As stocks, exchange traded funds (ETFs) and portfolios have taken a bath over the past year, many investors have just completely disposed of their securities and are sitting on a pile of cash and waiting for their next move.

This trend toward cash has actually been fairly common. Fidelity Investments reports that the percentage of stock market capitalization in money market accounts has skyrocketed from 15% in September 2007 to 40% in December 2008.  Another astonishing statistic is that in 2007 investors put $93 billion into the equity markets and in 2008, they took out $230 billion, reports The New York Times.  To add even more fuel to the fire, on Monday the Dow Jones Industrial Average closed in the 6,700 range and the S&P 500 closed at the 700 mark.  This is just detrimental to investor confidence and further extends a pessimistic outlook for the rest of the year.

We all know that getting out of the market at the right time is the difference between treading in deep water and drowning in that same water.  But equally as important, is knowing when to re-enter the markets.  This is generally the more difficult part of the equation.

Some believe that investors should just continue to hoard cash and sit on the sidelines, others think that investors should focus on sectors and businesses where the credit crunch and changes in consumer behavior don’t have much of an impact. The risk-averse believe that playing the short market is the way to go, while we believe that an investor should watch the trendlines and utilize the 200-day moving average strategy.

No one knows where the markets are heading, just stay diversified, educated, up to date on economic news and keep you appetite for risk in mind while you wait for opportunities in the markets. And when they do present themselves, be ready to pounce. There are going to be some good bargains out there when that time comes.

Tags: 401(k), Dow Jones Industrial Average, ETF 101, Retirement, S&P 500, Trend Following