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It’s not easy to sit back and ignore a market drop. In a falling market, investors are tempted to sell their stocks and purchase less volatile investments; however, by the time an investor makes the decision to sell, stocks may have already taken a big plunge, and selling would only lock in the losses. While it may be difficult, riding out a market decline can be a better approach for the long term.
The truth is, timing the buying and selling of investments to coincide with market highs and lows is difficult — if not impossible — to pull off. Even experts have a hard time accurately and consistently forecasting market movements. Trying to guess what the market will do can leave you with lower returns than following a simple buy-and-hold strategy.
Easy After the Fact
Recognizing market peaks and valleys is simple once they’re over; however, highs and lows are a lot harder to determine while they are happening. You might think a stock is poised for a meteoric rise, only to watch it crash and burn in a market slide soon after you buy it; or, you might sell a tanking “loser” — and then watch it rebound soon after.
Bad Timing Can Cost You
Time and again, the stock market’s significant gains occur over a relatively short period of time. If you’re taking a break from stock investing when stock values start to climb, you could miss out on the market’s best days, and that could really hurt your portfolio’s long-term growth.
A Better Path To Follow
Following a long-term investment strategy that’s designed to help you weather the market’s ups and downs may serve you better than trying to time the market. By all means, sell an investment that isn’t performing the way you hoped it would - but first give it time to live up to its potential.
This is a hypothetical investment that performed similarly to the S&P 500 Index, an unmanaged index of 500 large-cap stocks.
Past performance does not guarantee future results. You cannot invest directly in an index. Your investment returns will be different. Source: Newkirk Publications, Inc. and Mellon Analytical Solutions, LLC.
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