Investing

60% of investors who sold stocks during the 2020 downturn have regrets

When you're "shooting from the hip and you don’t have a plan," you could run into investing trouble.

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Investors faced some hard choices when the pandemic hit last year. As markets swung wildly and job losses mounted, many Americans had to sell assets to make ends meet. Now, as the crisis fades and the economy recovers, a striking 60% of people who sold investments believe that was the wrong call.

That's according to new data from The Real Estate Witch, a personal finance website owned by real estate agent referral service Clever, which surveyed 1,000 people about how Covid changed their finances.

Nearly a third, 30%, of survey respondents sold at least some investments during the pandemic, and 3 in 5 of them say they now regret that choice. They didn't take out small amounts, either: Those who sold stocks took out an average of 43% of their investments since the beginning of the pandemic. 

"The onset of the pandemic not only produced a market drop in the span of little more than one month, but an unprecedented need for emergency cash, given the unknowns as the economy went into lockdown," says Bankrate Chief Financial Analyst Greg McBride. "Investors of all stripes were selling anything that wasn't nailed down in order to raise cash. That was hard to predict."

Plan for emergencies and keep short-term-goal money separate

Of survey respondents who sold their investments, young people were the most remorseful, with 64% saying they wish they hadn't pulled out of the market. That's compared to 58% of baby boomers who felt regret about selling.

Pandemic-related factors like job losses likely played a major role in these withdrawals. Almost half of poll takers who sold stocks, 46%, said they did so because they needed extra cash to pay bills and cover other short-term expenses. About 40% wanted a financial cushion in case of an emergency, and 34% were preparing for a big purchase like a home or wedding.

Building up an emergency fund before problems strike can help, McBride notes. "Emergency savings is short term in nature because you could need it at a moment's notice. This is money that should be in savings accounts or money market [accounts]," he says. "Stocks are long-term investments, and those holdings belong to your future self, not yourself today."

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Markets have 'a long track record of rewarding patient investors'

Pulling money out of stocks to cover the bills is one thing, but selling your assets because the markets get shaky is another. About 30% of poll takers who sold their investments said they did so out of fears of market volatility.

Panic-selling only locks in your losses, experts say. Taking money out of your investments during a dip means missing the upside when the market recovers, so it's important to have a long-term strategy that can weather change.

"Oftentimes, the best course of action is no action," McBride says. "Just sit tight and ride out the volatility. Markets have a long track record of rewarding patient and disciplined investors."

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Aim to diversify your portfolio across different sectors with a mix of stocks, bonds, and other vehicles. That way, if some areas of the market fall, you'll stay invested in industries doing well, says Douglas Boneparth, a certified financial planner and the president of Bone Fide Wealth in New York City.

"When you're shooting from the hip and you don't have a plan, you're more likely to make mistakes … you're more likely to not stick to your strategy," he says. "Set yourself up for investing success before you start investing in the markets."

As McBride puts it: "A diversified portfolio provides some cushion in the downturns, but also gives you 'an iron in every fire' so that when one asset class is down, another is likely up. A properly diversified portfolio has been shown to reduce risk, without sacrificing return."

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