Personal Wealth Management / Behavioral Finance
Deep Dive: Break the Urge to Sell at Breakeven
The mistakes you make—and the risks you take—when you sell at breakeven.
Negative volatility can shake the confidence of any investor, regardless of experience—especially right after a correction or bear market. Many understand exiting markets during or immediately after a drop could easily be a mistake that locks in losses. However, many also see the exits looking sunnier when markets reach a certain level. One common trigger: stocks returning near earlier highs. That allows investors to “breakeven”—you get out and don’t “lose” anything. We refer to this thinking as breakevenitis, and succumbing to it isn’t just one mistake robbing you of potential future growth. It is the accumulation of multiple mistakes that, in our view, flies in the face of why you are investing in the first place.
This article aims to explain the mistakes you make (and risks you take) when you sell at breakeven. We will first review each step of the investment process, from identifying investment goals and objectives to determining the blend of stocks, bonds and other securities best positioned to reach those goals over your entire time horizon. Focusing on breakeven runs counter to this entire process. We will also discuss the times you should sell (hint: not after solely breaking even) and end with a look at the risks tied to selling after breakeven—chiefly, the long-term returns you may give up.
In conclusion, if you give in to breakevenitis, we think you are making a behavioral mistake. Maybe you get lucky and it works out short term, but this isn’t a recipe for repeat success—and the time to carefully consider that is before committing such an error. Let’s begin.
Why Are You Investing?
Selling at breakeven goes directly against why you are invested in the first place: achieving your personal investment goals and objectives over your time horizon. This is always the place to start when considering a major action: Revisit why you are investing. You want your money to provide something for you. It can be as straightforward as meeting your needs or maintaining a certain lifestyle for the rest of your life. Perhaps you want to provide financially for loved ones: a spouse, children and/or grandchildren. Maybe you wish to leave a generous gift for your favorite charity, alma mater or house of worship. These are all admirable uses for your money. But to keep it simple, investing goals fall into three basic categories: growth, cash flow or a combination of the two.
Your investment time horizon also influences the blend of stocks, bonds and other securities that best fits you. Time horizon refers to how long your money needs to last to achieve your goals (e.g., providing cash flow over decades of retirement, with the understanding medical expenses can accumulate late in life). Your personal life expectancy is a big factor, but it isn’t the only one. If you want to support a younger spouse, your money will probably need to last beyond your lifespan. Children? Longer still. Gifting a regular financial contribution to your local library or a charity? Your assets may need to last for many years after you have passed. The time horizon in those scenarios could be indefinite.
In our view, this makes growth necessary for many long-term investors—even if their primary purpose for investing is cash flow—since it reduces the risk of outliving their money. Earning market-like returns requires being in the market the vast majority of the time to harness the power of compound growth.
Exiting Isn’t Part of the Strategy
So you have your goals and an idea of how long you need your money to work for you. These inputs will determine your investing strategy, or the asset allocation (mix of stocks, bonds and other securities) that has the highest likelihood of delivering the returns you need to reach your goals. There will always be a tradeoff between expected returns and expected short-term volatility, and this is what we think an asset allocation should seek to balance.
To construct your asset allocation, we think you need a benchmark—a well-constructed index that provides both a construction blueprint and performance measuring stick. Think of a benchmark as your investing roadmap. Let’s say your asset allocation is 70% stocks/30% bonds because you have modest cash flow needs and would benefit from reducing expected volatility—but still need long-term growth to support your needs, outpace inflation and leave a legacy. You can benchmark 70% of your portfolio against a well-constructed stock index like the MSCI World Index and 30% against a bond index like the ICE BofA 7 – 10-year US Corporate & Government Index.
Note, your benchmark’s allocation is your default position. Your baseline allocation. If you have a 70% stock/30% bond asset allocation, your starting point is having 70% of your portfolio in global stocks and 30% in bonds. This is something that, in principle, people have an easy time agreeing with. But in practice, many seek reasons to be in stocks, as if their goals aren’t enough. This is tantamount to presuming cash is your default position.
