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4 Reasons to Sell Now

The credit markets are all but frozen, the global stock markets are hanging on the edge of a cliff, and businesses everywhere are wondering how they'll get the funds they need to operate.

In other words, it's really bad now. It might even be time to panic.

If you're not 100% sure whether it's time to panic, carefully consider these four reasons to sell all of your investments now:

  1. Telling friends about your on-paper losses in Apple (Nasdaq: AAPL  ) and Goldman Sachs (NYSE: GS  ) doesn't score you many sympathy points, so you want to lock the losses in by selling.
  2. You've read Steinbeck, romanticized the Great Depression as a time of wonderful creativity and inspiration, and you don't want to miss your chance to live in a 15-year-old minivan while you write the Great American Novel on the backs of old campaign flyers with a broken crayon.
  3. You're overwhelmed with guilt at your years of conspicuous consumption and want to atone by destroying as much of your wealth as you can.
  4. You really need the money for something else.

OK, joke's over
Here's one reason I didn't list: Because it's a sound, rational idea from a long-term investment perspective.

Unless you're absolutely convinced that the market is going to go a lot lower, and you're absolutely convinced that you'll be paying attention and willing to reinvest at a lower level, I can't think of a good reason to sell now -- unless you really need the money for some sort of emergency.

That doesn't mean you shouldn't sell any of your investments, of course. If developments have caused you to rethink the case for stocks like Potash Corp.  (NYSE: POT  ) , if you think the economic slowdown means that Starbucks (NYSE: SBUX  ) or Jackson Hewitt (NYSE: JTX  ) might not take off like you expected, or if you just want to free up some funds to grab shares of Nokia (NYSE: NOK  ) or Wells Fargo (NYSE: WFC  ) while they're cheap, it's always appropriate to consider selling.

What it does mean is that you should stick to your plan, even when things look ugly.

Sticking to your plan
You do have a plan, don't you? A plan that involves diversification and asset allocation and a long-term mind-set? If so, and if it's a good plan, then you may not need to do anything at all right now.

After all, a good plan is designed to work well through all market conditions. And while the current crisis may seem unprecedented, the market's reaction to it isn't.

In fact, as alternative investment expert and author Larry Swedroe points out in an interview in the new issue of the Fool's Rule Your Retirement newsletter, available online at 4 pm ET today, this is the fourth market crisis since the early 1980s. These aren't as rare as you might think.

As Swedroe notes, periodic crises -- risk -- are part of our markets. Sensible investing involves having a plan that anticipates periodic crises and allows you to stay fully invested through them. Study after study has shown that investors who bail out when the going gets rough have lower returns over time than those who stay fully invested.

Why? Because the majority of gains come from a very small number of trading days. In fact, a famous study showed that missing the 10 best trading days between 1963 and 1993 -- just 10 days in 30 years! -- would have cut your returns by almost 2%. If you'd missed the top 40 days, you'd have lost almost 5%.

But you won't miss a thing -- if you stick to a plan.

A plan for right now
Need a better plan? Check out the full text of Larry Swedroe's interview in the new issue of Rule Your Retirement. (It's a paid service, but a free trial gives full access for 30 days, so click with confidence.) In addition to pointing out the folly of panic, Swedroe shares his thoughts on allocation basics -- the cornerstone of any plan -- and on the (very useful) role that commodities and TIPS can play in a good retirement investment plan.

It's a must-read if the crisis is churning your stomach. And while you're enjoying your free trial, make your next stop a careful look at Rule Your Retirement's model portfolios. They're the best starting point for a long-term wealth-building plan that I've yet seen, and you'll benefit immediately from following the easy instructions. It's all yours, free for 30 days -- click now.

Fool contributor and aspiring novelist John Rosevear actually thinks The Grapes of Wrath was a pretty lousy book. He owns shares of Apple and Starbucks. Starbucks and Jackson Hewitt are Motley Fool Inside Value recommendations. Starbucks and Apple are Motley Fool Stock Advisor picks. The Fool owns shares of Starbucks. Try any of our Foolish newsletters free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (13)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 02, 2008, at 2:38 PM, mav2006 wrote:

    yes, the same old tired message. don't sell. But John doesn't address the fact that this is not just a cyclical downturn. Many far more learned experts are not convinced the bailout will work, and that there is a good chance that stocks WILL decline a great deal more and stay down for a while. They might not, but there is a much better chance of that happening than in the usual downturn. How about some real unbiased advice than the usual claptrap that is just designed to keep Fools subscribing?

  • Report this Comment On October 03, 2008, at 3:14 PM, TMFMarlowe wrote:

    I did say that if you're absolutely convinced that the market is going to go a lot lower -- and that you'll be paying attention and able to buy back in before it pops again -- go ahead and sell. It's right up there in black and white. But that doesn't describe most retirement investors, and most folks who end up bailing out deep in a bear market end up chasing the next leg up -- and losing out on both capital appreciation and any dividends they might have collected in the interim.

    John

  • Report this Comment On October 03, 2008, at 8:58 PM, Mandeel wrote:

    The market is NOT going to rebound for a long time. Confidence in the US market is lost due to the "eye popping" corruption of the US political and financial institutions.

    Global financial centers will divert their investments to their local markets and to hard assets "GOLD".

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John Rosevear
TMFMarlowe

John Rosevear is the senior auto specialist for Fool.com. John has been writing for the Fool since 2007. A lifelong car nerd, his current daily driver is a Cadillac CTS-V.

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