This article argues that the best way to protect your portfolio in the next downturn is to stay invested. You are very unlikely to be able to time both an exit near the top of the market and re-entry near the bottom. It’s better to stay invested.
Why? Studies repeatedly show that individual mutual fund investors rarely, if ever, get out of the market near its top. And they rarely, if ever, get back into the market at its bottom.
Instead, time and again they end up selling low — then buying high after missing the often explosive start to a rally. Markets have recovered from every downturn, T. Rowe Price senior financial planner Stuart Ritter says in a new study. In every 15-calendar-year period since 1926, stocks have notched positive gains, he says. That’s despite depressions, world wars and recessions, including the 2008 financial crisis.