Sell or hold? Why investors should stay calm in rough waters

When stock markets fluctuate, and prices dance in both directions, inexperienced investors in particular often lose their nerve. Some people buy and sell in a wild mess. This is wrong and causes the yield to shrink drastically, as a new study shows.

Times on the stock market are threatening to become more turbulent again, even though the Dax has shone so far this year. After all, the upswing on the financial markets has been going on for more than ten years now, and many experts expect the economy to weaken – and with it setbacks on the stock market. For investors, the question then naturally arises: what should they do?

In any case, do not sell headless, advise many analysts. Their recommendation to investors is to stay invested. Experts do not consider individual values. Their advice is predominantly aimed at investors who, for example, are invested in an entire index via index funds.

An exit at an unfavourable point in time and a resulting miss of days with high price gains could have serious consequences, is the conclusion of her study – fortunately only for the return.

Best tip: It’s better to stay than getting out

Experts analyzed in a current evaluation for, how the missing of only a few days with high price gains affects the net yield. The analysis period was from 1.1.1988 to 31.12.2018, i.e. 31 years. Since its foundation on 31.12.1987, the Dax has generated an average annual return of 7.2 per cent.

And this despite the bursting of the dot com bubble, the bursting of the real estate bubble, the Lehman bankruptcy and all sorts of other lows to be experienced in more than 30 years. “Stock market history teaches: in six out of ten cases, the best trading days followed within two weeks of the worst. That is remarkable, but again no rule, otherwise anyone could just always bet on it.

The situation becomes critical if one sells out of fear of a stock market low, then does not return to the market in time, and then misses the best trading days.

Don’t miss good days

In figures, this means that for an investor who missed the best 13 days in the Dax between 1988 and 2018, the return shrinks by half. If he missed the best 33 days, he would lose money.

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The conclusion of many analysts: If you want to increase your money and sleep peacefully, do everything right by staying invested. Because that means that you don’t run the risk of missing the best days, of course, this applies above all to long-term asset accumulation, as the longtime horizon also shows.

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