The end of the year can be a stressful time for any investor. With a new year coming up, it isn’t odd to start anxiously eyeing your portfolio. Market volatility often spikes as the year closes, too. Many wonder whether they should sell, hold, or buy more.
Let’s explore why year-end portfolio reviews can feel so urgent and how to make rational decisions despite all the stress.
Why Does Year-End Market Volatility Happen?
Several factors can contribute to market fluctuations as December approaches:
- Tax-Loss Harvesting: Investors may sell underperforming assets to offset gains, increasing market activity.
- Rebalancing by Funds: Mutual funds and institutional investors adjust their holdings before year-end, impacting prices.
- Economic Reports: Year-end data like holiday retail sales and GDP growth can sway market sentiment.
These can cause swings in the market, but it’s important to remember that these swings are temporary. Generally, the swings you see in December do not point to deeper movements.
When to Sell, Hold, or Buy More
So, how should you react to this volatility? It’s a good time to adjust your portfolio and ensure that your investments are in line with your goals.
However, we only recommend selling if underperformance is signaling a deeper issue. How do you know when this is the case? Well, the underperformance will typically be a long-term trend, not something that just happened in December. If an investment has been doing poorly all year, December might be the time to sell it.
Generally, we recommend most investors hold through December. In fact, it may be best if you don’t look at your portfolio at all, especially if volatility makes you nervous! It’s very common for investments to experience temporary market volatility in December.
In some cases, you may also want to consider buying more. If a stock has outperformed expectations this year, it may be a good time to stock up on more. If a high-quality investment drops in value during the December volatility, that could also be a good indication that it might be time to pick up some more stocks.
December can be a great time to rebalance your portfolio, but we don’t recommend taking any particular action just because it’s December. Trying to time the market in this way rarely works, as you never know which way the volatility will go.
That said, making a few long-term purchases in December isn’t necessarily a bad thing, either.
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