In Keep Investing During Market Declines, there were a few commenters who disagreed with my sentiment that investors should keep investing no matter what the market was doing. Instead, they were advocating pulling out of the market, waiting out the downturn, then jumping back in for the ride up. The problem with this? No one knows when the downturn will end or the upturn will begin.
I'm not sure the commenters were buying this from me, so I thought I'd post MSNBC's thoughts on the issue:
Gordon Ceresino, vice chairman of Federated Investors' MDT Advisers, contends that employing an investment strategy that extends over at least seven years can help investors look past the day-to-day swells and swoons of the stock market and help them resist the temptation to sell their holdings when Wall Street gets rocky.
"They get too caught in the emotion and they will tend to zig when they should have zagged," said Ceresino, referring to professionals and everyday investors alike.
Investors who just can't get past their nervousness about the market can still move into areas of safety like government-backed bonds. Market-watchers urge investors to be mindful, however, of the hazards of reacting too quickly — someone who pulls too much money out of stocks may miss out on the start of a Wall Street rally. Indeed, investors are still debating whether the economy is already in a recession or only a mild slowdown.
Ceresino said that trying to pick when to exit and re-enter the market is a daunting challenge for any investor, even a professional.
"The person that thinks they can lock in their current portfolio returns by going to cash and then time themselves back in — what you end up doing is you end up destroying your ability to meet your long-term goal."
No one can predict when the market will go up or down. And since the stock market's trend in the long-term is up, in the long-term you have much more to lose by being out of the market than you could potentially "save" by being out of it in a downturn.
Me? I'm still investing as much as ever (and even a bit more.) I've recently moved some of the cash we were saving as a downpayment on our new home into the market (I like buying at a discount.) Don't worry, we still have a large downpayment in case we do buy a house, but I felt it was time to put some money into a much cheaper market. I think I'll be rewarded several years down the road.
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