Everyone has that one friend. You know the one—the guy who "sold everything" right before a 5% dip and won't stop texting you about it. It makes you itchy. You look at your 401(k) or your Robinhood account, see the red numbers or the shaky volatility, and you start asking yourself: should I pull out of the stock market before things get even worse?
It’s a terrifying question. It’s also one of the most expensive questions you’ll ever ask.
Financial anxiety isn't a character flaw; it's biology. Our brains are literally hardwired to avoid pain, and losing money feels exactly like physical pain in the prefrontal cortex. But here’s the thing—the stock market doesn't care about your nervous system. In fact, the market often rewards those who can ignore their own survival instincts.
The high cost of "safety"
Let’s be real. When you think about pulling out, you aren't thinking about permanent retirement. You’re thinking about "sitting on the sidelines" until things "settle down."
That’s a trap.
The problem with "sitting it out" is that you have to be right twice. You have to be right about when to get out, and you have to be right about when to get back in. Most people fail at the first one. Almost everyone fails at the second.
Take a look at the data from J.P. Morgan Asset Management’s annual "Guide to the Markets." They’ve tracked the S&P 500 over decades, and the results are honestly pretty brutal for market timers. If you invested $10,000 in the S&P 500 from 2003 to 2023, you’d have a healthy chunk of change. But if you missed just the 10 best days in that 20-year span? Your returns were cut in half.
Half.
The kicker? Those "best days" usually happen within a week or two of the "worst days." If you ran for the exits because the market dropped 3% on a Tuesday, you probably weren't there for the 4% recovery on Thursday. You didn't protect your wealth; you just locked in your losses.
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Why people want to pull out of the stock market today
We’re living through a weird era. We’ve got stubborn inflation, interest rates that refuse to plummet back to zero, and geopolitical tensions that feel like a Tom Clancy novel. It makes sense to want to put your money under a mattress. Or at least in a high-yield savings account where the numbers only go up.
A lot of people are looking at the Shiller PE Ratio—a measure of how expensive stocks are relative to their earnings—and seeing that we are hovering in "expensive" territory. When stocks are pricey, the "should I pull out of the stock market" thought becomes a loud scream.
But "expensive" doesn't mean "about to crash." The market can stay irrational or overvalued way longer than you can stay patient.
The inflation factor
If you pull your money out and put it into cash, you aren't actually "safe." You’re just trading one risk (market volatility) for another (purchasing power loss).
If inflation is running at 3% or 4% and your cash is sitting in a standard checking account, you are guaranteed to lose money every single year. You’re just losing it slowly. Stocks are one of the few assets that historically outpace inflation because companies can raise prices to keep up with their own rising costs. When you sell out, you lose that hedge.
When it actually makes sense to sell
I’m not a "buy and hold" zealot who thinks you should never touch your sell button. There are specific, logical reasons to reduce your exposure to the market. But "I’m scared" isn't one of them.
- Your timeline changed. If you need that money for a house down payment in six months, it shouldn't be in the S&P 500 anyway. The market is a casino in the short term and a weighing machine in the long term.
- You’re retiring next year. This is about sequence of returns risk. If the market drops 30% the year you retire, it wrecks your math for the next 30 years. Shifting to bonds or cash equivalents as you approach the finish line is just smart planning.
- Your portfolio is lopsided. Maybe you bought Nvidia years ago and now it’s 60% of your net worth. That’s not investing; that’s gambling on a single company. Trimming that position to buy more boring stuff isn't "pulling out"—it's rebalancing.
The psychological toll of the "All-In or All-Out" mindset
We tend to think in binaries. We’re either "in" or we’re "out."
This is a mistake.
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Investing is a dial, not an on/off switch. If you can’t sleep at night because your portfolio is bouncing around, the answer isn't usually to liquidate everything. The answer is usually that your asset allocation is wrong. You’re taking more risk than your gut can handle.
Maybe instead of pulling out of the stock market entirely, you just need to move from aggressive growth stocks into something more defensive, like value stocks or dividend payers. Or maybe you just need to increase your bond percentage.
The "Sleep Test"
Legendary investor Peter Lynch used to talk about the "stomach" being more important than the "brain" in investing. If you find yourself checking the ticker every 10 minutes, you’ve already lost. You’ve exceeded your risk tolerance.
What the "Smart Money" is doing
If you look at institutional investors—the big pension funds and university endowments—they almost never "pull out." They have mandates that force them to stay invested. When the market drops, they actually have to buy more to keep their percentages balanced.
They know that the most successful investors are often the ones who are dead. Seriously. There’s a famous (though possibly apocryphal) story about a Fidelity study that found the best-performing accounts belonged to people who had forgotten they had accounts or had actually passed away.
They didn't tinker. They didn't panic. They didn't ask "should I pull out of the stock market" because they weren't checking the news.
Practical steps to take right now
Instead of making a massive emotional decision that could haunt your retirement, try these steps. They’re boring, but boring is how you get rich.
Stop watching the 24-hour news cycle. Financial news is designed to keep you agitated. Agitated people click more links. They don't have your best interests at heart. They want your attention.
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Review your emergency fund. Most people want to sell stocks because they’re afraid they’ll need the cash if they lose their job. If you have six months of expenses in a liquid savings account, that "need to sell" feeling usually evaporates. It gives you the "staying power" required to let your stocks recover.
Automate everything. The best way to beat the "should I pull out of the stock market" urge is to take your hands off the steering wheel. Set up your contributions so they happen automatically. You buy when the market is high, and more importantly, you buy when the market is low and everything is on sale. This is dollar-cost averaging, and it’s basically a cheat code for building wealth.
Audit your fees. If you’re stressed about your returns, look at what you’re paying in management fees or high expense ratios. Sometimes the feeling of "losing money" comes from the fact that your mutual fund is taking a 1.5% cut regardless of whether the market goes up or down. Switching to low-cost index funds can feel like a raise.
Check your diversification. Are you all-in on US Tech? No wonder you’re stressed. Look into international stocks, small-caps, or even Real Estate Investment Trusts (REITs). When one part of the market is tanking, another part is often holding steady.
Looking at the long arc
Since 1926, the S&P 500 has been positive in roughly 73% of calendar years. Those aren't bad odds. But the path to those positive years is never a straight line. It’s a jagged, ugly, nerve-wracking mess of a line.
If you pull out now, you're betting against over 100 years of history. You're betting that this time is different.
Spoiler: It’s almost never different.
The market has survived world wars, pandemics, depressions, and dot-com bubbles. It will probably survive whatever is stressing you out today. The only way to ensure you don't benefit from that recovery is to make sure you aren't there when it happens.
Actionable Insights for the Nervous Investor
- Calculate your "Cash Buffer": If you have less than 3 months of expenses in cash, stop investing new money and build that up first. This kills the panic.
- The 10% Rule: If you absolutely must do something to feel in control, sell no more than 10% of your holdings. This "scratches the itch" to act without destroying your long-term compounding.
- Re-evaluate your Risk: If a 10% market drop makes you want to sell everything, you shouldn't be 100% in stocks. Move to a 60/40 or 70/30 stock-to-bond ratio during the next "quiet" period in the market.
- Write a "Decision Journal": Write down why you want to sell today. Read it again in six months. Usually, the "crisis" of today looks like a tiny blip in the rearview mirror.
- Focus on Earnings: Ignore the price of the stock and look at the earnings of the companies you own. If the companies are still making money and growing, the stock price will eventually follow. Focus on the business, not the ticker symbol.