Yes... exactly.

Though I don't know this for sure, I think that most prudent people who have 401K's or are just doing what they're advised to do... "save for the future"... are not very sophisticated in the actual investing. There is no way an individual today, can beat the electronic trading system. Fortunes are made and lost in a matter of minutes... sometimes, even seconds.

Now... as to when do you get out of the market, and where do you put that money? Several big important things happen here that have to be considered. For sake of argument, lets consider an example... your mileage will vary.

A 401K with $400,000. (Could be $25,000 or $1 Million+)

1. Taxes- Taking it out of the market completely... Even if the timing were perfect, and the market exit was at it's high... There are capital gains. If the gains are $100,000 then the tax would be $15,000.

2. Timing- As your example shows most of the time, you can't control the timing. (Your example of delay is probably very common for most people who don't work with a broker daily, and even at best, in a rapidly falling market... this type of investment will be transacted at the day's lows.)

3. Transfer the money to ?????- Here's where we differ. First of all, I would presume that most long tern IRA/401K accounts would be conservative in the first place. I was not talking about Speculation per se. So lets presume that the investment is in conservative funds, with low volatility. Typically, these funds follow the market. My "warning" was not about getting out of speculative stocks, but about stocks as a whole.
What about a drop of the DJIA from $12,000 to $4,000? In the example above, with a $400,000 401K... the loss would bring the account to $134,000.
During the last market drop, a good friend who had just retired, saw a paper loss from $800,000 down to less than $500,000. Because of the capital gains, and a broker that rode the market down slowly... he had to stay in, and spent three years of agonized worry as his account edged back to about $700,000.

4. The Main Point- Over the past 60 years, the market Mantra has been... "The Stock Market Always Comes Back". Perhaps... but then since the end of WWII, there has never been a situation where the total global finance system has been this bad, or unstable. Recovery from the Great Depression was not complete until the mid 1950's.

So back to my original post... The worry is a sudden market drop, as large investors withdraw their money as they try to avoid taxes. The warning is probably moot, since there isn't any easy way to beat the system... As Ty Darden suggested, the very rich would buy hard assets and move out of the country.
Unfortunately no one that I know would be able to do that.

In a real depression, there aren't any investment "Safe Havens". Sadly, even Federal Bonds will not be an answer.

As they say, "When rape is inevitable, relax... "

signed,

Grinch

P.S. (aside) Don't think many people read this stuff here, but it's a great place to sort things out in one's own mind. wink