Time to Run and Hide From Stocks?

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Last updated on July 22, 2019 Comments: 6

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

Article comments

Anonymous says:

Here in Canada the US stocks looked even more attractive – in the last month the US dollar hit a low of almost 90 cents and the S&P 500 dropped close to 1400 – from 3 low points in November, the gain of the S&P index in canadian dollars is 9-12% at current values. It would have been a great time to buy had I not been working on my bond allocation.

That also shows the risk of getting out when it’s bad – Nov 7th was the worst price in that time period but by the 12th it gained 2%, and since Nov 26 it went up 9% for me. You would be right to think that things looked bad on those days, but getting out could lose you an average year’s return within a week or two!

In general (and I probably don’t need to say this here), the biggest problem with the idea of selling when things are going down, is:

1) You’re selling when the price is low – or in other words, giving away money
2) If you do that you probably bought in when the prices where high – in other words, giving away money

I’m working my way up to a full portfolio, but if I was in that position I have no doubt that I would stick to my allocations and rebalance periodically or any time there’s a big change, then sleep happily knowing I’m not giving away money on both ends of the deal.

Anonymous says:

It’s not time to sell. It WAS time to sell before the crash. I sold back then because I was fully expecting this downturn (everyone was), so I own nothing at the moment.

What it’s time to do is BUY. The decline has happened. You can’t accurately call the bottom; it may decline a bit more, but whereas everything was overpriced two months ago, it’s not any more.

Anonymous says:

this is the problem and reason why the markets go south. people who say not to panic actually panic and sell leading markets to go south, then everyone else jumps on board. rather silly. if you continued to invest before the 2002 with a long term outlook, you would have continued to appreciate your investments. 20/20 hindsight people like to just talk about the 2002 timeframe. i switched mutual fund companies, and lucky for me, the market went south right after the cash out from the first company and stayed that way until the money was transferred to the second company.

yup, the question will always be where is the bottom and when is the market starting to go back up. i’m buying. the markets are still positive for the year.

Anonymous says:

I agree with The Saving Freak. We’ve got a little fire sale within the stock market right now, so I say BUY.

Anonymous says:

The author hit on a very important part – knowing when to get back in. If you’re going to jump ship every time things look shaky, then you need to be prepared with the knowledge of what to look for, and when it’s time to get back in. If you’re not prepared for that, then just stay the course and keep your money invested intelligently.

Anonymous says:

The attitude of the middle of a dip in stocks should be.”RUN TO YOUR BROKER EVERYTHING IS ON SALE!!!”