Should you Buy, Sell, or Stay way in this Market Correction?

After a turbulent week that pulled almost every financial assets down to earth, investors wonder whether now is the time to buy, sell, or hold on to financial asets. Some  have been calling in popular financial experts for advise and comfort.

“Should I sell my stocks in my 401K account?” asked recently a financial investor, calling in a financial  expert on a popular TV show.

“How old are you?” asked back the financial expert.

“Forty five years old”

“You don’t have to worry. You don’t need the money for another 15 to 20 years. Markets will come back. They always come back.”

Investors and financial professionals love clichés about the performance of certain asset classes over the long-term. They do offer comfort of the mind, especially when markets move against investor bets, but they can be very costly for investors who stick with them.

Here we unveil and defy three of those Clichés:

Clichés 1: “Gold always goes up. You cannot lose money in gold.” Really? What if you purchased gold around 1982, when the metal was around $800 an ounce and sold it around $260 in the early 1990s? You collected no interest or dividend over ten years, and lost close to 70 percent of your principal! Obviously gold doesn’t always go up. But what if you kept your position until now? You certainly doubled your money, but that took 20 years—a 3.6 percent annual return, hardly beating the return of a money market account.

Cliché 2: “In the long-term, stocks always outperform every other asset category.” This is a well-searched proposition in the finance discipline, and in many cases it is true (provided that dividends are re-invested), but it isn’t always true. The performance of Japanese stocks over the last twenty years is a case in point. The Japanese Nikkei Index is down 70 percent. Yes, 70 percent over twenty years!

Clichés 3: “Real estate always goes up.” This is also a well-researched proposition, and it is generally true, but not always true. US investors who purchased real estate in the early 1980s and sold in the late 1980s fared well, but those who purchased real estate in the late 1980s and sold in the middle of the 1990s did lose money. And, of course, there is the case of the Japanese real estate, where investors lost 40 percent of their money over the last twenty years.

The bottom line: Certain assets outperform other assets most of the time, but all the time; and this can be dangerous to investors financial health, as the they can suffer significant losses.

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