Goods have increased again. What happens if you sell?

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It would be surprising if you weren’t spooked by recent headlines, but how you react to them as an investor will have major consequences for your long-term financial picture.

Most recently, reports of a new Covid variant that may be more contagious and less susceptible to vaccines than other strains have raised fears of more trouble for the economy. Many remain wondering whether the pandemic will ever end.

All of that anxiety has surfaced in the market, with stocks plummeting. Investors have two options: cash out or hold.

Who’s better?

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Let’s say you have invested $100,000 in S&P 500 Index and decided to go cash when the stock slipped on Nov. 26. As of yesterday, you have about $97,700, according to Morningstar Direct.

On the other hand, if you stay in the market? Your balance will also be around $97,700 by the end of Monday.

That means those who sold did not meet their goal of avoiding losses. (In fact, they can now have capital gains tax bills that those who don’t sell won’t.)

Furthermore, the seller will now miss out on future profits.

Over the past 20 years or so, the S&P 500 has generated an average annual return of about 6%.

According to an analysis by Charles Schwab, if you have no money in the market for the best 20 days of that period because you are convinced you should sell and then reinvest, your return will drop to just remaining 0.1%.

Despite the tumultuous times, it should encourage investors to take a step back and consider the bigger picture.

Between 1900 and 2017, the S&P 500 suffered at least 16 bear markets, identified as falling more than 20%.

However, the average annual return of the index’s stocks over that period was about 11%.

Simply put, investors can’t get through the good times if they can’t get through the bad ones, says certified financial planner Allan Roth, founder of financial consulting firm Wealth Logic in Colorado Springs, Colorado, said.

“Pain is a sign you’re making a good investment,” says Roth. Goods have increased again. What happens if you sell?

Emma James

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