In our view, this is backward. You invest because you have goals to reach. You pick a benchmark with the highest likelihood of reaching them, and in our experience, money market rates are unlikely to cut it for most people. Implementing your strategy means following your benchmark and being in stocks (to the percentage your long-term allocation prescribes) if your benchmark is equities (and bonds for the portion benchmarked to a bond index). We think the onus is to find a good reason to be out of stocks, not in them. Oddly, we don’t see the same mentality afflict people on the bond side. People don’t seem to continually seek reasons to own bonds—those always seem self-evident. In our view, it should be just as self-evident with stocks.
Trying to dance in and out of the market ignores that when you picked your benchmark, you probably based it on historical returns, which help inform the probability it can reach your goals. Those returns include all volatility along the way—all pullbacks, corrections and bear markets. Hence, success shouldn’t require avoiding temporary declines. Doing so isn’t necessary to reaping market-like returns over time. But it does require being invested to capture those long-term returns.
The Time to Sell
To be clear, we aren’t advocating for a “buy and hold” strategy. There are times when it makes sense to sell.
Portfolio Maintenance
You should pare back or sell holdings if they are becoming an outsized portfolio weighting. This can happen after a stock or sector enjoys a strong run. While outperformance is obviously satisfying to experience, it can increase a single security’s weight in your portfolio—leaving you more vulnerable to its movements (up and down). Regular portfolio maintenance to ensure your portfolio’s weights remain in line with your benchmark reduces concentration risk. You can also pare back or sell securities to fund cash flow, harvest tax losses to mitigate realized gains, etc.
A Fundamental Change
If something about the stock has fundamentally changed, exiting makes sense. For example, what if the company brings in new leadership that doesn’t look equipped to navigate the industry’s landscape? Or the firm gets away from its core business and expands into unrelated fields? Whatever the reason, if your thesis to own no longer exists, then selling is sensible, in our view—true whether the stock’s price is up or down.
Bear Market
Beyond the security level, it can make sense to reduce stock exposure if you believe a bear market is forming and much deeper, longer downside lies ahead. There are some critical considerations to making this decision to sell. First, you must have a fundamental reason few else notice that suggests there is a high probability of a downturn ahead.
Even if you have a reason, we think it is wise to follow some rules to mitigate the risk of being fooled and selling during a temporary drop amid a broader bull market. For example, we don’t recommend taking defensive action within three months of a market high. Bear markets typically begin with rolling tops, with gradual declines averaging about -2% a month. It is critical to take the time to assess whether a true bear market is forming or not.
In our view, missing bull market returns is more damaging than experiencing a bear market. Bull markets follow bear markets, which allow you to recoup the decline. But missed returns are very hard to recoup without taking undue risk. However, if you do identify a brewing negative early enough and before it is widely discussed, it can make sense to reduce market exposure and mitigate some of the decline.
Breakevenitis doesn’t qualify for any of these reasons. It is an emotional reaction to what already happened—a backward-looking decision, not a fundamental, forward-looking one. Giving into breakevenitis replaces your long-term goals with a short-term objective of having a portfolio at an arbitrary level. Is that why you are investing? Say you invested 5 years ago with a 30-year time horizon. Selling at breakeven effectively truncates your time horizon at five years. Does that match your needs?
Opportunity Cost
Finally, breakevenitis also carries a potentially large opportunity cost—which can set you back from reaching your investment goals. Opportunity cost refers to the value of something given up in exchange to do something else. For instance, selling at breakeven means you didn’t lose money after a downturn. Good for you! That may provide you some temporary relief. Getting out of the market at prior-high levels can feel like taking back control after a bout of unnerving volatility. But in leaving markets after breaking even, you are giving up the opportunity to reap the growth tied to stocks’ long-term gains, which come hand in hand with volatility.
