Should You Sell Your Stocks During a Global Recession and Buy Back In Later?
Many investors are questioning whether to unload their stocks during a potential global recession, hoping to buy back in at a lower price. Should you sell your stocks soon if 2020 is a global recession, or should you wait and invest at a later stage when prices dip? This article examines the pros and cons of selling versus holding, providing valuable insights for investors.
Why You Should HOLD Your Stocks
Despite the uncertainties surrounding a global recession, it's crucial to retain a long-term perspective. If you're already invested in stocks that you intend to hold for the next 10 years because they are industry leaders, selling them temporarily could be counterproductive. The wise approach is to double down on your investments by buying more shares when the market experiences dips. This strategy can help cushion your overall portfolio returns in times of economic downturn.
The concept of "buying the dip" is more than a catchphrase; it's a widely accepted investment strategy. Market volatility can create opportunities for long-term investors to acquire more shares at a discount, thus enhancing their portfolio over time. For instance, taking a look at the current Dow Jones Industrial Average at 25300, buying more when it dips below 21000 could be a smart move. The key is to be patient and wait for the right moment rather than reacting purely to short-term market fluctuations.
Historical Context and Some Metrics to Consider
It's important to remember that historically, economic recessions have been temporary phenomena. The odds of a recession lasting for more than five years are relatively low. Even during extended downturns, the market tends to recover over time. Historically, major stock indices have shown resilience and have rebounded after periods of decline.
Consider the correlation between economic setbacks and investor behavior. During a recession, the media often creates a narrative of despair and hopelessness, leading many to believe that there's no other direction for the market besides going down. However, as history has shown, these periods of pessimism provide opportunities for savvy investors to enter the market. When the Dow hits levels below 21000, it could be a signal to invest rather than panic.
Rich Investors and Their Strategies
It's worth noting that wealthy individuals have been following this strategy since 2017. They have consistently invested in the stock market, often allocating a percentage of their income into long-term investments. Their rationale is based on the belief that the stock market will recover, providing better returns over the long term. This consistency has proven to be profitable for them, and it serves as a valuable lesson for regular investors.
The choices wealthy investors make can serve as a guide for ordinary investors. They are less affected by short-term market fluctuations and are more focused on sustainable, long-term gains. By maintaining a steady investment approach, they have managed to weather economic storms and emerge with stronger portfolios.
Debt and Economic Stability
It's also important to consider the economic landscape. Western governments and corporations are heavily in debt, which can make them vulnerable during economic downturns. They may find it challenging to recover quickly from significant financial hits. In contrast, Asian countries and corporations have been more stable, with fewer debt burdens, allowing them to respond more effectively to economic challenges.
While the East might face some initial setbacks, their on-hand capital can enable them to reinvest and recover more swiftly. Western governments and corporations, however, may face more limitations in their ability to print money or use other financial tools to stave off economic crisis. This could result in more stringent monetary policies and possibly inflation, which would particularly affect assets like stocks and real estate.
Conclusion
Given the historical trends and current economic conditions, it is advisable to hold your stocks rather than selling during a global recession. The key is to stay informed, patient, and consistent in your investment strategy. When the market dips, consider it an opportunity to buy at lower prices, potentially increasing the value of your portfolio in the long run. Remember, "Never never sell low"!
For those who believe in long-term investment and the inherent resilience of the stock market, now may be the time to double down. The market, like other aspects of life, may experience temporary setbacks, but the journey back to recovery is often just around the corner.