Time to Get Out?

Full Transcript:

I was just asked if now is a good time to get out of the market? Good question. Let’s talk about three things you should consider.

A good friend of mine asked if he should get out of the market, preserving his gains in the last decade, as he feels we’re heading into a recession. I am frequently asked questions like this, and although I don’t know the exact future of the stock market, I do think there are things that all investors should consider.

First, what is the goal for the money you have invested? How much time do you have and how much growth do you need? For example, if you are saving to purchase a home next year, the risk of a short-term dip likely outweighs the reward. However, if you’re investing for a longer-term goal, like financial independence, you likely need the growth that stocks are more likely to provide.

Second, why are you thinking about selling? Is the thought of a market drop stressing you out and causing you to lose sleep? Review your asset allocation, the amount of stocks versus bonds you have in your portfolio, and make sure it is aligned with your comfort level.

And third, what’s the likelihood you can outsmart the market? Trying to avoid the dips requires you to not only predict when the dip will start but also where the bottom is. This means that you have to be right not just once, but twice. Study after study shows that individual investors consistently underperform the market. In step four of the Shell Professional’s Financial Guidebook, I highlight one of these famous studies.

We’re all human and, therefore, emotional creatures. However, too often, emotional decisions around investing causes damaging results. Document your investing philosophy prior to investing, or find a financial advisor that is executing an investment philosophy that you agree with.