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:
- 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.
- 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.
- 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.
- 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.