You are also left with some tough questions. Yes, you didn’t “lose” money. But your investment goals haven’t changed, have they? How are you going to reach them? What are you going to own over the rest of your time horizon? You may think stocks feel too volatile. But what are your alternatives? Gold? Bouncier than stocks. Even more so for crypto. Owning more fixed income won’t provide the growth you need over your time horizon. Settling and holding cash also won’t provide growth, especially after factoring in inflation’s erosion. If you would re-enter stocks at some hypothetical future point, you must know you always face the risk stocks fall after you get back in. If so, why get out because you “broke even?”
Perhaps the most uncomfortable question you need to address: How will not having the resources you need late in life feel?
To see the costs of succumbing to breakevenitis, consider this hypothetical scenario based on actual market returns over the past three years. (Exhibit 1) Two investors, each with a $1 million portfolio, enter the market on January 4, 2022—the day the year’s minor bear market started. They endure 2022’s challenging sentiment-driven downturn before a new bull market begins in mid-October. The rebound is sharp, though neither of our investors’ portfolios returned to pre-bear market values. Then in August 2023, they experience a correction that ends in October. Rough! Finally, their portfolios get back to $1 million (and change) in mid-December 2023.
At this point, Investor B decides he has had enough. He promised himself to exit stocks once his portfolio got back to $1 million and said he would return after markets “calmed down.” His portfolio sits in cash for the next 17 months.
In contrast, Investor A holds firm and sticks with her investment strategy (which means owning stocks). The market rewards her discipline with a strong 2024. All seems swell until April 2, 2025. President Trump’s “Liberation Day” announcement then roiled global markets, which plunge into a correction. Investor A’s portfolio value actually falls below Investor B’s briefly!
But almost as quickly as they fell, stocks rebounded sharply. That puts Investor A (who kept a stiff upper lip and maintained her asset allocation) close to where her portfolio was before Liberation Day—and well above where she and Investor B were when their portfolios returned to $1 million in December 2023.
Looking back at this hypothetical scenario, Investor B “broke even”—but missed out on over $180,000 in portfolio appreciation. Those are gains—and missed opportunity—that will compound over these investors’ time horizons. The decision jeopardizes B’s investment goals while Investor A remains on a better track to reach hers.
Exhibit 1: The Cost of Giving in to Breakevenitis
Source: FactSet and St. Louis Federal Reserve, as of 6/3/2025. Hypothetical portfolio values based on starting value of $1 million invested in the MSCI World Index with net dividends, 1/4/2022 – 5/31/2025. Investor B liquidates their portfolio on 12/19/2023 after portfolio value returns to $1 million, earning money market returns from December 19, 2023 – May 31, 2025 (based on the FDIC’s Treasury Yield: Money Market <100M time series, December 2023 – May 2025). Investor A maintains full global market exposure.
Conclusion
Now, as Fisher Investments founder and Executive Chairman Ken Fisher counseled in his 2012 book, Plan Your Prosperity, “If you find investing difficult, you’re normal. If you find it easy, you’re half kidding yourself. If you can acknowledge investing is hard and counterintuitive and a lifelong battle, you likely have a bit of a leg up over your peers.”
There aren’t any shortcuts. To earn growth, you must take volatility risk—which will always involve the risk of loss. If you wish to shield your portfolio from loss (i.e., capital preservation) then your portfolio won’t grow. Note, too, that if someone tells you they have a product offering equity-like growth and no possibility of loss, turn around and walk away—quickly. Such products don’t actually exist—and the person proffering it is either telling you what they don’t know—or worse.
Difficult as investing may be, a setback (or even multiple setbacks) won’t prevent you from reaching your goals. As MarketMinder’s Senior Editor Elisabeth Dellinger wisely wrote a little over a year ago, “Down markets are discouraging to most, and they can feel like they will never turn around. But the most rewarding things in life are always difficult. Climbing the mountain, winning the race and beating the odds are timeless, relatable metaphors for a reason.”
If you would like to contact the editors responsible for this article, please message MarketMinder directly.
*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.
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