Which is easier to make up: losses, or missed opportunities?

Question

My financial advisor gave a 'top ten days' theory for why pulling out of the stock market was a bad idea--that if you missed out on the best ten days in the market over eight years, you missed out on a large chunk of your opportunity to make money. Not to mention that a lot of what I'd sell would be worth less than what I bought it for.

I also heard a finance author's theory that it is easier make up missed opportunities than real losses--because having cash means you can get back into stocks when you expect them to grow and you have less chance of losing money.

So, give your opinion--keep stock figuring it will go back up when the economy gets better (why sell low, and you don't want to miss that day when it jumps), or accept the losses and prevent future losses by getting into bonds or pulling out completely to cash equivalents until things get back on the road to growth?

Answer 1

You will always lose if you pull out when you are at a loss already and go into bonds or bank the cash. One word: Inflation. You can never hope to even recoup from a loss standpoint when you figure in inflation. Historically, bonds barely keep up with inflation, let alone surpass it. The only hope of regaining your loss is to stay in the Market.

Answer 2

I think missed opportunities are easier to make up than losses. But, most importantly, if you take a long term view and choose wisely, you won't miss the opportunities and the losses will take care of themselves over time.

Answer 3

If people just followed simple portfolio theory no one would have to choose. Divide your plan into different secotrs with nearly equal sectors in each, like domestic, foreing equities, emerging merkets and foreign and domestic bonds and some commodities. Then simply react, if your commodities and bonds are flying (like right now) and your stocks sink, then sell some of the high flyers and reinvest at better prices in your laggards. In this way you are selling tops and buyign bottoms and you are also catching all major moves, the best of both worlds.

Answer 4

well, I'm staying in.  My thought is that if I get out now, it is a real loss - not just a paper loss.  Plus, I won't really know for sure when to get back in, so I may miss out on a great run.  If I had been smarter - I would have gotten out last Oct, but since I'm in to this point - I've decided to stay in and try not to look at the daily market ... too depressing