Buy, sell or hold?

After two years of rising stock prices and unusually low volatility, stuff just got real this month. Stock investors have seen their account values depreciate considerably. Many investors are concerned that this could be the start of a bear market after many years of gains. Several clients asked me what they should do now. Generally speaking, here’s what we’ve discussed. Since there hasn’t been any recent developments in the world that would justify a correction, this most recent move is simply a normal pullback. Therefore, moving forward there are 3 paths to explore:

Buy: If you are still many years from retirement, then it may be advantageous to add money to your investment accounts. Also, if your portfolio has cash in it, consider investing that cash. We don’t know if the market will go lower, but disciplined investors believe that it will eventually go up. If you can buy at a discount after a pullback, that’s probably a prudent thing to do.

Sell: If you know how much more the market is going to go down and you also know when it’s going to come back up, then by all means sell now and get back in at the appropriate time to take advantage of the rebound. Unfortunately, I’ve never met anyone who has the ability to accurately make those predictions. Alternatively, if you are starting to realize that you no longer want to endure the volatility of the stock market and you want to use strategies that have less volatility and less risk, then selling more aggressive positions might be appropriate. Finally, If you need to spend your money relatively soon, you should consider selling or moving those monies to more conservative investments.

Hold: If you have a properly designed portfolio consistent with your risk tolerance, there is no need to make any changes simply because we are experiencing a normal and anticipated market downturn.

If your current plan didn’t contemplate the possibility of a market correction, then it’s important to discuss with your financial adviser how potential market corrections will impact your financial future and implement strategies to address those concerns.