Why selling your investments in a panic can cost you

Most investors know that the longer you are invested, the higher your returns are likely to be. As the saying goes: it’s not timing the market; it’s about time in the market.

However, we also know that sometimes human factors can interfere and it might feel like a good idea to try and cut your losses by selling. At times of global political and economic instability, this very human urge can influence you – but selling your investments in this way is likely to cost you.

Here are three things to bear in mind if you’re thinking of selling your investments in response to current events.

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Missing a few days can have an outsized impact

It is a known fact that a small number of days each year drive most annual returns. Growth isn’t spread equally over all 365 days, so if you take it out at the wrong time, you can miss out on months of growth – even if you sell and buy again quickly.

Market falls can happen quickly, but so can bounce-backs. If you sell at the lowest point in an attempt to cut your losses, you will likely miss the correction, which would have restored your funds.

This is especially true in the world of UK property, where the selling and buying process can be lengthy. If you change your mind once you’ve sold, it can be months before you are able to complete new purchases. In that time, you will likely have missed out on all the growth, leaving you with higher prices to pay and no return to make that worthwhile.

There are always downturns in the market, but those only crystallise into real losses if you sell and get out of the market too early.

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News vs. Reality in the Property Market

The property market moves on long-term trends. By the time the market dips, the factors that caused it are often months or even years in the past. In turn, the trends which will cause the next upturn are already in motion, gathering momentum in the background.

This means it is incredibly easy to sell your property at the exact moment before the market appears to start growing again. That’s especially true if you’re looking at the latest data releases from the Office for National Statistics or other bodies. These are always based on data gathered two or three months in the past.

Property is a long-term prospect, and investors need to bear that in mind at all times. Selling in response to what you see on the news is not a wise move in an area where the biggest effects have already happened.

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The longer you invest, the greater the compound benefits

Finally, the main benefit of investing in the long term is that the benefits compound. Returns are not linear in property – the more you have, the faster they will grow. The trick is to put your money into the market and leave it, rather than reacting to volatility by creating even more volatility.

If you are constantly taking your money out and putting it back in, you will never see the real advantages of property investment. Your portfolio needs time to grow, and that means leaving it alone. If you start selling property in response to current events, you will not give your portfolio the time and space it needs.

The only correct choice is whatever works for you personally. However, by taking the emotion out of your decision-making and acting in your own long-term interests, you are likely to see higher returns. Buying property and leaving it alone is the ultimate buy-to-let property investor strategy – no matter what short-term economic or political challenges we face.

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