Some simple advice for any investors unnerved by the recent volatility: don’t freak out.
Panic sales are rare, according to When Do Investors Freak Out?, a recent study co-authored by Prof Andrew Lo from MIT, but they are three times more common during turbulent markets.
Lo defines a “freak out” as when trading results in an investor selling almost all their equity assets over the course of one month.
While this protects investors during a crisis, many wait too long to reinvest, thus missing out when markets rebound. Almost a third of investors who panic sell never return to reinvest in risky assets.
The study, which analysed 653,455 brokerage accounts, asks the question: who is most likely to panic?
“Investors who are male, or above the age of 45, or married, or have more dependants, or who self-identify as having excellent investment experience or knowledge,” the study notes, “tend to freak out with greater frequency.”
