Time to Sell Investments and Hoard Cash?

Investments

Time to Sell Investments or Hoard Cash?

Hello folks! Thanks for visiting The Green Swan. Lately I have felt the urgency to explain why I do not plan on selling investments or hoarding cash. And instead, I will actually keep on investing as part of my normal course.

I can already hear it now…

“But it’s been a bull market for almost 8 years, Swan! It can’t keep going up forever. Haven’t you seen the news, we are destined for another crash and it could be bad. Yada yada…”

Since 2008, everyone and their mother have called for the next crash and forecasts for “the perfect storm”. Bank failures, the Eurozone, the Eurozone again, China, Brexit; anything and everything will result in the pending crash. Yes, these are compelling stories and highly-rated news programs feel the same. But highly-rated new programs don’t get that way by telling stories about blue skies and sunny days…except maybe in San Diego.

Well, for the sake of sounding Pollyannaish, let me present the flip-side.

The Old Bull

Yes, this bull is old. 88 months to be exact, but it isn’t the oldest bull in the pasture as many would think. It is actually just the fourth longest running bull market per records going back to 1854. But just because this has been a long running bull market, doesn’t mean it is the strongest running bull. Annual GDP is low relatively speaking, at around 2%, and the slowest growth of any expansion since WW2. Basically everyone agrees that this has been one of the weakest and slowest recoveries on record, which makes sense that it would last longer.

The Upside

There are a number of reasons why an expansion can continue. I’m not an economist and neither do I want to pretend to be one. But I do follow a lot of economists weekly publications (more or less as part of my day job) and would like to think I’m fairly in touch. So let me lay out a few quick points I’ve picked up on, which could lead to brighter days coming. Oh, hi Pollyanna…

  • Household and business debt ratios have improved significantly in recent years leaving room for growth in spending.
  • The productivity growth in this economic recovery is at its lowest since WW2. Specifically, the improvement of each of us workers’ productivity level has been legging. What if we finally see the bounce we’ve been waiting for?
  • Overall employment and specifically, employment of millennials has improved drastically in recent years. And we aren’t even at full employment yet. There is still room to gain and for our economy to grow with the increased employment.
  • Real household incomes have recently seen a bounce up. Let’s hope it continues! And if it does, that could lead to increased purchasing power.
  • The consumer confidence index is at its highest since the recession, and it still has room to grow from the highs achieved in the late ‘90s.

Not only has global growth been sub-par during this recovery, it has been unsynchronized around the world. But for the first time this recovery, it seems all major global economic policies are aligning (including Japan, China, Europe and the US) which improves the odds of a synchronized economic bounce being likely.

What do the Economists Think?

Like I said, I’m not an economist. So maybe we bring the economists in to see what they think…cue the Wall Street Journal (WSJ)!

On Friday, October 14, the WSJ published its latest survey of economists. The survey was conducted over from 10/7 – 10/11 and included 59 academic, business and financial economists. Some of the major findings:

  • The odds of a downturn in the next four years is 60%.

Wait…only 60%!!! Your telling me the economists give only 60% odds that the almost 8 year bull market will continue for another 4 years! Wow

  • The economists give a 20% chance of a recession within the next year.

So what’s all the fuss about. Only 20%…really?

  • A quarter of the economists surveyed place odds below 50% there will be a recession in the next four years.

That’s 15 very smart and educated economists, people who do this for a living, and they don’t expect a recession in FOUR YEARS. Ok….we get it….a recession is not guaranteed in the next four years let alone the next year…so I’ll move on…

The Economy is not the Stock Market…

Of course we shouldn’t forget that an economic recession and the stock market are not one in the same. We can still experience a drop or correction in our stock and bond investments even if the economy keeps plugging along. But that would likely just be a temporary correction. Especially if in the longer term we continue to see economic growth, it should continue to support growth in the stock market.

What I hope this post has helped persuade you of is that nothing is certain when it comes to the economy and stock market. Not even among the experts. Yes equities may be overvalued by some standards such as the Price to Earnings Ratio (P/E Ratio), but if some of the economic indicators mentioned above continue to improve (which definitely is conceivable considering it hasn’t been all guns blazing the last 88 months) then this may right itself and lead to further growth in values.

Should you hoard cash or sell investments in case we see a correction soon? That’s up to you, your investment objectives and your risk tolerance. Since I’m a long term investor, and I know that time in the market is more important than timing the market, I’m not too concerned about a pending drop. I think trying to time the market is a fools errand and more often than not you end up missing continued growth which would more than offset the gains by timing the upswing after a correction.

So why bother trying to time the market, hoarding cash or actively selling investments for a “pending” correction? The only sure thing you stand to gain is an increased anxiety level, added worrying, grey hairs and/or balding…yikes!

So I will keep on keeping on, investing today just like I did yesterday and letting my investments continue their journey toward providing me financial independence. I’m a long term investor and my investing strategy / plan has always been riding the waves. Just like Pollyanna, I know brighter days are ahead…

Thoughts?

Where do you stand on this? It certainly seems like a lot of attention has been given to a “pending” crash lately. What’s your investing strategy and do you plan on keeping with your plan? Let me know in the comments below.

Thanks for taking a look!

