With the market close to all-time highs, many investors are wondering if now is the time to sell stocks.
Worries over the COVID-19 pandemic have given way to fears of inflation and higher interest rates. Some states continue to struggle with economic reopening. Other states are facing the challenges of explosive economic growth, an influx of new residents, and shortages of willing workers. As the economic recovery continues, these problems will eventually subside.
The economy is rapidly recovering. Employment will follow.
The speed of the economic recovery has been remarkable. In US states that are “open for business”, local economies are booming. The biggest challenge facing many businesses is a lack of available workers. Pandemic-related unemployment benefits have kept many potential workers out of the labor force. As these benefits sunset, more workers will re-enter the labor force, and employment will continue to recover. Growth in employment will also help companies tackle supply-chain problems that have caused shortages and led to higher prices for many goods. A healthy dose of “walking around sense” tells us that the economy is good and it’s getting better.
We also know that in the long run fundamentals drive the markets. A growing economy leads to growing corporate earnings. In the short run, the markets can always experience volatility, but in the long run increasing earnings leads to higher prices for stocks.
Selling stocks because “the market is too high” is rarely a successful long term investment strategy.
The three keys to successful long-term investing are buying low, selling high, and collecting dividends along the way. Money that is sitting in cash won’t help grow your wealth. After inflation, having too much will actually shrink your real wealth over time.
History tells us to expect market corrections. We know the market averages one 14% drop every year, but it is impossible to predict when that correction will happen. Selling stocks in anticipation of a decline is rarely a successful long-term strategy. History also teaches us that every correction and bear market in the US stock market has been temporary. Academic research has shown that missing just a few of the best days in the market significantly reduces investment returns. Selling stocks to avoid a temporary decline could cause you to miss out on permanent long-term gains. The best strategy is to have a portfolio that makes your financial plan work, stick to the plan, and ignore the short-term movements of the market. This way you can be sure your portfolio is Steady as you Grow™.
Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer