement? Feel free to leave a comment below!