Hiding in cash. Is it time to get back into the markets?

NEW YORK (Money) -- My wife and I are 43 and have about $350,000 in retirement accounts. Over the last couple of years, I've moved the money between stock, bond and money-market funds. But since I'm nervous about the market, all of it is in money funds now. What's the best way to move back into the markets? -- K.A., Bay City, Mich.

The answer to your question lies in an important investing lesson I think we can all draw from Hurricane Irene.

No, I'm not talking about the kind of knee-jerk lesson that's typically offered up: "Insurers will be raising premiums to pay for storm damage, so buy insurance stocks!" (Never mind that by the time you read the advice the stocks have probably already moved on that news.)

I'm referring to a deeper insight we can draw from the events leading up to and following the storm's onslaught that we can use to help improve our investing strategy for the long term -- and, I hope, get you to stop shifting your savings around in a vain attempt to outsmart the market.

As you no doubt recall, in the days prior to Irene's arrival we experienced another storm of sorts -- a drenching downpour of media coverage predicting devastation and chaos in the storm's wake.

But here's a question: How much of that coverage focused on possible destruction in inland areas in Vermont, New Hampshire and upstate New York, where swollen rivers and bloated streams have inflicted massive property damage and even resulted in loss of life?

How long will my retirement savings last?

The answer, of course, is practically none. News reports focused almost exclusively on coastal areas. Which makes sense, as those areas are most vulnerable to hurricanes and such.

So what in the name of Al Roker does this have to do with your question about when to move your retirement savings back into the markets? The answer is that, as with tropical storms, things don't always play out in the economy and the markets the way we expect.

As investors we may feel that we know what lies ahead and that we can use that knowledge to avoid losses or rack up gains. But that confidence is unwarranted, and acting on it can lead to investing decisions we may later regret.

Take the downgrading of U.S. debt by credit-rating firm Standard & Poor's earlier this month. In the days and weeks leading up that unprecedented event, the consensus was that a downgrade would lead to higher interest rates as investors demanded a higher premium to hold Treasury securities that no longer held S&P's triple-A rating.

But did that happen? No. Far from shunning U.S. debt, investors flocked to it as a safe haven in a troubled world, driving yields down. So anyone who bet against Treasuries on the theory that the downgrade would devastate their value bet wrong.

Simplify your retirement savings

And what about all the sturm und drang during the days of the debt-ceiling drama that the stock market was on the verge of falling apart? As of yesterday's close the market is down about 6% from where it was just before Congress and the White House announced a deal.

I don't want to make light of a 6% slide. But it's not exactly Armageddon. Besides, anyone who's patting himself on the back for getting out of the market in late July or early August and avoiding that decline also ought to ask himself if he's so smart, why didn't he get out in late April, when stock prices were at their most recent peak?

My point is that when it comes to investing, there are so many variables that determine the prices of stocks, bonds and other investments that it's virtually impossible not just to predict what might happen, but to know how investors will ultimately react to whatever does happen.

The more moves you make in the face of this uncertainty, the more chances you have to get it wrong, and do yourself financial harm. Which brings me to my advice for you, as well as for anyone else sitting in cash and wondering when to get back into the market: Stop the guessing game, already.

Rather than try to dart in and out of different asset classes, you're better off investing in a broadly diversified retirement portfolio of stocks and bonds that matches your time horizon (how long the money will remain invested) and your tolerance for risk (how large a loss you can take before you panic and sell). And then stick with that portfolio through the markets ups and downs.

At age 43, you've still got a lot of years of investing ahead of you and plenty of time to recover from market setbacks. So you can still afford to invest largely for growth. Generally, someone your age might have 70% to 80% or so of their retirement savings in stock funds, and the rest in bonds.

As you age, you can gradually shift more into bonds to protect your capital, perhaps ending up somewhere around 50% stocks - 50% bonds at retirement time. But that's just a general guideline. You'll want to adjust that blend to your own tastes.

For help in doing that, you can try different stock-bond combinations at Morningstar's Asset Allocator, a tool that can give you a sense of how different mixes might perform.

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This approach won't immunize you from losses. But avoiding losses altogether shouldn't be your aim when investing retirement savings. The goal is to end up with a nest egg that will be large enough to support you once you call it a career.

And the best way to do that is to create a portfolio that can participate in stocks' growth over long periods of time while affording enough short-term protection from downturns so you don't abandon your strategy.

So I suggest you settle on a portfolio that's right for you and divvy up your savings accordingly (and do it as soon as possible, don't dollar-cost average your way to your chosen mix).

Or you can continue to do what you've been doing, and hop back and forth between cash, bonds, stocks or whatever -- and hope the markets take the path you expect.