The stock market has certainly been all over the place lately. A few people have told me that the constant chatter about impending doom is pushing them towards pulling out or re-allocating their investments to expose themselves less to stocks. If I can stomach short-term losses like I think I can, I intend on using any upcoming doom as an opportunity to buy. In the long term, I don’t think the stock market will let me down.
Walter Updegrave fielded a question from a “fraidy cat” today:
Is it time to move our 401(k) out of stock funds and into bond funds? I did this back in 2000 and saved my 401(k) from huge losses. I’m getting nervous about the current market and wondering whether it’s time to make another switch.
The Money Magazine expert (in “Ask the Expert”) chided the investor and attributed her move in 2000 to luck. Selective memory attributes good results to skill and bad results to bad luck. Updegrave asked this question:
When exactly did you get back into stocks?… Ideally, you would have wanted to move back into stocks just as they hit a bottom in October 2002. Had you done that and stayed in stocks until now, you would have gained about 85 percent… But if you had waited until mid-2003 to re-enter the market — waiting until it felt safe — your gain would have been cut nearly in half to 46 percent.
Alternatively, if you had stayed in the market between August 28, 2000 and now, without purchasing while the market was down, you would have just barely recovered your losses. Dips are great opportunities for the long-term investor, but I wouldn’t suggest selling when the media is full of negative outlooks and all your friends are thinking about exiting the stock market.
Fraidy cat wants out of this stock market [Money Magazine]
Published or updated November 30, 2007.