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Should You Get Out When the Market Descent is Steep?

Should You Get Out When the Market Descent is Steep?

| September 04, 2020
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Up until the last few days, the market has seemed invincible. As investors, this can make us feel invincible, too, but when events like the past few days occur, we're reminded of a truer reality – things cannot go straight up forever whether an F-16 at an air show or the NASDAQ itself. Although market swings can make investors feel vulnerable, they can be good for the longer term health of the markets. It's all a part of the process of making new highs and creating long-term value.

Blow-off tops – like we've seen recently from some high-flying names – have been fueled by irrational exuberance. However, the pullbacks of the past few days have an upside, too. They allow investors time to reevaluate their positions, and taking a break from the unrelenting upward momentum is a healthy part of the process. It's natural to have swift declines follow swift upswings. As is often said of markets: escalator up, elevator down.

The question we get most often as you ride a downturn is, 'Should I get out?'

It's perfectly normal for the velocity of recent declines to feel scary, and we may see a few more nail-biting trading days still to come. However, investing is a marathon – not a sprint – and we discourage knee-jerk, emotional reactions that could compromise what you want out of the big picture.

As you've heard us say before, make sure your investments align with your risk tolerance, personal needs, and future goals. At Carey & Hanna, most of our clients have ample assets in non-volatile buckets made up of bonds, cash in the bank, or other instruments, and if you need cash in the coming weeks for typical or atypical expenses, we'll draw from these resources first. Generally, our portfolios have not been over-exposed to the high-flying names that drove the market to phenomenal levels in an equally phenomenal short period of time, which leads us to believe our clients will be less subject to a dramatic pullback. 

The question of whether to 'get out' is always paired with the question of when to get 'back in,' and that's a difficult question to answer. We can never know the exact right time to get in or out, but when there's blood in the streets, it's emotionally more difficult for investors to commit to getting back in. For our clients who are investors – not day traders – we recommend they continue to own companies and positions in which they have long-term faith. There will likely be a lot of noise in the near term, but we encourage you to try to drown it out and remember that the headlines are prognostications or recaps that often are sensationalized to grab eyeballs or sell advertising.

Be comfortable in the financial plan and team you have on your side, and if you need a friendly voice to reassure you, we're always here for you! Stay safe. Stay sane. Stay invested. 
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