Today's Question for Individual Long Term Savers and Investors ... Continue to Invest in Stocks or Sell Now and Go Away Temporarily ? ... The Answer is Easy

What's an individual to do with his savings now that the stock market has rebounded to new highs? Is it time to take some money off the table? Or stay the course?


Well, everything is relative when it comes to investing for the long haul, as is also the case with almost everything else in life. And individuals will be hearing the old 'sell in May and go away' advice from lots of peers and stock brokers as summer nears.


But I do know this about investing for the long haul. It's not enough to be right when deciding that it's time to sell. Later we also have to be right about the timing on when it's time to buy again. A two'fer is tough for even the best professionals, and a feat not often tried successfully by either pros or amateurs. So my method is to stay invested for the long haul and let the general upward direction of the market take care of things for me.


In fact, even for the worry warts among us, and despite all the unsettling domestic political and international issues (especially those concerning Russia), the stock market isn't overvalued today.  Our U.S. and global economies are improving, albeit slowly, and while no guarantee, this factor alone makes it likely that the market still has a considerable ways to climb before running into potentially serious headwinds down the road.


Investors double down on dumb idea is subtitled 'Why seeking too much safety will be worse than being too aggressive' tells the story well:


"Average investors are known for having a few classic bad habits.


Right now, however, they may be avoiding one of their bad traits by actually doing something worse. The question is whether the move is pushing investors out of the proverbial frying pan and into the fire.                                        


To find out, consider research released this week by Bankrate.com showing that nearly three-quarters of Americans say they’re not “more inclined to invest in the stock market right now,” despite the over-sized returns the market delivered last year — and has produced since 2009 — and the under-sized rates they can get on cash and fixed-income investments.


Those numbers held across all ages and income groups, and mirror results from surveys done in 2012 and 2013, when 76% of Americans said they were not inclined to increase their stock market exposure. . . .


It’s why studies show that investors routinely get the worst out of their mutual funds, rather than the best; they only make purchases after big run-ups and then they sell when they are disappointed as the market runs through cycles and performance evens out.                                        


The problem is that by staying out of the market at a point when rates are so low and the Federal Reserve is practically daring you to invest, those same people already have missed out on several great years.                                         


Maybe they locked in the losses suffered during the financial meltdown of 2008, or maybe they simply have stayed put with their asset allocations — in which case not being inclined to invest more in stocks does not suggest they are out of the market — but either way they have missed out on a huge opportunity. . . .                                        


The real problem here is that investors are simply exchanging one risk for another, but they think they are being safe in the process.


While the money kept on the sidelines does not face principal risk — the chance they will lose money during a market decline — it runs headlong into purchasing-power risk (the potential for their holdings to be unable to keep pace with inflation) and longevity risk, where current returns are insufficient to make their money last a lifetime. . . .


Scott Wren, senior equity strategist at Wells Fargo Advisors, has . . . noted that during the market’s six percent pullback in January — as well as a more recent quick decline of four percent -- “Our clients didn’t buy, they didn’t sell, they sat on their hands and didn’t do anything.”                                                


It would be easy to pass that off as a buy-and-hold, set-it-and-forget-it philosophy, but that’s not what Wren sees as happening.                                        


“Many investors think back not just to the financial calamity that happened in 2008 but also to the tech bubble that burst in 2000…so 14 years of memories of two times portfolios being down at least on paper over 50% have scared a lot of people,” he said. “The baby boom generation is worried about outliving their money but they are sitting on too much cash, and the younger generation…they’re not invested in the stock market I think as much as the baby boom generation was.”


Investors who are sitting on the sidelines because they believe the market is overdue for a downturn or another calamity will someday be right again. It could be soon, the problem might be more than a “correction,” and they don’t want to feel like they are getting burned.


But if you don’t see trouble as being imminent — meaning that an implosion is imminent for reasons that have you scared right now — you can spend a lot of quality investment time in the wrong investments waiting to avoid the next downturn.


Avoiding pain simply because downturns scare you — and with the market at all-time highs, you can make a case that all downturns are “temporary” — too often turns into missing out on the long-term trend. It is, proverbially speaking, jumping out of the frying pan without recognizing that the burn suffered from missing out could be far worse; for too many sideline sitters, the results of seeking too much safety will be worse than the pain they would have suffered by being too aggressive.


“Five percent CD yields are not coming back any time soon,” said Wren."


Summing Up


Interest rates are low.


Inflation is low.


Economic growth is slow.


But the economy is getting better, albeit slowly.


The general direction of stocks is up. That's always the case.


In the short term, anything can happen, of course.


But long term savers and investors need to get in, stay in, invest more and keep the faith in the future of our great country. It's never been a bad bet over the long haul, and it's not one now.


That's my take.


Thanks. Bob.