It's not a good feeling to see our ASX share portfolios decline in value. Our brains are supposedly wired to feel the pain of a loss more than the joy of a gain.
But selling in March could be a bad decision.
I think investors should hang on for a few different reasons, even if the market declines further.
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The pessimists may be wrong
Share prices fall during a bear market because investors expect earnings to decline. These are certainly troubling times with what's happening in the Middle East.
I don't know what's going to happen or how long it will take to play out. But, I certainly don't think it's going to last forever, and the oil (price) picture may not be as negative as the market is thinking (either how bad it could get or the length of the time it takes to come to a resolution).
At some point, this should pass.
The long-term returns include the declines
I believe it's very important to think with a long-term mindset, both when making an investment and during times like this.
When we talk about how big the returns are – such as how the ASX share market has returned an average of roughly 10% per year over the past decade – that return includes periods of market decline. I'm thinking of the Vanguard Australian Shares Index ETF (ASX: VAS) when I think of the ASX share market.
In other words, it's normal for declines to happen occasionally, and it's the 'price' of being able to invest in something that can go up in value. It can go down, too. That doesn't mean we shouldn't hold ASX shares – we should just accept it's part of the journey.
Locking in the lower price
Share prices change all the time. Sometimes they go up, sometimes they go down. Occasionally, they fall by a lot.
'On paper' gains or losses can change. Declines can recover from widespread market selling, but only if we're still holding that investment.
If someone panic-sells their ASX shares, then they'll miss out on a possible rebound. That could start happening as early as tomorrow, next week or even next month. It could take longer to recover, but I'd rather hold my ASX share investment (if I'm confident about the long term) than lock in a loss.
It's an opportunity to buy more ASX shares
I don't look at sell-offs like this as a terrible time, but as an opportunity to invest in great businesses at lower prices.
I try to invest only in ASX shares I'd be excited to buy more of during a downturn.
I'm excited by lower share prices because of the better valuations (and dividend yields) that come with them. Investing at a lower price can unlock bigger long-term returns and give us a stronger margin of safety.
