The past two days have seen an acceleration of the market correction. The acceleration was ignited by the announcement of U.S. tariffs and the uncertain economic outcome of tariff policy. The selling over the past two days has also been exacerbated by the de-leveraging of big-cap technology stock positions. The big questions for investors are:
- Should I sell?
- Should I buy?
- When will the market downturn end?
These were some of the questions covered in an interview with MGO’s Director of Investments Michael Moskal on Spectrum News Friday morning as they looked to inform viewers (interview clips here Michael Moskal Spectrum interview video) Let’s take a deeper look at these questions and possible answers:
Should I sell? Should I buy?
The kneejerk (and understandable) reaction of some investors is to sell for it certainly does not feel good to see account values drop. While the true answer to “sell or not” is an individualized answer (based on personal life situation, age, and risk comfort) there are a few considerations:
- Selling is easy, when to buy back in is not. In a JP Morgan study, over the past twenty years the stock market has returned 9.7% a year on average. If an investor missed out on just the 10 best days over those twenty years, the return dropped to 5.5% (missing the best 20 days dropped the return to 2.8%).
- Timing the market (jumping in and out of the market successfully) is very difficult. It is why hall of fame investors such as Warren Buffet primarily buy and hold their portfolios (Buffet has owned Coca-Cola since 1988 and has never sold a share).
- Selling or reassessing risk to realign your investment goals and life situation to your investment allocation can be helpful.
- For those in 401k plans, market downturns offer opportunities to buy at lower prices (buying “on-sale”).
When will the downturn end?
- The daily volatility during market corrections and downturns can be emotionally exhausting but history tells us downturns do eventually end.
- History tells us that market declines between 10-20% occur every 1.2 years and lasts on average 4-5 months. After those declines end, stocks gain on average 10.1% in the next 12 months (according to Morningstar).
- While it can test the patience of investors, history tells us sticking with your investment plan during downturns has been the best policy.
Looking forward to better times ahead.
