Should You Sell Your Stock if Everyone Else Is?

Investing in stocks is a great way to grow wealth over time. And putting money into stocks is a smart bet when you're trying to build a nest egg for retirement.

Over the past 50 years, the stock market's average return has been 10%, as measured by the S&P 500. This means that if you were to build a portfolio of S&P 500 stocks or exchange traded funds (ETFs) that delivers the same return, a $5,000 investment today would be worth about $587,000 in 50 years.

But investing in stocks isn't for the faint of heart. The stock market can be extremely volatile, and it can cause the value of your portfolio to fluctuate quite frequently. And if you sell off stocks at a time when your portfolio is down, it could lead to permanent losses you struggle to recover from.

That's why you need to be very careful when it comes to selling stocks. And you should also make your own decisions rather than follow the crowd. There are, however, some exceptions to this rule.

Don't panic when everyone else does

The stock market spent much of 2022 in a serious slump. And the market has been through numerous periods of decline in years past.

Last year, it may have been that many of your friends and colleagues were rushing to sell their stocks to avoid serious losses. Had you followed their lead, you'd probably be looking at a lot less money right now given that the stock market is up over 9% from where it was a year ago.

But it's also easy to see why people were panicking last year. The tech sector was taking an extended beating, and the broad market was down.

Still, it's important to remember that investing is a long-term commitment. If you sell stocks every time the market plunges, you may not get very far. But if you sit tight during downturns while everyone else is panic-selling, you might end up in a very strong position down the line.

An exception to the rule

It's generally not a great idea to sell stocks simply because investors are broadly getting jittery. But there is an exception to the "don't follow the crowd" rule, and it's if investors are clearly backing away from one specific stock. If that's the case, and you own that stock, it's important to figure out why.

It may be that negative news came out that's likely to impact the company at large. Or perhaps the company is on the verge of filing for bankruptcy and it's best to get out before that happens. So if you keep reading that investors are quickly unloading shares of a company you own, spend some time figuring out if you should do the same.

But for the most part, you should make your decisions independently of what other people are doing. At the end of the day, they're not responsible for your finances -- you are. So you should be the one to take control of the situation and decide what makes the most sense.