April 28, 2022

Is It Time to Sell Stocks?

Max Martin

Is it time to sell stocks? Looking at headlines this year, you might be tempted to think that it is:

Between high prices, massive volatility, and increasing interest rates, it seems like the only place to go is down, right? Not necessarily. The question “Is it time to sell stocks?” is rooted in a belief of timing the market. If we could perfectly time the market, and knew that a dip was coming, then of course we should sell and rebuy at a lower price. A perfect timing strategy like this would have turned $1,000 into close to $2,000,000 between 1972 and 2021. A buy-and-hold strategy would have returned only around $200,000.

This is only half the story, however. The reverse of a perfectly timed strategy, someone who sold at the lowest points and bought at the highest points during the 50-year period, would have ended with $949, a loss of $51. And the potential for messing up a market timing strategy is enormous. Splitting all US ETFs and mutual funds into balanced ones that maintain a specific asset allocation and tactical asset allocation ones that venture to time the markets, we find that the balanced funds outperformed the tactical ones by around 2% during the past 3, 5, and 10 years. These are professional managers who spend their lives trying to beat the market, and even they consistently underperform a buy-and-hold approach.

It would be amazing to be able to perfectly time the market. Unfortunately, study after study show that even the professionals cannot consistently outperform a balanced, long-term approach to investing. At KDM, we focus on using this data to create strategically diversified portfolios to help our clients over the long-term. For more information on how we can help you invest for long-term success, visit our website www.kdminvest.com or give Jeff a call at 630-232-9097.