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.)