Wednesday, May 07, 2014

Bailing from a Bear Market

One of the biggest risks to investors’ net worth is the portfolio decisions they make.
Failing to adhere to an appropriate long-term strategy has a significant damaging impact on wealth. Since wealth is generated from the compounding of returns, actions that severely reduce an investor’s portfolio balance can have a long-term impact.

A common dangerous action is panicking and pulling out of stocks during a bear market. Such an action limits the immediate damage to a portfolio, but can cause an investor to miss out on the big rebound that follows a large drop by not jumping back into stocks soon enough. Even being out of the market for just one or two years can cause a considerable amount of wealth to be forfeited.

-from Charles Rotblut, CFA, in his article in the AAII Journal, The Danger of Getting Out of Stocks During Bear Markets.

(The gurus are getting us ready for a big drop in the market, methinks.  See my earlier post concerning a recent WSJ article.)

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