What If All My Friends are Cashing Out?

Why following the herd isn't always the right mentality

Ruth Saldanha 9 April, 2021 | 9:50AM
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Ruth Saldanha: You have a plan. You're saving for a long-term goal and a lot of your money is in stocks. But Michael's sister-in-law says there's a crash coming. You're scared and you're wondering what if all my friends are cashing out.

First, breath. It's never easy to swim upstream. It's a lot simpler to just go with the flow. I mean, you don't want to be the one left behind because the predators always eat the weak ones. But if the herd is racing to the edge of a cliff, well, it makes sense to run in the opposite direction. Put another way, if the crowd is giving into biases, resist the urge to follow.

Here are some tips to help.

Samantha Lamas: Enforce a cool down period where you can't act for three days. This gives you time to step back from your emotions and think logically, and if you must act, redirect. For example, times of volatility can be opportunities to rebalance when stocks are down and bonds are up, maintain your asset allocation by selling high and buying low, or increase your savings rate to take advantage of market weaknesses or capitalize on lower interest rates.

Saldanha: There's a reason my mum said just because all your friends are jumping in the lake, it doesn't mean you have to.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Ruth Saldanha

Ruth Saldanha  is Senior Editor, Morningstar.ca


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