401(k) investors are ‘so dumb’: Pro

If you're saving for retirement and panicked by the volatility in the market, at least one pro questions your Street smarts.

On CNBC's "Closing Bell," Ric Edelman of Edelman Financial Services said "It's scary, so many American investors are so dumb."

Cracked nest egg
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Edelman was referencing new research from Aon Hewitt that showed individual investors, spooked by the sharp and sudden market swings, have started to change allocations in their portfolios, going out of stocks and into bonds.

For example, the research says, "On Tuesday, October 14, a day after the S&P 500 was off 1.65 percent, 88 percent of trades saw money flowing to fixed-income."

"When retail investors do that, all they're doing is selling low. Think about it. They're waiting until after the market drops to take money out of stocks. That's completely backwards."

That is, in Edelman's words, "dumb."

Instead, he said when the market makes a sharp swing lower, if you're investing for retirement, you should think about buying, not selling.

Edelman said during a broad market selloff, favorite stocks are trading at a discount. Unless you believe there's some kind of big fundamental change behind the weakness, he felt, there's no reason to question reasons for owning the equity.

"Yet 401(k) investors insist on getting it wrong," he added.

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Edelman went on to say, it's critical to put emotions aside. Nobody likes losing money, but moving out of stocks and into bonds after a selloff, he said, "will cause you a lot of grief in the long-run."