How Not to Make Losses Permanent

Jul 2011 //
Risk vs. Volitility
Behavioral Finance

When stock prices decline and eventually recover (and ultimately go higher)—which is what they’ve done throughout history—the price drops amount to little more than temporary declines.  If you have the appropriate patience and time horizon, you’ll be fine.  However, suppose you become rattled by a drop in stock prices and decide to sell “until things clear up.”  Unless you decide to reinvest when stock prices are lower (and the outlook scarier) than when you sold—an extremely unlikely event—then your lost opportunities are likely to be permanent.