Your own worst enemy

Last Tuesday 8/25, the S&P 500 closed down for the 6th straight day, with losses over the 6 sessions of more than 11%.

On the same day, investors sold $19B from equity mutual funds. This was reported to be the 2nd largest day of redemptions since daily data became available in 2007. Only time will tell whether this was a good time for investors to sell, but history tells us that it was likely a poor decision. While they may have avoided some short-term losses, we have seen that most of these investors will not re-enter the market until it has recovered to a higher point than when they sold.

This level of market movement isn’t new, but if you behave as many investors did last week the decision has a lasting impact. Charles Schwab recently released a report showing the portfolio growth of investors making similar decisions over time. A buy and hold investor ended up with nearly double the assets as the investor who reacted by selling in bear markets. If you find yourself selling out of the market out of fear, you are acting as your own worst enemy.

 

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