When the stock market falls sharply, the urge to sell can feel overwhelming. Headlines scream crisis, your portfolio value drops daily, and doing nothing feels reckless. But is selling actually the right move? This article walks through when selling makes sense, when it doesn’t, and how to make a clear-headed decision during market volatility.
Answering the Big Question Upfront
In most cases, selling long-term investments during a downturn is not wise. The primary reason is simple: selling locks in your losses permanently, removing any chance of recovery. However, there are important exceptions based on your personal circumstances.
A market downturn typically refers to falls of 10–20% or more in major indices. During the Covid-19 crash in March 2020, the S&P 500 dropped 34% in just 23 days, while the ASX 200 fell approximately 37%. In 2022, inflation and interest rate hikes drove the S&P 500 down 25% from January to October.
History shows that markets recovered from each of these events. The decision about whether to sell depends on your investment time horizon, risk tolerance, and personal cash needs—not on fear or headlines. The rest of this article explains when to stay invested and when selling may genuinely be appropriate for your circumstances.
What’s Actually Happening in a Market Downturn?
Market downturns unfold with a recognisable pattern: sharp price declines triggered by negative catalysts, heightened volatility, wall-to-wall negative news coverage, and social media panic that amplifies retail investor selling.
These events are a normal part of share market history. The 1987 Black Monday crash saw the Dow Jones drop 22.6% in a single day. The 2000–2002 tech bust erased 49% from the Nasdaq over 2.5 years. The global financial crisis of 2008–09 caused the S&P 500 to plummet 57% peak-to-trough, with the ASX 200 falling 53%. The 2020 Covid-19 sell-off and 2022 interest rate hikes added to this history of significant declines.
During these periods, investor psychology peaks with fear. Behavioural finance studies show loss aversion makes losses feel twice as painful as equivalent gains. This creates an urgency to “do something”—often at exactly the wrong time. Understanding that downturns are cyclical events, not permanent states, helps put current market conditions into perspective.
Why Selling in a Downturn Often Hurts You
When you sell after prices have fallen, you crystallise your losses—making them permanent. Consider a simple example: you buy shares at $10 each, the price falls to $7, and you sell. That $3 loss per share is now locked in forever. If you had held, the investment could have recovered.
Recoveries can be surprisingly fast. After the March 2009 GFC lows, global share markets doubled within roughly 14 months. After March 2020’s Covid crash, the S&P 500 regained its losses by August 2020, and the ASX 200 followed by late 2020. Panic sellers who moved to cash missed these rebounds entirely.
Research consistently shows that missing the best days in the market devastates long run returns. According to JP Morgan data on the S&P 500, missing just the top 10 performing days over a 20-year period cuts your annualised returns roughly in half. These biggest gains often occur immediately after the biggest drops—precisely when panic selling peaks.
Beyond losing money on missed growth, selling and rebuying incurs additional costs: brokerage fees, bid-ask spreads, and potential capital gains tax implications when you eventually buy stocks again. These transaction costs compound the damage of selling at the wrong time.
When Selling Might Actually Make Sense
Despite the general advice to hold, there are legitimate reasons to sell during a downturn. Recognising these scenarios helps you make deliberate decisions rather than feeling trapped.
If your time horizon has changed, selling may be appropriate. For example, an investor who planned to use their savings for a property settlement in early 2027 now faces a different calculation than someone investing for the long term. With only 12–24 months until the money is needed, waiting for recovery becomes genuinely risky. Short-term needs require lower-volatility holdings.
Sometimes an investment never truly suited the person’s risk tolerance. Highly leveraged products or speculative stocks that cause sleepless nights during volatility may need to go. The stress of ongoing exposure can lead to worse decisions over time. Similarly, if your portfolio is dangerously concentrated in one sector or company, a downturn may expose that risk painfully.
Finally, a broken investment thesis justifies selling. If a company has suspended dividends, faced major governance scandals, or experienced fundamental deterioration in its business, holding on becomes speculation rather than investment strategy. These decisions should still be deliberate—selling part of a position rather than liquidating everything can sometimes be a sensible compromise.
Key Factors to Weigh Before You Decide
Before selling, work through these practical factors to ensure your decision is grounded in circumstances rather than emotion.
Time horizon matters most. Short-term money needed within 0–3 years (such as school fees starting in 2028) shouldn’t be in volatile equities. Long-term money with a 10+ year runway can typically ride out downturns. Younger investors generally have longer horizons and more recovery time than those approaching retirement.
