Don't flee with the crowd. In the past year nervous investors have pulled $170 billion out of stock funds, while pouring money into bonds. But over all the 20-year rolling periods since 1926, a 50/50 stock-bond portfolio -- what conservative target-date funds suggest for near-retirees -- delivered annualized returns of 8.7%, vs. 5.5% for a 100% long-term government bond portfolio.
Avoid jumping in and out. Buying and selling on the news is a sure path to sub-par returns. Market gains have tended to come in short, sharp spurts. So by the time you realize an advance is under way, the best of it is over.
Need proof? Let's say you started out in 1996 with a $10,000 investment in an S&P 500 index fund. If you left the money in the market, you'd have had $22,170 at the end of 2011, based on Allianz returns data.
If you'd missed the 10 best trading days, you'd have $11,040. If you missed the 30 best trading days, you'd only be left with $4,550. Better to stick it out in the market. (Of course, if you missed the worst days you'd do pretty well too -- but to time those, you'd have to be psychic.)
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