Sound fundamental investment philosophy generally works against your emotions. Over the past couple of months, liquidations out of the market and cash on the sidelines have risen, as the markets are trading at new lows. Having a solid understanding of what your time frame is and how markets perform over various time frames can help prevent you from making an emotional decision. If you review the performance of stocks over various holding periods, you gain an understanding of the potential volatility associated with those time frames. Therefore, as long as you have a reasonable time frame and understand how the length of time you hold an investment reduces your risk, this should prevent you from making emotional decisions.
Investors are inclined to put their money on the sidelines until conditions improve.
Finding the ideal re-entry point is nearly impossible and can be damaging as the market recovers. As you can see, the danger of timing the market is far greater than remaining fully invested. Understand the true meaning of asset allocation. Most investors will tell you they employ asset allocation principles, but react and manage their money on a very short-term basis. Asset allocation works over the longer-term.