Defense can be costly
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All investors love the prospect of a rising stock market; however, once the trend starts downward and prices approach historical lows, many investors feel the need to be defensive and retreat to the security of cash or money market instruments. While no one likes a turbulent market, those investors who can focus on the longterm and stay invested stand to gain.
For example, an investor who stayed fully invested in the S&P500 Composite Index from Jan 1/90 to Dec 31/08 realized a 5.1% annual return (excluding dividends). Conversely, an investor who missed the 40 best days of the S&P500 over that time period (less than 1% of the trading days) realized a -4.7% annual compound return (excluding dividends).
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