Top ranked advisors say these are the 3 biggest investing mistakes people make during recessions

Personal finance

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After nearly a year of stock market volatility, high inflation and rising interest rates, a growing chorus of experts are warning investors about a recession.

Goldman Sachs CEO David Solomon recently told investors there’s a “good chance” the U.S. economy is heading for a recession, and JPMorgan Chase CEO Jamie Dimon expects a downturn in six to nine months.

While older investors may remember the sting of past recessions, experts say there’s a silver lining: the chance to learn from previous missteps. These are some of the biggest investing mistakes, according to top advisors. 

More from FA 100:

Mistake No. 1: Selling when the market drops

With the S&P 500 down nearly 20% year-to-date, it’s easy to see why some investors panic sell when assets decline. But many regret the move once the market recovers, experts say.    

“The biggest mistake is thinking you’re going to get out low and buy in lower,” said Steven Check, president of Check Capital Management in Costa Mesa, California, which ranked No. 41 on CNBC’s 2022 FA 100 list. If you try to time the market when it dips, you’re more likely to miss gains during the recovery.

“More or less, you want to stay your course,” he said, explaining how many investors have decades for retirement portfolios to recover.

Whether you’re a younger investor or retiree, Check suggests writing down a set of rules and sticking to them, regardless of what’s happening in the stock market.

“Money is an emotional thing,” he said. “But you have to remember the stock market has done well over time.” 

Mistake No. 2: Curtailing investing amid volatility

While some sell when the market dips, others avoid investing altogether. Some 65% of investors are keeping “more money than they should” out of the stock market because they’re afraid of losses, according to a recent survey from Allianz Life.

“We’re more fixated on what we could potentially lose on paper than what opportunities pass us by that we never capitalize upon,” said Josh Reidinger, CEO of Waverly Advisors in Birmingham, Alabama, which ranked No. 59 on the FA 100 list. 

We’re more fixated on what we could potentially lose on paper than what opportunities pass us by that we never capitalize upon.
Josh Reidinger
CEO of Waverly Advisors

There’s a risk of missing future gains when steering clear of the stock market, as research shows some of the best returns may follow the biggest stock market dips.

The top 10 performing days over the past 20 years happened after big stock market declines during the 2008 financial crisis or the 2020 pullback at the beginning of the Covid-19 pandemic, according to research from J.P. Morgan Asset Management.

“History does not repeat itself,” Reidinger said. “But it’s a pretty good indicator of where we are going.”

History does not repeat itself, but it’s a pretty good indicator of where we are going.
Josh Reidinger
CEO of Waverly Advisors

Mistake No. 3: Neglecting to rebalance your portfolio

Whether you invest during a recession or period of growth, market changes often shift assets from your target allocation. Reidinger stresses the importance of rebalancing based on pre-determined parameters.

Without rebalancing, your assets may no longer align with your goals or risk tolerance, he said.

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