Mutual fund investors head for the exits -- Don't follow them!
This is understandable given the amount of fear there was about the economy in 2008, but if history is any indication, the timing on these redemptions could not have been any worse. Why? Because fund investors have an uncanny tendency to get excited when the market is going up and then get depressed when the market falls, leading them to buy high and sell low, only to buy back in higher.
In a column posted on his website, personal finance author Ric Edeleman describes the results of Morningstar's research: "For example, consider the returns of a fund that (according to Morningstar) averaged 15% per year for the ten years ending December 31, 2006. Morningstar says the average investor of that fund earned only 2.6% per year. In another fund that posted an 8% annual return, investors earned only 0.6%. A third, which posted a 7% average return, has an average investor return of --15%."
It's possible that it's different this time -- but it probably isn't. The overwhelming odds are that, if you sell now, you will end up buying back in at a higher price. That's a hard way to get rich. So sit tight and, if the scary headlines are giving you ulcers, turn off the television -- or just switch it to Project Runway re-runs.