Ramit Sethi explains why panic selling during market crashes locks in losses and destroys long-term returns. Broad-market index funds average 7% real returns, but the average investor only captures 2.5-3% by trading emotionally, a gap that costs hundreds of thousands over a lifetime.
May 2, 2025
Around 7% (real, after inflation).
About 2.5% to 3% (average investor realized returns).
One of the things that happens when people sell their stocks in a panic because they see the market going down day after day is that it's called locking in your losses. You basically sell low and then when it goes back up, they buy highs. Exactly the opposite of what we all know we should do. But people get scared. The way that it happens is day one, people see it, they go, okay, Day two, they start paying attention. Day five, they start talking to their spouse. And after hearing one week, two weeks of bad news, seeing those scary charts, they finally capitulate. They go, I can't take it anymore. And that is when they cause life changing ramifications for themselves. I don't know if you all know this really fascinating data showing that if you invest in index, an index fund, you get around 7% returns real, it's after inflation, but the average investor receives something like 2.5 to 3%. That's crazy. That's hundreds of thousands of dollars. Why exactly? Moments like this where they get scared and they sell. So my advice would be don't panic, slow down, definitely take a measure approach before you sell. Locking and losses and costing you hundreds of thousands of dollars over the rest of your life.
