In September 2008, investors were pounded by a series of dreadful headlines. The federal government took over Fannie Mae and Freddie Mac; Merrill Lynch was sold to Bank of America; Lehman Brothers filed for bankruptcy. And that was just in the first half of the month late in September, the FDIC seized Washington Mutual, leading to a sale of its banking assets to JPMorgan Chase.
Stocks tumbled. Many so-called experts told investors to play it safe: pull out of the stock market and hold your money in cash.
Indeed, stocks kept falling through the fall of 2008 and the winter of 2009. Yet, two-and-half years since September 2008, investors who maintained their asset allocations have done much better than those who played it safe.
Cash has yielded little and continues to provide scant returns. Stocks wound up with good years in 2009 and 2010. The benchmark S&P 500 Index is now about 25% higher than it was in October 2008.
The bottom line is not to let headline panic distort your investment plan. If you have an asset allocation that reflects your long-term financial goals, it s better to keep your allocation in place rather than try to time investment markets.
