Stock portfolios: Time to hold or fold?

For years now investors have “plowed” their savings into the stock market, believing that stocks outperform other securities over the long term, said Peter Coy in BusinessWeek. That’s not wrong. But “what many investors have failed to realize is that ‘the long run’ can sometimes be very, very long.” Over the past decade, in fact, government bonds have done better than stocks, and many experts think stocks still have room to fall before reaching bottom. “No wonder pundits such as Jim Cramer, the CNBC stockpicker, are sounding off about ‘how the best way to invest is not to buy a bunch of stocks and just sit on them.’”

But getting out of stocks now “could turn out to be a very big mistake,” said Brian O’Keefe in Fortune. History has shown that most investors who try to time the market fail miserably. “You’ve got to be right twice,” says Vanguard founder John Bogle—on the way up and on the way down. Most investors, rather than buy low and sell high, end up doing the exact opposite. “Look past the current chaos,” and you’ll recall that when markets do bounce back, it happens quickly. On average, stocks have appreciated 32 percent in the year following the 10 most recent U.S. recessions. “That’s the kind of recovery rally you don’t want to miss.”

This is no time to “throw caution to the wind,” said Reshma Kapadia, Janet Paskin, and Brad Reagan in SmartMoney. You still want to keep an appropriate amount of your portfolio in bonds and cash. “But the stock market remains the place where portfolios will get a rebirth.” Individual stock pickers should choose “cash-rich blue chips” that specialize in consumer staples, health care, and other areas that hold up down markets. “With the market expected to return 5 percent to 8 percent a year over the next decade—well below the returns taken for granted in the past”—dividends will also take on their old importance. Don’t expect huge one-day price swings to go away anytime soon. But buy at regular intervals, using the method of dollar-cost averaging, to dampen the effects of what’s sure to be a bumpy ride.

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