Be wary of short-term risks
Part 1. You have to decide what type of pain you are willing to accept -- a fast bleed from a sharp decline in stock or bond prices, or a slow bleed from the loss in purchasing power from earning a near-zero rate on cash.
I'd argue the majority of investors are more likely to make poor investment decisions in a fast-bleed scenario.
You never know the value of liquidity until you need it and don't have it. Liquidity means holding short-term Treasury securities or short to intermediate high-quality bonds.
- Robert Rodriguez, CEO of First Pacific Advisors and co-manager of FPA Capital. His fund beat the market in the 2000-02 and 2007-09 bears, and he fears there could be another downturn
Part 2. The common misconception is that there is a close link between the economy and investment performance. Right now, the economy is expanding at a pedestrian 2% pace, unemployment is a very high 7.5%, and corporate profits are barely growing. Yet stock prices are up a whopping 15% from the beginning of the year.
The market has gotten ahead of the slowly improving economy. So don't buy stocks now expecting a short-term gain. Buy stocks for the long run.
Even through the inevitable ups and downs in the economy, the prospects for American companies are about as good as they get.
-- Mark Zandi, chief economist, Moody's Analytics
Know when to sell a loser
The real secret of investing is to keep your losses small. So many people hang on to a bad investment for too long, in the hopes they will break even. Make sure you have a specific sell point planned out. The number is up to you.
I personally wouldn't hold onto a stock fund past a 10% drop from a high, but there's no magic in that number. The magic is in having the discipline to follow through.
If the market then shoots up, you've lost opportunity, but that's not as bad as the losses you could suffer if your investment keeps dropping.
-- Ken Sleeper, portfolio manager at the Sierra Funds
Top experts and Money readers share their smartest tips on everything from selling a home quickly and winning a bidding war to cutting your electricity bills and prospering as a landlord.