Selling the S&P 500: This Is One of the Worst Investment Moves You Could Make Right Now

The stock market is rebounding after suffering a major crash earlier this month, but many investors are still nervous about what lies ahead.

According to the latest weekly survey by the American Association of Individual Investors, about 29% of American investors feel pessimistic about the future of the market in the next six months. That’s down from 38% the previous week, but still up from 25% at the end of July.

For some investors, all these ups and downs make it tempting to exit the market entirely if prices fall again. While this may sound like a good idea in theory, selling your investments right now is one of the riskiest moves you can make. Here’s why.

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Staying invested is the key to long-term success

Trying to time the market and buy or sell stocks at the right time may seem like a smart strategy on the surface. If you can sell your investments when prices peak, you can make a sizeable profit while avoiding the nasty consequences of a recession.

However, effective market timing is nearly impossible because no one knows what stock prices will do in the short term. One example: Many investors did not expect the market to bounce back as quickly as it did in the past week. If you try to time the market and your timing is off, it can cost you.

For example, let’s say you decided to sell your stock in February 2022. At that time, the market had already been down for about a month and still had a bit more to go. Even its comeback has been shocking, as it has seen some significant ups and downs throughout most of 2023.

However, between February 2022 and today, S&P 500 it still increased by almost 22%. By selling your investments in early 2022, you would have missed out on some serious potential gains.

^ SPX data by YCharts.

Even if you were to reinvest later, it could still be expensive. Let’s say, for example, that you decided to reinvest in January 2024. By then, the market was rising, with several more months of gains on the horizon.

It may have seemed like a much safer time to invest, as the worst of the rollercoaster was already over. However, between then and now, the S&P 500 has only achieved total returns of about 16%.

^ SPX data by YCharts.

Although it may seem counterintuitive, staying in the market instead of selling your shares can keep your money much safer over time. Your portfolio may suffer in the short term, but you won’t have to worry about selling at the wrong time and missing out on potential gains.

Also, selling stocks after prices have fallen is one of the most common ways to lose money in the market. If you simply hold onto your investments until the market recovers, your portfolio should recover and your stocks will regain their value. But if you sell your shares for less than you paid for them, you’ll lock in those losses.

The right actions will protect your portfolio

The short-term future of the market can be uncertain, but if you have a portfolio full of strong stocks, your investments are highly likely to recover regardless of what’s on the horizon.

Strong stocks are much more likely to survive tough economic times. That’s not to say these stocks are immune to volatility, as most will still drop in price during a downturn — perhaps substantially. But a company with sound foundations is much more likely to bounce back.

Right now can actually be a fantastic time to think about buying more. If stock prices fall again, this can be a smart opportunity to load up on quality stocks at a fraction of the cost. Then, when the market inevitably rebounds, you could see significant gains.

It’s normal to feel nervous about market volatility, and staying invested can be difficult. But by holding it and holding stocks for the long term, you can maximize your gains while protecting your investments as much as possible.