Larsen stresses that he's no advocate of the simple "buy and hold" posture.
"We're tactical asset allocators," he says. "Buy and hold works in a secular bull market, like the one we had from '82 to 2000, which was when a lot of (today's investors) came of age. … We're not in secular bull market now. We're either in a sideways market or a secular bear market."
David Hefty, CEO of Hefty Wealth Partners in Auburn, Ind., says his firm applied tactical analysis to cope with the stock market during the 2008 financial crisis. "During that time we were putting hedges on our equity exposure and increasing cash," he says.
A rational approach
The fear of losing money isn't always a bad thing, especially if, like most of Certified Financial Planner Michael Reese's clients, you are fast approaching retirement or already retired. In those situations, the tendency to avoid the risk of losing your assets makes sense, because you have less time to recover from any losses you incur. But otherwise, Reese says, buying stock in a down market is like "investing on sale."
"When you see a market crash, as a younger person investing, that's an outstanding opportunity," says Reese, founder and principal of Centennial Wealth Advisory in Traverse City, Mich. "It feels bad to see your portfolio falling in value, but you should also remember: 'I'm buying all these shares so inexpensively that down the road these shares are going to represent some of the best investment returns I'll ever have.'"
In Koppel's view, the best antidote to loss aversion is to study the markets and develop a strategic investment plan, actions that he says "support rationality." Patience is essential, too.
"But patience comes from being able to understand the process and your motives, to have a plan and then put that plan into action," Koppel says.