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Sorry You Went to Cash?

So you cashed out. And now that the Dow ended last week with two straight days of triple digit gains, you’ve probably been kicking yourself since Friday’s close, wondering what you’re going to do come Monday morning.

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You’re not alone: Plenty of investors moved to cash early last week when the market first cratered. For example, U.S.-domiciled equity funds saw net outflows of $14.4 billion in the week ending Aug. 10, according to Lipper — the biggest wave of net redemptions since May of 2010. Some even got the timing all wrong, locking in losses for the year instead of avoiding them.

But it may be too soon for sellers’ remorse, say experts. The new U.S. debt deal and the escalating sovereign debt crisis in Europe could mean the worst is still coming for stocks, says Jonathan Satovsky, chief executive officer of Satovsky Asset Management in New York. On top of that, some crashes are drawn out for weeks or months, with occasionally temporary rebounds — making market timing extremely tricky. In the last downturn, stocks lost 7% on Sept. 29, 2008, but didn’t bottom out until March 2009 — six months later. “We’re going to be in an extraordinarily volatile period,” says Satovsky, chief executive officer of Satovsky Asset Management in New York. “Where you have to brace yourself for what just happened in the last couple of weeks for the future.”

Of course, other investors have had better luck. Last week, many investors made significant moves out of equities in their 401(k) plans on the days when the stock market saw big losses, and they moved money into stocks on days when the market rallied, according to research from Aon Hewitt. Meanwhile, many pros are abandoning their buy-and-hold approaches: About two thirds of advisers surveyed this spring by insurance company Jefferson National said they planned to use “tactical management,” (a fancy term for market timing) more often. But as the last few weeks have shown, it can be hard to get those moves exactly right. “They’re never going to be able to pick the exact low or the exact high,” says Andrew Goldberg, U.S. market strategist for J.P. Morgan Funds.

For investors regretting their exit from the market, it’s not too late to get back in. After all, the Dow Jones Industrial Average is still down about 1,500 points, or about 12%, from the high it reached in late July, says Richard Meyer, senior wealth adviser with V Wealth Management in Overland Park, Kansas. For investors who went to cash and missed the rally, Meyer recommends re-investing about half the money they want to allocate to stocks for the year this week, and invest the rest over the next few months.

Others say that if you’ve found yourself making too many moves lately, it’s time to re-evaluate your risk tolerance, revise your long term plan and stick to it. “Investors who have the guts to stay invested and stay balanced today I think it will pay off in the long run,” says Goldberg.


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