Markets can be unpredictable and irrational, in case you haven’t noticed.  Sometimes they are driven by fundamentals, and sometimes by momentum stemming from fear or euphoria. In the late 90’s we witnessed a bubble based on speculation about the internet economy.  In 2008-09 we stared into the abyss and thought the end had arrived.  With the benefit of hindsight, the market overreaction seems clear.

If you want equity returns, you need to accept the irrational turns in the market.  In the long-term, meaning 5 years or more, fundamentals matter.  Any investment is worth the present value of the future cash flows.  The problem is, expectations of cash flows can change in a hurry, but time resolves most big questions.

Plan and set aside your cash needs for several years, and keep those funds in a safe place.  But don’t let fear keep you on the sidelines.  You could find yourself in a bear trap for a long time, waiting for the market to come back.

Chart source: Yahoo Finance, period July 2, 1990 to October 1, 2013. S&P 500 Index.  Investing involves risk of loss.  Past performance is no guarantee of future returns.