Most investors in 2022 aren’t too happy with the total performance of their portfolios. The S&P 500 is down ~15% year-to-date, erasing about a years’ worth of gains in just a few months. It’s a situation that has many people asking, “should I sell my stocks now?”

The answer to that question is a complicated one, because it really depends on your situation. Giving into emotional biases and selling isn’t a smart move; yet, some investors can use this opportunity to trim positions if their investing thesis has changed. The real question comes down to your reason for selling.

Let’s dive into a few reasons why you should and shouldn’t sell your stocks right now, in the midst of a market downturn in 2022.

Sell to Rebalance into Defensive Investments

Depending on your risk tolerance, age or current portfolio allocation, the threat of a bear market is reason enough to rebalance. For example, if you’re five years from retirement and invested heavily in growth stocks, it might be wise to trim some of these positions and reallocate investments into stable blue-chip stocks. Likewise, if you’re overinvested in tech, you might rebalance to include more defensive investments such as consumer staples or utilities.

It’s up to every investor to look closely at their portfolio and rebalance accordingly. Start with a total portfolio allocation plan and reallocate efficiently to achieve that plan. Look for opportunities to take profits and offset those profits with capital losses. Likewise, aim for low-risk investments and safe haven assets.

Sell if Your Investment Thesis Has Changed

Poor performing equities often prompt investors to reevaluate their investment thesis. Do you still have the same outlook on the company, or has it changed based on specific variables? Reevaluate your losers and determine if your investment thesis is the same or if the stock no longer fits the mold of what you believe to be a successful company.

If your thesis is the same, don’t sell. Instead, wait for the stock to rebound in the future. If your thesis has changed due to factors implicit to the company’s success, it’s your signal to exit the position and put money into a company that meets your criteria.

Sell to Take Profits and to Offset Capital Gains

Investors looking to change the allocation of their portfolio or diversify into other assets should look for opportunities to take profits and offset them with capital losses. For example, you might sell a long-term loser that’s down $5,000 to offset a majority of the gains reaped from selling another stock at a $7,500 profit. You pocket $7,500 and are only responsible for taxes on $2,500 (in this simple example).

Keep in mind that you should have a plan for any capital gains you take out of the market. What are you going to do with that money? With inflation at all-time highs, it’s vital to spend or reinvest that money in a way that optimizes its value.

Don’t Sell Because You’re Afraid of Mounting Losses

Avoid panic selling! One of the most important considerations for investors to remember is that any losses are unrealized until they exit a position. If you can, maintain your position and ride out the turbulence. Selling because you’re afraid of mounting losses is an emotion-driven decision, not a rational one. If you don’t need that money right now, give it a chance to recoup some of its value as the market rebounds.

To get over the anxiety of current losses, look at your portfolio from a long-term standpoint. As any stock chart will show you, the longer the time horizon, the better the chance for recovery.

Don’t Sell Because Everyone Else is Selling

Following the crowd is a good way to lock in losses and lose out on investing opportunities. Stock capitulation and panic selling are instances where groupthink will hurt investors. You might think you’re following the actions of savvy investors by selling out of a falling position, when in reality, you’re creating a self-fulfilling prophecy of losses that only grow larger as you realize them.

Before you sell, make sure you have a factual, valid, data-driven reason to do so. Selling because of bearish sentiment isn’t a legitimate reason to exit your position.

Don’t Sell to Chase Short-Term Profitability

Many investors fall into the trap of selling their biggest lowers so they can reinvest the remaining funds in an up-and-coming stock. Unfortunately, chasing short-term profits tends to hurt investors, since there’s much more risk associated with short-term investments. Not only are short-term transactions taxed at a higher rate, the odds of winning on these speculative bets are low.

Losing a few percent on bad bets over and over again can turn out to be much worse than suffering through double-digit losses on a single stock that has the potential to recover in time.

Look Closely at Your Situation Before You Sell

Every investor has their own unique situation and circumstances to consider. “Should I sell my stocks now” is a question only you can answer for yourself. If you’re going to sell, make sure that sale comes with a clearly defined purpose. Evaluate your positions through a rational, analytical lens and keep your emotions in-check. It’s easy to sell out of fear; it’s difficult to form a rational conclusion to hold.

To help inform your decision to sell or hold your stocks right now, make sure you’re gathering as much contextual information as possible. Probe each company’s financials, stay up-to-date on earnings reports and make sure you’re subscribed to one of the best investment newsletters, so you make informed decisions that you feel good about.