Dear Investors: Panic Selling Hurts More Than It Helps. Here's Why.

Disclaimer: this is not investment advice, but rather, a general education piece on how to think about investing during market downturns, using actual outcomes from some of the most recent major downturns. Please consult with your advisor before making any changes to your portfolio.

Watching the market drop can be very unsettling, and the instinct to “do something” is natural. That said, historical data shows time and time again that panic selling- or converting investments to cash during downturns- doesn't offer the safety net you may think it will. Instead, it often leads to missed growth opportunities, regret, and a negative impact on your ability to achieve your goals on time.

Let’s take a step back, look at the historical data here together, and remind ourselves why staying the course is one of the most powerful strategies for long-term investment success.

The Real Cost of Panic Selling & Missing the Best Days

Markets are unpredictable in the short term, but history tells us that some of the best days in the market occur shortly after the worst ones. Missing just a handful of these strong rebound days can significantly impact long-term returns. The challenge is that these “best days” often happen during times of heightened fear, when selling feels most tempting. But consider this example:

From 2003 to 2023, the S&P 500’s average annual return was around 9.8%. However, if an investor missed just the 10 best days over that period, their annualized return dropped to 5.6%.

Market Declines Are Normal, and Temporary

History provides countless examples of market downturns with strong recoveries to follow.

Here are a few of the most significant declines in recent history and what happened afterward:

• 2008 Financial Crisis: The S&P 500 fell over 50% but rebounded strongly, gaining over 400% from its 2009 low to 2019.

• COVID-19 Crash (2020): The market plunged over 30% in just weeks but fully recovered within six months and continued to climb to new highs.

• Dot-Com Bubble (2000-2002): The Nasdaq lost nearly 75% of its value but later went on to reach record levels.

Every crisis feels unique- and this is fair, because the exact circumstances of prolonged bear markets can arise from new scenarios. But that doesn't mean it will last forever.

Emotional Investing: An Expensive Mistake

Headlines don't help. Stay calm and stay the course of the plan you created with your advisor.

Panic selling is often fueled by fear, but moving investments to cash at the wrong time can have lasting, dire financial consequences. Selling during a downturn locks in losses, turning a temporary dip (we call it a "paper loss") into a real loss. Investors who sell during downturns wait for a turn of the tide to reinvest, but that means they miss the recovery and have to buy investments back at higher prices.

By contrast, those who stay invested through market turbulence benefit from compounding growth, dividend reinvestment, and long-term market trends.

The reality is that the market has a long history of rewarding disciplined investors who focus on the long term rather than reacting to short-term fear.

The Power of Time in the Market (Over Timing the Market)

One of the most effective ways to build wealth is through time in the market, not timing the market. Consistently staying invested allows you to take advantage of compounding returns, dividend reinvestment, and long-term market growth. Those who attempt to jump in and out based on short-term market movements often miss the best recovery periods, ultimately underperforming those who remain patient.

Stay Focused on the Long-Term

While it’s understandable to feel uneasy during downturns, historical outcomes make one thing clear: staying invested is the key to long-term success. The best investors aren’t the ones who avoid losses altogether but the ones who ride out the storms and allow time and compounding to do their thing.

Sage Financial embraces a diversified, passive investing philosophy. This includes applying a long-term outlook on the market and accepting volatility as an expected part of the plan. Stay the course, trust your strategy, and keep your eyes on the bigger picture. When in doubt, book a meeting with your advisor to talk through your concerns, get help staying grounded and make informed decisions with your money.

• • •

Have questions? Drop a comment on this post.

Need help putting together your financial plan? Get in touch.

📌 Sage Financial Planning LLC is a solo firm specializing in serving First Generation Wealth Builders who want to change their financial family trees, as well as progressive professionals and investors who want to not only achieve financial security and freedom for themselves, but want to support their communities in meaningful ways and leave the world better than they found it.

For more information on our holistic financial planning offerings, please visit our Service Options page.

#financialplanning #money #moneymindset #goals #success #personalfinance #millennials #genz #womenandmoney #financialwellness #financialfreedom #CFP #FinancialPlanningMonth #moneysaver #moneymanagement #financetips #moneygoals #financialliteracy #financialeducation #financialindependence #FI #FIRE #moneymoves #womenempowerment #womeninbiz