Loser 1: Investors who sell
The only people who truly lose during a stock market downturn are investors who sell their stocks. Gains and losses are unrealized until they’re locked in through a sale. Any position with positive returns can still swing to a loss until that position is closed — the same is true for positions that are down.
In the history of the stock market, every single downturn has just been a temporary divergence from a long-term growth trend. If you sell during a downturn, you’re buying high and selling low. You’re losing your chance to capitalize on growth when the market recovers in the future.
But investors sell for all sorts of reasons. Some stocks are sold to cover distributions from retirement accounts. Sometimes, circumstances change in a financial plan, and assets have to be liquidated to meet cash needs. Or a portfolio has to be rebalanced to achieve a better mix of growth and volatility.
Too often, however, investors make fear-based decisions and exit the market due to the risk that losses grow even steeper. Selling in a downturn can help you avoid the impact of a full-blown bear market if it goes that far, but that’s nothing compared to the opportunity cost of missing out on all future gains.