5 reasons why you should not sell your investments despite persistent price losses
Are you experiencing a prolonged decline in the value of your investments? Are you wondering whether you shouldn’t sell? We give you five reasons why this is not a good idea and why you can look to the future with confidence. And we give you helpful tips on how to keep a cool head in a crisis.
No matter when, how long and how hard the financial markets have been shaken and shaken so far, every crisis has always been followed by a recovery. A look at the past shows this. Here is an example of the historical performance of the Swiss stock market.
Development of the Swiss stock market measured by the Swiss Performance Index (SPI) from 01.01.1990 to 30.06.2022 marked with financial crisis and Corona crisis.
With your findependent investment solution in ETFs, you are deliberately very broadly based. In fact, in more than 3,000 individual securities, spread across various sectors, countries and regions. This has an enormous advantage: individual companies may go bankrupt or even entire sectors may not recover from a crisis – but the majority of companies will overcome it. So you are not threatened with total loss.
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A first interim recovery after sharp price declines often comes sooner than expected. A look at the past reveals that the best days on the stock market were usually still in a crisis phase. The following chart shows this for the Swiss stock market with data from the last 20 years or so.
Die best 10 trading days of the SPI (1992-2022)
The best 10 trading days of the Swiss stock market measured by the performance of the Swiss Performance Index (SPI) compared to the previous trading day in the period from 01.01.1992 to 30.06.2022.
Such corrections can be significantly large. Anyone who misses even a few of the best days on the stock market suffers major losses in returns. This is emphasised by the following chart.
Value growth (incl. dividends on a pure index basis, excluding costs) of initial investment amount CHF 10,000 in the Swiss Performance Index (SPI) in the period from 01.01.1992 to 30.06.2022.
How fluctuations occur on the financial markets
Stock markets follow a natural up and down pattern. This is because the price of investments fluctuates due to supply and demand. Current news and future prospects play the driving role, often reinforced by emotions and speculation. The herd behaviour of investors (if prices rise, more want to buy, or if they fall, more want to sell) and the development of the economy mean that boom and crisis phases alternate in cycles. Fluctuations on the stock markets are therefore something natural and are part of investing.
In theory, of course, it would be extremely profitable to sell one’s investments when prices are at the very top and to get back in later when prices have reached the very bottom. But recognising these points in time in the present is practically impossible. Because, as I said, the markets often do not develop as expected.
It is therefore better than speculating on the “right” times to hold on to your investments for a long time and to go along with all the fluctuations. That way you are sure to be there from the start of the next upswing. Or expressed in stock market jargon: “Time in the Market” beats “Market Timing”.
If you invest regularly – even in times of crisis – you benefit from the so-called “cost average effect”.
Cost Average Effect
If you invest money at regular intervals and always choose the same amount, you benefit from the so-called cost average effect. This means that you automatically buy more shares when prices are low and fewer when prices are high, which allows you to lower the average price of the shares you buy over time. This is called the “cost average effect” or “dollar cost averaging”.
You can read more about this in this blog post, where we illustrate this effect with the help of developments in the 2020 ‘Corona year’.
One thing first: crises always have a negative impact on assets. Because of course it would be better if the returns were always positive, that is, if the prices always went up. But that is utopian. Fluctuations and turbulent phases with price losses have always been part of investing.
But there are also positive aspects to a crisis: the lower the prices, the more shares you get for your money. And the longer the crisis lasts, the longer you can profit from low prices when buying investments.
If the crisis years occur at the beginning of your savings phase, or if you still have a long investment horizon ahead of you, then you will benefit more from them than if they come towards the end. This way you can let cheaply purchased investments grow over a long period of time. This also means that you should not be discouraged if you are in the red from the beginning.
So if you have the courage and nerve, you can even buy more in uncertain times. Otherwise, as we said, we advise you to (continue to) invest regularly, no matter what the market situation is.
- Do not panic sell.
- Continue to invest regularly (do not pause the standing order).
- If you can and have the courage, buy more now.
- Don’t drive yourself unnecessarily crazy by constantly checking your investments in the app.
- In the daily flood of information, don’t forget your long-term investment horizon.
- Stay true to your plan, don’t keep switching between different investment solutions.
Emotional decisions are usually not a good idea when investing. Even if it is not easy, it is important to remain calm and rational even in turbulent phases. As you have seen, there are many good reasons to do so! So stick to your plan or take advantage of the opportunity to buy additional investments when prices are low.