Vanguard research on investor behavior titled Cash Panickers: Coronavirus Market Volatility underscored how, paradoxically, doing nothing can often be the best course of action.
The 2020 report looked at a small subset of Vanguard retail households and plan participants who abandoned equities for cash during the sharp market sell-off that began as the pandemic unfolded.
To assess how these so-called cash panickers fared, our investor research team calculated two return metrics. For the first, the researchers estimated the actual total returns that cash panickers realized between February 19 and May 31, 2020, a period that included a 34% fall in the S&P 500 Index and a subsequent 36% rise. For the second return metric, they calculated the “personal pre-pandemic benchmark” return for each cash panicker. That benchmark represents the return that would have been earned if the investor had not panicked and moved to cash (assuming they reinvested dividends).
As the chart illustrates, 86% of cash panickers locked in losses over the three-and-a-half-month period. Moreover, they missed out on the rebound, meaning nearly all of them ended up with actual returns that were lower than their personal pre-pandemic benchmark portfolio returns.