Investors who look at a brokerage or 401(k) account balance these days may well want to yank every last cent out of the markets. Unless they need that money soon, they ought to stifle that urge.
It's understandable that investors would be unnerved by triple-digit drops in the Dow Jones industrials, failures of well-known banks and troubles at other financial houses. But investors should remember that scary times often bring the best buying opportunities and that fear can lead them to make unwise moves, including abandoning a well thought out long-term investing plan.
A hasty run from the market will likely just lock in losses.
“In this kind of a market, it just is very normal and natural for people to become very short-term focused,” said Don Hodges, chairman of Hodges Capital Management in Dallas. “Just the opposite of that happens when markets are good and going up.”
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Hodges, who has been in the financial business for 48 years, encourages investors to adopt a broader view and not dump good investments in a panic.
“I've had three or four clients that have sold perfectly good stocks,” he said. “They're uncomfortable seeing a large percentage of their assets going down with the market like this.”
Hodges understands that it's hard to act coolly in a difficult market – Wall Street's recent volatility is the worst he's seen.
But, he recommends to investors, rather than dwelling on how it feels to lose money now, consider how it would feel to miss out on a market rebound.
Trying to jump back in at the right time is difficult for even the pros, and most investors miss the mark.
“Once a real turn comes nobody believes it about the first 20 percent up. They think it's just a rally in a bear market,” Hodges said.
Instead of fleeing, more adventuresome – and some would say wiser – investors might look for bargains unearthed by Wall Street's retreat.
“My antenna goes up more in this kind of market than it does in another kind of market,” Hodges said.
He's not alone. Warren Buffett, whose reasoned, long-term approach has attracted legions of followers, has invested at least $5 billion in Goldman Sachs Group Inc. He moved in after investors pounded down the shares of Wall Street's most prestigious firm because of widespread fear in the financial markets.
But the bear market hasn't whetted most investors' appetite for bargains. Many are wary of further losses.
Financial advisers suggest investors set up a financial plan that will help sidestep some of the fear that a downturn brings. And stick with it.
If you want to move money out of an account, the best way is to not move it all at once.
Do it at set intervals, and work in small sums, not huge amounts. So an investor wanting to transfer $40,000 from one type of account to another might move $10,000 at the same time each month for four months.
Ron Kiddoo, chief investment officer at Cozad Asset Management in Champaign, Ill., said investors who aren't comfortable with committing to shift money in or out of the market on a fixed schedule can move part of it then wait a month or two and reassess the situation.
He added that while the market downturn presents opportunities, investors need to consider how soon they'll need money – someone close to retirement, or who needs money for children's education or a new house may need to move money sooner than other investors would do.
“It's definitely a different situation for someone who is 65 versus someone who is 35,” Kiddoo said.
“There are some real opportunities, but I don't want to be the first one to the party,” he said, backing a somewhat cautious approach.
Most often, he tells clients to resist the urge to sell.
“As trite as it sounds, I tell people to stay the course. If you think getting out of the market now is the right thing to do, do it because you want to get out of the market for good but not because you plan to jump back in later.”