Dear Dr. Per Cap:

The stock market is off to a rough start this year and my S&P 500 mutual fund is taking a hit.  I’m thinking maybe I should sell my shares and buy them back later at a lower price.  Smart move?

Signed,

Worried in Wyoming

Dear Worried in Wyoming

Investors are indeed traveling some rough skies in what had been a very long stretch of mostly friendly weather since the mortgage meltdown and stock market crash back in 2008.

The million dollar question pretty much every investor has, from hedge fund managers clicking trades from the decks of their private yachts to weekend warriors trading penny stocks with their birthday money, is this.

Are we just flying though a little turbulence with more sunny skies ahead once we gain some elevation?  Or are we heading into the eye of a hurricane?

This is one of those “if I only had a crystal ball” moments that every investor signs up for when they buy their first index fund or opt into their employer’s 401-k plan.

Truth is no one knows how long these rough skies are going to last but the fundamentals don’t look good.  We’re facing the highest level of inflation since Happy Days was on TV.  The nation’s central bank, the Federal Reserve, has finally started raising interest rates and I think we’ve seen the last of the stimmy money that’s been flooding the economy.  Add in a devastating war in Europe the likes of which we haven’t seen since World War 2 and the outlook is even grimmer.

I remember an interesting discussion once while serving on my tribe’s investment committee.   The stock market was taking a hit and, just like you, we were tempted to sell some of our investments with the goal of buying them back at a lower price when the market dropped even more.  Our advisor asked us a question.

 “Ok, so if you sell now, at what point in the future will you decide is the right time to buy back in?”

We all looked at each other dumbfounded without giving an answer.

It was a good lesson on the risk of trying to time the market which is one of the cardinal rules that ordinary investors, as opposed to hedge funds and meme stock speculators, should follow.  Very few investors are successfully able to sell on the dip then buy back later on an even lower dip.

Save the dip for a bag of chips.

For the rest of us mortals the buy and hold strategy really does hold true.  It might not be the most thrilling way to fly but why go Top Gun?

Yeah, yeah . . . you’ve heard it before but I’ll say it again.  Going back as far as when my grandparents were smooching behind a spruce tree, ordinary investors who just stay put do just fine riding the ups and downs of the stock market.  Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.