Three reasons selling your investments in a panic can really cost you

An often-repeated mantra of investing – which has reappeared with understandable frequency over the past month - is that it's also about time in the market rather than timing the market.

Putting your money to work and then leaving it to benefit from the compound effect is an approach which has been proven to work historically.

But human emotions naturally play into investing and it can feel tough to stay invested when markets are going through a volatile phase. Here are three big reasons why hitting the sell button is actually one of the worst things you can do when it comes to wealth preservation when markets are falling or jumping around.

1. Missing a few days can really hurt your returns

An interesting fact about markets is that there are only a certain number of days which drive the majority of market returns, so staying invested increases your chances of capturing these.  

Over the past two decades money invested in the S&P 500  – the foremost equity market of that period  - grew more than eight-fold. However, if you had missed the 10 best days, you would have earned less than half of that.

And some of the biggest re-ratings have followed the biggest selloffs, as noted by BlackRock CEO Larry Fink in his latest annual letter to shareholders.

In April 2025, markets saw the deepest one day sell-off since the financial crash after US President Donald Trump unveiled his Liberation Day policies.  

The S&P 500 fell almost 20% during that week but, if an investor had sold out then they would have missed out on the subsequent massive rebound when markets regrouped. Just two months later, the S&P 500 set a new all-time high.

In fact, the S&P 500 made 39 all-time closing highs throughout 2025 despite the rough start to the year when many were calling time on the ‘US exceptionalism’ trade.  

That put 2025 as the fifth best run for all-time highs in a single year for the S&P 500 since 2000.

So, while it can be painful in the moment during a market fall, that pain is only crystallised if you sell out.

2. Corrections have been getting shorter

When you are in the middle of a market sell-off it can feel endless but the data shows that these down episodes are becoming increasingly shorter than they used to be.

Just this week markets opened on a significant decline after Trump threatened attacks on Iranian energy infrastructure, exacerbating fears of a worsening energy crisis, but before traders had even stopped for lunch much of the damage in markets had been undone with gilt yields and equities rebounding almost back to parity after the president announced he would postpone the strikes after ‘productive talks’.

When markets do go through a major sell-off they can enter what is known as a bear market. This is a period when stock prices fall 20% or more from a recent high and is sustained over a period of time. It's the opposite of a ‘bull market’, which is when share prices continue to go up and up.

These can last for weeks or even months, however in the modern era they’ve become an increasingly brief.

The 2020 Covid-lockdown bear market for example was just 33 days, the shortest one in history at the time, yet in the thick of the selling it was being compared to the 2008 crash.

During the Liberation Day sell-off, the S&P 500 flirted with bear market territory, dropping to the -20% threshold, but it just as quickly rallied back out of it.

If it had stuck, it would have been the 13th bear market of the modern era but the falls didn't last long enough to actually become one.

3. Investing is a habit worth keeping

As mentioned above, one of the benefits of keeping your money in markets is so it can benefit from the positive effects of compounding. For this reason investing for most is a habit to get into rather than something to chop and change with at regular intervals.

There are two ways investors put their money to work: a lump sum or monthly direct debits.

To open an AJ Bell Stocks and shares ISA, the minimum amount required is £250 for a lump-sum investment. Alternatively, you can start with a minimum of £25 per month if setting up a regular investment direct debit.

Both have their pros and cons, and the only ‘right’ choice is whatever works best for the individual, mainly depending on what they have available at the time. However, turning investing into something you do little and often is a useful discipline which can help take the emotion out of investment decisions and prevent you from reacting in panic when markets are choppy.

Regular investing can also smooth out volatility thanks to an effect known as pound cost averaging. By putting a fixed amount into your investments each month, you buy more when prices are lower and less when prices are higher.