Recently in this stock market crash I have been getting this question a lot, and I think it applies not just to this market crash, but to all large market corrections in general.
So, is it better to sell everything in your investment portfolio, or to hold on till the market recovers?
In this video, I share my thought process on how I make my investment decisions for my long-term investment portfolio, and I offer you two important pieces of advice which you can use to strategize your own investment portfolio.
In deciding whether to cash out, you need to determine if you are using an active or passive investing strategy.
If your portfolio strategy is passive investing like dollar-cost averaging, or annual rebalancing of an all-weather portfolio, then whether the market is up or down should not have an impact on your strategy, and there is no reason to change your portfolio strategy and panic sell just because there is a market crash.
If your investing strategy is more active, such as value investing, or asset rotation, and you are good at it, then by all means follow your strategy of rotating your assets into safe haven products like cash or bonds.
The problem that most people face is that they do not have a portfolio strategy in the first place. And if this is the case, then should you hold on to what you have, or sell it in case it goes lower?
In the past 50 years, the market has only corrected 30% or more about 5 times, and only 50% or more about twice. So we need to think about this in terms of a trade-off between upside vs. downside potential.
If the market has already corrected 30%, and you did not manage to liquidate your portfolio earlier, at this very point in time, how much lower can it go? Another 20-30% more?
But if you sell off and it recovers to the previous highs before you can buy back in, the gains you will miss out are 40-50%.
So you need to decide if the downside risks you are avoiding is worth the potential gains that you could miss out on.
Another major consideration is whether you are currently adding to your portfolio (cash inflow), or drawing out from your portfolio (cash outflow). This will determine how aggressive your portfolio strategy is, and I will talk more about it in the video.
Enjoy the video, and remember to “like” and “subscribe”!
Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 60+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.