The S&P 500 is down 25% YTD in 2022 and many investors are wondering if they should pull their money out of the stock market. This article will discuss the pros and cons of staying in the market or pulling out your money and waiting on the sidelines.

2022 is a Brutal Year for the Stock Market

It’s been a tough year for the stock market. Many stocks are down between 10% to 95% since the November 2021 stock market bubble burst.

Unless you invested in oil and gas stocks or lithium stocks, you probably lost quite a bit of money this year.

Much of the damage was caused by rising interest rates and a brutal selloff as investors dumped many overvalued growth stocks.

According to the Buffett Indicator, the US stock market was grossly overvalued at the peak of the bull market.

Should You Pull Your Money Out of Stock Market and Sit on the Sideline?

I’m not personally selling any more stocks because I believe we are extremely close to the bottom of the stock market.

If you held your stocks this long over the last 11 months of the bear market then why sell now?

Honestly, it’s possible that the S&P 500 and NASDAQ could drop another 10% over towards the end of 2022. The Fed plans to raise rates again to control inflation and that’s not a good sign for the stock market.

If you are down a ton of money then you could cut your losses now and buy back your stocks cheaper. Locking in some losses will help reduce your 2022 tax bill thanks to tax loss harvesting.

Of course, we don’t know exactly how the Fed will respond and September 2022 CPI inflation data will be released on October 13th 2022. If core inflation is under control then we could see the stock market soar in response to lower inflation.

Once inflation is under control then perhaps the Fed won’t act as aggressively with interest rates. That’s a good sign for the stock market.

Pros of Staying in the Stock Market

• You don’t end up selling your stocks for cheap prices then regret selling them in the future.
• You can still earn dividend checks from your dividend stocks and sell covered calls to generate income
• You will benefit if core inflation cools and the stock market soars on the positive news

Cons of Staying in the Stock Market

• Rising inflation will force the Fed to raise interest rates and stocks will most likely sell off
• The stock market could drop another 10% or more until we hit the bottom of the bear market
• You lock in any capital gains if you made any gains and must pay taxes on those short or long term gains.

I’m Staying in the Stock Market

I know it’s risky but God knows I regret selling all my stocks during the 2008 financial crisis because I didn’t get back into the market until several years later.

Fortunes are made in bear markets and many high quality stocks are selling at ridiculously cheap prices. This is a great time for long term investors to pick up beaten down stocks with strong revenue and earnings forecasts.

If you have a short term time horizon then you are taking on great risk by staying in the markets. However, I believe long term investors will be rewarded for their patience.