How to Avoid Panic Buying and Selling

Written by: Lee Sherman

Investing in the stock market is fraught with emotion. It’s easy to fall into the trap of buying high-flying stocks when the market is booming. And even easier to find yourself scrambling to sell them off when it tanks. But it’s nearly impossible to time the market. Instead, financial advisors will tell you that it is much better to plan over a longer event horizon. Staying the course and making relatively few stock transfers over your lifetime is historically proven to leave you with a stronger portfolio than panic buying and selling. In periods of high volatility like the current pandemic and economic recession which followed, it is especially important to take a more measured approach to buying and selling stocks.

The pandemic has brought global economies to a near standstill, with the major averages falling and creating a bear market, the likes of which we haven’t seen since the financial crisis of 2008. In February, the stock market was at an all-time high. When lockdowns started in March, the Dow Jones Industrial Average and S&P 500 were trading at 35% and 32% below their record highs respectively and the Nasdaq-100 at 28% below its high.  Since then, the markets have been extremely volatile, responding to both government efforts to shore up the economy and, conversely, to news of outbreaks. And the stock market is not a reliable indicator of what is really going on with the economy.

With a few simple tips, you can avoid making the drastic moves that financial advisors say can sink your portfolio.

Start with a balanced portfolio. A balanced portfolio with a mix of stocks, mutual funds, bonds, ETFs, and real-estate will put you in a good position to ride out the inevitable ups and downs of the market. Ask your financial advisor about assets such as government insured bonds and blue-chip stocks.

Set your portfolio on auto-pilot.  Automatic rebalancing and rules-based buy and sell decisions set up ahead of time, can keep you from making the kinds of irrational decisions you might make in a time of market volatility. Most financial advisors offer this.

Take a break from the news cycle. Paying too much attention to the Covid-19 outbreaks, the Black Lives Matter protests, or the presidential election can cause your panic reflex to go into overdrive.

All that said, there may be some corrections you may want to consider. Some sectors, such as pharmaceutical, online retail, and technology are still doing well despite the pandemic or maybe even because of it and are poised for even more success as we adjust to a new way of living and working. While others (mobility, hospitality) are in trouble.  Where would we be right now without the likes of Amazon, Netflix, or Peloton? Emerging economies that have done a relatively good job of containing Covid-19 such as China and South Korea may still be good bets for investment.

It may seem like we are having to adjust to a new normal but remember that there will one day be a vaccine for Covid-19 and the economy will recover. It’s impossible to know when the next big rally that will cause a rebound in the market will come, but come it will and you’ll be glad you didn’t let emotion get the better of you.

Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.

Related: Smart Rules for Wealthy Young Investors