The S&P 500 is up roughly 11% through the end of May 2026. The Nasdaq is up about 16%. And if you zoom out a bit further, the picture gets even more dramatic — three consecutive years of double-digit returns, including back-to-back 20%+ years in 2023 and 2024 that we hadn't seen since the late '90s.
If you've been investing consistently over the past few years, you might be staring at your brokerage account thinking: I should probably take some off the table before all of this disappears.
That instinct makes complete sense. It also might be one of the most expensive decisions you ever make.
This post isn't about convincing you that markets only go up. They don't. It's about understanding the real cost of trying to "lock in" gains, what the data actually says about timing the market, and what you should be thinking about instead of hitting the sell button.
The Instinct To Sell Is Built Into Your Brain
Before we get into strategy, it's worth understanding why you feel this way — because it's not a character flaw. It's literally how your brain is wired.
In 1979, psychologists Daniel Kahneman and Amos Tversky published a paper in Econometrica that would eventually win Kahneman the Nobel Prize in Economics. Their research on what they called "prospect theory" showed that the pain of losing money is psychologically about twice as powerful as the pleasure of gaining the same amount. Lose $50,000 and the gut punch you feel is roughly double the satisfaction you'd get from gaining $50,000.
This asymmetry is called loss aversion, and it's the reason you're reading this article right now. You've made money. You can feel how much it would hurt to watch those gains evaporate. And your brain is screaming at you to protect what you have.
The problem is that loss aversion is a survival instinct, not an investment strategy. It's great for keeping you alive on the savanna. It's terrible for building long-term wealth.
The Math On Market Timing Is Brutal
Let's say you sell everything today because you're convinced a pullback is coming. You're right — eventually. There will be a pullback. There always is. The question isn't whether the market will go down at some point. It's whether you can time both the exit and the re-entry accurately enough to come out ahead.
J.P. Morgan Asset Management publishes one of the most cited studies on this. Their analysis, updated through February 2025, tracks a hypothetical $10,000 investment in the S&P 500 from January 2003 through December 2022. Here's what happened:
- Stayed fully invested the entire time: $64,844 (10.6% annualized return)
- Missed just the 10 best days: $29,708 (6.37% annualized)
- Missed the 20 best days: roughly $19,500 (3.69% annualized)
- Missed the 30 best days: roughly $12,800 (1.53% annualized)
Read that again. Missing just ten days out of roughly 5,000 trading days — that's 0.2% of the total — cut your ending portfolio value by more than half. And missing 30 days turned a 10.6% annualized return into something that barely kept pace with inflation.
Here's the part that really gets people: seven of those 10 best market days happened within two weeks of the worst days. The biggest up days and the biggest down days cluster together. So if you sell to avoid the pain, you almost certainly miss the recovery, too.
The Average Investor Already Proves This
If the J.P. Morgan study feels theoretical, DALBAR's Quantitative Analysis of Investor Behavior (QAIB) makes it painfully concrete. DALBAR has been tracking actual investor behavior — using real mutual fund flow data — since 1985.
Their 2025 report found that in 2024, the average equity fund investor earned 16.54% while the S&P 500 returned 25.02%. That 848-basis-point gap was the second-largest underperformance in a decade. It sounds like a rounding error when you say "eight percent," but on a $500,000 portfolio, that's $42,400 left on the table in a single year.
How does this happen? It's not because people are picking bad stocks. It's because they're selling when things feel scary and buying back in once things feel safe — which is, by definition, buying high and selling low. DALBAR's data showed that equity fund investors made net withdrawals in every single quarter of 2024, with the largest outflows hitting right before a major rally. Their "Guess Right Ratio" — the frequency with which investors timed their moves correctly — fell to just 25%. A coin flip would have been more reliable.
The 2026 QAIB report showed the gap narrowing significantly in 2025 (the average investor trailed the S&P by only 72 basis points), but that's partly because the market's path was smoother and gave people fewer reasons to panic. The long-term numbers tell the real story: over the 20 years ending December 2024, the average equity investor earned 9.24% annually versus the S&P 500's 10.35%. That 1.11% annual gap, compounded over two decades, is the difference between roughly $345,000 and $717,000 on a $100,000 starting investment. More than half of the potential wealth, gone — not to fees, not to bad markets, but to bad timing.
"But What If The Market Drops 30%?"
Fair question. And it might — at some point. The S&P 500 has experienced a decline of 20% or more roughly once every six years, on average. Nobody is telling you that won't happen again.
But here's the context that matters: looking at every calendar year since 1871, the S&P 500 has posted positive returns roughly two out of every three years on a price basis. Include reinvested dividends, and it's closer to three out of four. The most common annual return range? Between 10% and 20%. The current bull market, which began in October 2022, has delivered a cumulative gain of about 92%. The historical average for a full bull market cycle is roughly 184%, according to Yardeni Research.
None of that tells you what happens tomorrow. But it does tell you that the base rate for "the market goes up over time" is strong, and selling out of a bull market because you're worried about a correction means you need to be right about two things: when to sell and when to get back in.
