Selling in Down Market Hurts Two Ways

When stocks are in a nosedive, it is common for nervous investors to look for the exit.

If you have positioned your portfolio with the correct mix of stocks, bonds, and cash for your age and risk profile, your best bet is always to sit tight.

However, even if you aren’t positioned where you want to be with your asset mix, a falling market is usually not the time to shuffle the deck.

There are two reasons for urging restraint in trading during a falling market.

Selling Stocks Low

The first is obvious – you may be selling on a stock’s downturn, which means you will not get a good price.

If the stock’s a stinker and was a stinker when times were good, you might be better off taking your loss and the cash.

But in most cases, you are making a bad situation worse by selling into a downturn.

The second reason for avoiding excessive trading in a falling market is you generate additional expenses, which further drain your portfolio.

Great Stock Bargains

The exception is if you find some great bargains and can add to an existing position or can pick up some stocks that look like they will take off when the market swings back up.

Selling low so you can buy on the upswing is not a good strategy and neither is generating extra commissions.

(By Ken Little)