Quite often stock market pundits propose to stay 100% investing. Usually they argue that missing small number of best days (let's say 10) during quite long period (let's say 10 years) significantly affect investor return (they always assume capital gains only).
In my opinion (NYSEMKT:IMO) there are at least 3 factors in favor of the "stay":
a) Wall Street has simple insensitive - their fee depends directly on amount of money investors handle them;
b) It is rational for mutual fund managers to "stay 100% investing" if they cannot predict next market down-term (and most of humans really cannot) because of i) general stock market uptrend and ii) their common goal "to beat the market" in combination with short time horizon from 1 quarter to couple years;
c) It might be rational for investors not to release capital gains because of taxes asymmetry in favor of Uncle Sam (investor has to pay taxes on ALL gains but only $3K losses can be claim annually).
There are factors against the "stay":
a) Well let me quote folks who phrase the idea better than me:
"Activity is the enemy of investment returns." - Warren Buffett
"It takes character to sit there with all that cash and do nothing." - Charlie Munger
"Cash combined with courage in a time of crisis is priceless." - Warren Buffett
b) Stock return depends mostly on price you paid. You have to have cash during serious market dip (like in March 2009);
c) Don't try "to beat the market" especially in short term. You will not be fired if underperform this and next year but you will be sorry to "stay 100% investing" then big opportunity comes.
Weighting cons and pros I'd conclude that "stay 100% investing" is NOT good advise for individual investors.
15 April 2013
Added 24 Nov 2013
Generally price behavior of US stock market (represented byS&P500) can be separated into 3 groups strong bear and bull markets (defined as market returns below -30% or above +30% in a reasonable period - usually 1 year) as well as mild market (defined as market returns between +/- 30% within the reasonable period). It is really hard to predict stock market and market dynamics id often concentrated in few very best and worst days. So IMO the only time to get read out of stocks is if you can foresee strong bear market. Also for people with positive cash flow IMO it is better to keep a cash reserve "waiting" a good deal.