History suggests most people get neither right.
The Tax Bill You're Not Thinking About
Here's the part of the "should I sell" conversation that almost nobody brings up at cocktail parties: the tax hit.
For the 2026 tax year, federal long-term capital gains rates (for assets held longer than one year) sit at 0%, 15%, or 20%, depending on your taxable income. Earn above $533,400 as a single filer or $600,050 as a married couple filing jointly, and you're at that 20% rate. On top of that, if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married), you'll owe an additional 3.8% Net Investment Income Tax (NIIT). That puts the federal ceiling at 23.8%.
But if you live in a high-tax state — say, California — the math gets significantly worse. California treats all capital gains as ordinary income. No preferential rate for long-term holdings. The top marginal rate is 13.3%, which includes a 1% Mental Health Services Tax surcharge on income above $1 million.
So if you're a high-earning California resident sitting on significant unrealized gains, selling everything to "protect" your portfolio could cost you somewhere between 28% and 37% of your gains in combined taxes. On a $200,000 gain, that's potentially $56,000 to $74,000 sent to federal and state governments — money that would have continued compounding if you'd left it alone.
Short-term gains? Even worse. If you've held positions for less than a year, those gains are taxed at ordinary income rates — up to 37% federally, plus California's 13.3%. The combined rate can exceed 50%.
Selling isn't just a market decision. It's a tax decision. And the tax drag of unnecessary selling is one of the largest, least-discussed destroyers of long-term wealth.
If you're trading in your IRA or Roth IRA, it's a different conversation though.
So What Should You Actually Do?
The answer isn't "do nothing" in the way people sometimes mean it — which is just ignoring your portfolio and hoping for the best. The answer is to have a plan that doesn't require you to predict the future.
Rebalance, don't panic-sell. If your portfolio has drifted significantly from your target allocation because equities have outperformed, you can trim equities and shift into bonds or other asset classes to get back to your original risk profile. This is a disciplined, strategic decision — not an emotional one. And it's the opposite of "selling everything." You're maintaining your exposure to the market while managing your risk.
Check your cash needs. If you're going to need a chunk of money in the next 12 to 24 months — a home purchase, tuition, a business investment — that money arguably shouldn't be in equities regardless of what the market is doing. This isn't market timing. This is financial planning.
Use tax-loss harvesting strategically. If you have positions that are down, you can sell those to realize losses that offset gains elsewhere in your portfolio. This lets you rebalance and manage your tax bill simultaneously. Just be mindful of the wash-sale rule, which prevents you from repurchasing the same or substantially identical security within 30 days.
Max out tax-advantaged accounts. Money inside your 401(k), IRA, HSA, or 529 isn't subject to capital gains tax as it grows. If you haven't maxed out those contributions, that's a more productive use of your energy than trying to time the market in your taxable brokerage account.
Revisit your financial plan. The real question isn't "should I sell?" — it's "am I still on track for my goals?" If you don't have a clear answer to that question, the market's performance is almost irrelevant because you don't have a framework for making decisions. A financial plan gives you permission to ignore the noise, because it tells you whether the noise actually affects your situation.
The Bottom Line
The urge to sell when you're up is just as dangerous as the urge to sell when you're down — maybe more so, because it feels rational. You're "being smart." You're "locking in gains." But the data from decades of research tells a consistent story: the biggest risk to your long-term returns isn't a market crash. It's your reaction to the fear of one.
The S&P 500 doesn't care about your anxiety. It's averaged roughly 10% annually for almost a century. But you only get that return if you stay in the seat. The average investor earns significantly less — not because the market fails them, but because they fail themselves.
Before you sell, ask yourself: Am I selling because my financial situation has changed, or because my feelings have?
If it's the first one, sell strategically and work with a professional to minimize the tax impact. If it's the second one, close the brokerage app and go for a walk.
Your future self will thank you.
Sources Cited:
- J.P. Morgan Asset Management, Guide to the Markets and "Impact of Missing the Best Market Days" analysis (data through Feb. 2025). jpmorgan.com
- DALBAR Inc., Quantitative Analysis of Investor Behavior (QAIB), 2025 and 2026 editions. dalbar.com
- Kahneman, D. & Tversky, A. (1979). "Prospect Theory: An Analysis of Decision under Risk." Econometrica, 47(2), 263–291.
- Visual Capitalist, "152 Years of S&P 500 Returns" (Jan. 2026). visualcapitalist.com
- Statista, "S&P 500 Annual Returns" (Jan. 2026). statista.com
- Tax Foundation, "2026 Tax Brackets and Federal Income Tax Rates." taxfoundation.org
- California Franchise Tax Board, capital gains guidance (updated Jan. 2026).
- Chase.com, "Stock Market Returns for 2026" (June 2026). chase.com
- Yardeni Research, bull market historical performance data.
This article is for informational and educational purposes only and should not be considered investment, tax, or legal advice. All investment strategies carry risk, including the possible loss of principal. Past performance does not guarantee future results. Consult with a qualified financial professional before making investment decisions.