Amazing fact: Less than one percent of stock exchange trading days accounted for 96% of the gains over 40 years, 1963-2004.
By fleeing for the comfort of safe and insured, however, investors with a time horizon beyond a few years may be doing real damage to their long-term finances. If you’re tempted to make a big move to cash right now, you’re doing something called market timing. It’s an implied statement that you’ve figured out the right moment to get out of stocks — and will also know the right time to get back in.
So let’s dispense with the first part straightaway. The right time to move out of stocks was a year or so ago, before various stock indexes the world over fell by one-third or more.
If you missed that opportunity, you’re hardly alone.
But if you sell now, you’ll be locking in your losses. And once you’re in cash, there isn’t much upside. In fact, with interest rates low, you’re likely to lose money in cash, because inflation will probably eat up the after-tax returns you earn from a savings or money-market account.
From Switching to Cash May Feel Safe, but Risks Remain, an article in today’s New York Times.
If you sell now, when will you get back in? You may miss the memo.
A good article.
I’m conflicted; believing the line that you make a decision every day (hold or sell). i know the truth of holding when your horizen is 5 yr or more. but, if you believe the near term looks shaky, why not sell and get back in later. well, the rub is gettin up the nerve to get back in.
an, as you pt out, if you’re not “in the market” when it turns, it’s often too late.
so another saying: don’t try to catch a falling knife. anybody got the nerve to grab hold?
well, apparently there are! because, for every trade during the last hour of trading, there was someone willing to buy that falling knife.
confused and frustrated