The two kinds of market losses we can incur...

In any market, there are only two kinds of losses we can incur... loss of capital and loss of opportunity.

In other words, we can lose part or all of our capital (investment) by being IN the market when we should be OUT OF the market, or we can lose out on the opportunity to make a profit on our investment by being OUT OF the market when we should be IN the market. 

Personally, I would rather be OUT of the market wishing I were in, than IN the market wishing I were out.

To paraphrase Will Rogers: The return OF my investment is more important than any return ON my investment.

A financial advisor who always urged his clients to remain fully invested in the market once observed that, since 1900, there has never been an eighteen-year period in which the stock market did not fully recover its loss. The classic example is the 1929 stock market crash which did not recover until 1947, eighteen years later.

This brings up an interesting point. The two most important things we need to know about ourselves before investing are: (1) our tolerance for risk, and (2) our time horizon. If we are young, taking on risk is not a problem because we have time to wait for a market recovery. If we are retired, we may not have an eighteen-year time horizon to wait for a market recovery, so we are forced to become more conservative in our investment philosophy.