Risk tolerance reveals itself during downturns. If you’re checking markets multiple times a day, experiencing sleepless nights, or feeling constant worry, your portfolio may not match your actual tolerance. However, recalibrating risk after the downturn—not at the worst point—usually leads to better outcomes.
Cash reserves reduce pressure significantly. A buffer of 3–6 months’ expenses in savings means you won’t be forced to sell investments at low prices to cover unexpected costs. Lack of an emergency fund is often what forces investors to sell during a decline.
Portfolio quality affects decisions too. Broad, diversified index funds or ETFs with low correlation across asset classes have reliably recovered from past downturns. Speculative single stocks may never recover. The same rule doesn’t apply to both—each type warrants different consideration.
What to Do Instead of Panic-Selling
Rather than reacting to fear, consider these practical alternatives.
Take a pause. Set a 24–48 hour cooling-off period before executing major trades during sharp falls. Write down your reasons for any proposed sale and check whether they’re rational or emotional. Most investors find their reasoning shifts significantly after sleeping on it.
Stay invested and continue contributions. If you’re making regular investments, continuing during a downturn means dollar cost averaging—buying more shares at lower prices. This approach has historically benefited long term investors who maintained discipline through volatility.
Rebalance systematically. Rather than selling everything, rebalance your portfolio periodically—trimming what has held up and adding to what has fallen within pre-set risk limits. This turns market volatility into an opportunity rather than a threat.
Manage your anxiety practically. Check your portfolio monthly instead of several times daily. Focus on progress toward long-term goals rather than daily price movements in your account. Many long term growth portfolios are deliberately designed to require no adjustment during downturns.
Common Mistakes People Make in Downturns
Avoiding common errors can be more important than finding the perfect investment.
Panic selling near the bottom and then waiting too long to reinvest is perhaps the costliest mistake. Investors who sold in late March 2020 and stayed in cash missed the rapid rebound through 2020 and 2021, during which markets rose over 80%. Their temporary losses became permanent, and their wealth never recovered to what staying invested would have achieved.
Abandoning a previously well-thought-out investment plan due to one scary headline or social media post derails decades of potential expected returns. Past performance during bear markets shows that consistency matters more than timing.
Chasing “safe” assets after they’ve already become expensive often backfires. Piling into cash just as central banks prepare to cut interest rates locks in low returns while the economy recovers elsewhere. Future performance of defensive assets may disappoint those who bought at peak fear.
Swinging from one extreme to another—all in equities to all in cash—based on short-term news amplifies losses. Data from 1980–2025 shows balanced, consistent holders achieved approximately 12% annualised returns versus 10% for reactive investors. The value of discipline compounds over time.
FAQs: Selling Investments During a Market Downturn
Is it ever smart to sell everything and go to cash? Rarely. All-or-nothing moves risk missing rapid rebounds that often follow sharp declines. However, extreme caution may be justified for investors very close to retirement with significant sequencing risk or known near-term liabilities.
What if I’m close to retirement and the market falls? Sequence of returns risk becomes significant when you’re drawing down savings. Consider whether your exposure to growth assets is appropriate, maintain adequate cash buffers, and potentially reduce spending temporarily rather than selling at lows.
Should I stop my regular investment contributions in a downturn? Generally no, if your finances allow. Continuing contributions means buying at lower prices, which can boost long-term returns by 1–2% annually according to some studies. Only pause if cashflow is genuinely strained.
How long do market downturns usually last? Bear markets (declines of 20% or more) have historically lasted 9–14 months on average, with recoveries to new highs taking 2–5 years. Each event differs—the Covid crash recovered in months, while the GFC took several years.
What if I need money in the next year or two? Short-term money typically shouldn’t be in volatile assets. If circumstances have changed, partial selling may be sensible to reduce risk for funds needed soon, while keeping longer-term investments intact.
How Personal Advice Can Help in Volatile Markets
During periods of high volatility, professional advice can provide significant benefit. An adviser can help match investments to specific goals and timeframes—distinguishing between money for a 2028 home purchase and funds for retirement after 2050.
A written investment plan created in calm conditions provides rules for decisions during downturns, removing emotion from the equation. Stress-testing a portfolio against scenarios like a repeat of 2008 or 2020 reveals whether your current mix truly suits your circumstances.
Perhaps most importantly, professional advice offers an external, calmer perspective when you feel overwhelmed by news cycles. For clients nearing retirement, managing significant wealth, or balancing multiple goals with different dates, this objective point of view often reduces stress and improves decision-making. Consider whether reviewing your current approach with qualified guidance might help you navigate volatile markets more confidently.
