BY CRAIG ERWIN, PH.D.
Photo by Lucas Pezeta on Pexels.com
It is very tempting to stop investing (e.g., buying new stocks and bonds) when you are afraid, when the news is terrible, or when your portfolio drops in value. It is tempting to sell your investments and stop buying new ones, when you think the president or congress are crazy, or horrible natural disasters seem rampant, or stocks and bonds seem way too expensive, or experts are recommending that you sell. But the only good reason to sell your investments is if you need the money, say if you are retiring soon or buying a house. But even then, you are unwise to sell all of your investments because, if you live for decades after you retire, the returns on cash don’t keep up with inflation, leaving you poorer over time.
At various times during my investing life, I have thought that selling many or all of my investments was wise. In almost all cases, I resisted the urge. In hindsight, it was never wise to sell everything. Even if I concluded that it was necessary to sell, how could I be sure it was the best time to sell? And how could I know that I wouldn’t regret selling? And how would I figure out the best time to get back in the market?
Most of us are terrible market-timers, unable to pick the best time to buy and sell. So, unless you are the next Warren Buffet, you will make far more costly mistakes than good decisions, if you try to decide the best times to buy and sell.
What is the answer? Start investing at the earliest age possible, invest as much as you possibly can regularly, and just keep doing it until you retire.
Letting your emotions drive your investing decisions is a recipe for disaster. If you set up an investing plan that enables you to invest as much as you can regularly, paycheck after paycheck, you will easily outperform most investors.
But, what If you can’t sleep at night? Spread your money around to different investments and ignore the news, experts, and your portfolio. Don’t buy the hottest stock; invest in mutual funds and exchange traded funds, which automatically spread your money around, reducing risk a lot.
Good luck!
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