I hope it works out for the friend; but there are problems no matter where you live. Here it’s threats of fire and mudslides (let alone earthquakes).

I can see taking the short sale or at least finding out the details, but the 401(k) was the only thing she had which was completely protected. When I asked why she wanted to cash out the 401(k), she argued about it for a short time but then told me it was already done, probably because she could not defend her position.

Serioulsy though. Please tell me you made all that up about your friends wanting to move b/c of one cold winter. I find it hard to believe that there are people THAT stupid in this world! oh wait, no I don’t…look at who we have in the White House!

If your friends are afraid of natural events, remind them that California is home to earthquakes, wildfires, and flooding.

Michael, you’re right, I’ve seen study after study demonstrating how retail investors get it wrong most of the time. By doing nothing to allocation, most of us would be much better off.

Well, as all experienced investors know, that’s a bad idea as you have pointed out. Fidelity Investments’ research arm had a nice white paper they produced that illustrated fund flows and estimated losses of wealth during major moves up and down in the market. What they found was investors consistently moved money to the wrong side of the market.

I don’t have the exact numbers, but during the Dot Bomb, investors lost an average of 40% (keep in mind that many value stocks were positive or only slightly negative during this time). This was coupled with a move to bonds during the rebound that had them miss another 40%.

In your post you say it’s expensive. Hell yes it’s expensive.

Also, while it’s clear investors are still favoring bonds, it’s important to note that they were overpositioned in stocks ahead of the crash. Part of this money moving into bonds should stay there permanently, but obviously it’s been overdone.

The key to any successful investment strategy is not in finding the greatest return, but in finding the greatest return possible, given your individual risk tolerance.

If you’re an investor that panicked and fled to bonds, take a look at what you were doing before the crash, then look at where your assets are positioned today. The reality is that your portfolio was too risky before and likely not risky enough today. In short, look at the differences and try to find a happy medium that will allow you to stay invested when the next market decline happens.