2 winners and 2 losers in a period of stock market decline | Personal finance
Loser 1: Investors who sell
The only people who really lose during a stock market downturn are investors who sell their stocks. Gains and losses are not realized until they are blocked by a sale. Any position with positive returns can still swing into a loss until that position is closed – the same goes for positions that are down.
In the history of the stock market, each downturn has been only a temporary divergence from a long-term growth trend. If you are selling during a downturn, you are buying high and selling low. You lose your chance to capitalize on growth when the market recovers in the future.
But investors sell for all sorts of reasons. Some stocks are sold to cover distributions from retirement accounts. Sometimes circumstances change in a financial plan and assets need to be liquidated to meet cash requirements. Or a portfolio needs to be rebalanced to get a better mix of growth and volatility.
Too often, however, investors make decisions based on fear and exit the market due to the risk that losses will increase even further. Selling in a downturn can help you avoid the impact of a full-blown bear market if it goes that far, but it’s nothing compared to the opportunity cost of missing out on any future gains.