The Green Swan

Work Harder, Work Smarter, Retire Earlier and Find Your Beach

 

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78 Comments on "Time to Sell Investments and Hoard Cash?"

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Mr. PIE
Guest

Completely agree GS!! Buy and hold for me.
Michael Batmick had a great post this year over at The Irrelevant Investor blog:

http://theirrelevantinvestor.com/2016/01/22/it-was-the-best-of-days-it-was-the-worst-of-days/

He analyzed what a portfolio would do if you missed the best OR worst 25 days since 1970. Huge losses or gains. And you know where this is going…..good luck for an investor trying to time any of it. Impossible to do either, let alone both…..

Yes, buy and hold, buy and hold.

Jon @ Be Net Worthy
Guest

I agree 100%, it’s too risky to try and time the market. I was worried about interest rates going up for example and my bond fund still returned 5% this year. Pretty solid.

You can rarely predict what is going to happen. No way I’m going to pull out of the market to hoard cash, I can’t afford to miss a potentially extended bull market!

Dividends Down Under
Guest

Statistics, statistics – they can show you what they want to show. The USA is in a strong position, that’s for sure. That’s why the Fed is considering increasing interest rates. But other areas of the world aren’t in a good position, some are a lot more indebted.

I hope that nothing huge negative happens, for all our sakes, but there’s always that chance. Buy and hold, yes, definitely. We’re not selling anything, and I wouldn’t recommend that for us, you or anyone else. But we are accumulating more cash than 2011 for example. Australia has a few more local, domestic issues that could be a problem for us. Hopefully not. But we’re still buying nonetheless 🙂

Tristan

Kalie @ Pretend to Be Poor
Guest

Agreed! Great distinction that the economy is not the stock market. I think any long-term investor should realize that the stock market will rise and fall, but over time it’s going to rise, while hoarded cash will depreciate with inflation.

Team CF
Guest

We actually talked about this over the weekend with a bunch of other FIRE folks, most seem to think that a correction of some sort is coming and were hoping for one too (for the buying opportunities only, obviously). But most seem to agree to just continue investing as if nothing happened (with the exception of a few). There has been a lot of buzz lately about people hoarding cash and/or selling portions of their portfolio. Maybe they are right, but since you cannot time the market, its hard to tell at this point if they are.
For now for us, we also stick to continuing the investments, thanks for this reassuring view.

Penny @ She Picks Up Pennies
Guest

I’m glad you feel this way because I honestly don’t know that I know how to do anything other than keep putting little bits in our investment accounts. I’m not going to try to time the market. I’m not convinced that’s possible at all, and I know it’s definitely above my skill set.

Full Time Finance
Guest
I’m not sure what comes next either. On the one hand usually before a down turn people’s emotions turn to less fearful at the peak of the market. That being said I’ve yet to see the doom Sayers pushed to the side like in recent decades. Even when that happens timing is no guarantee. Alan Greenspan termed the market Irrational exuberance in 1996. It took years after that for his premonition to come true with the dot on crash. One final thing to remember with the stock market. Price per earnings might be good show of current value, but as a look forward you are trusting predictions of future earnings or that current earnings are representative of future earnings. I.e. It’s all just a magic… Read more »
Apathy Ends
Guest

The bulk of our money is invested in our 401ks and I won’t touch or adjust the plan there unless something insane happens.

I am still buying in our other investment accounts – dollar cost averaging will work itself out in the ups and downs.

Mrs. Picky Pincher
Guest

I think it’s so easy to make predictions, but the reality is that the stock market, by nature, is unpredictable. There are long term patterns, but we can only see those once we step away and look at the big picture, and even these fluctuate.

The bottom line is that people should do what’s right for them. I think it’s sound advice to hang onto your investments instead of cashing them out. And that’s especially if you’re looking at the long term return, which averages a 4% yield (which you would forfeit by cashing out the stocks!).

earlyretirementnow
Guest

Great point you raise there. And I agree with you on that one! It’s hard to time the market! And what’s the alternative to the good old buy-and-hold? What’s the definition of hoarding cash? 100% cash? 50% cash? What do you do if the market goes up again? Sit on the cash and wait for years or decades for the entry point? Too many questions, too many cans of worms. There are people who sold in 2008/9 and never got back into the market. Talking about opportunity cost.
For people afraid of a correction who want to raise 20% cash, why not shift to stocks that have 80% market beta? At least you still get the dividend yield!

Matt @ Optimize Your Life
Guest

Totally with you. People have been predicting a recession for years now. I’m sure it will come eventually, but I don’t want to sit on the sidelines until it does. I plan to just keep plugging with the buy and hold strategy.

Amanda @centsiblyrich
Guest

Agreed!!! We left our investments in place in 2008 (didn’t touch them, but I didn’t look at them either – yikes). After going through that and experiencing the recovery and growth, I feel confident that leaving our equities alone is the best strategy…no matter what is predicted.

Gwen @ Fiery Millennials
Guest

I wouldn’t mind a market crash, recession, correction…. whatever you call it. So long as I were still gainfully employed, I would continue to put the same amount into the market. Just more value for me later when the market goes back up later. I would only be worried if it had a major impact on my career field and I were worried about having a job.

Financial Panther
Guest

Since I’m a complete indexer and have a long ways to go before I need any of this money anyway, I just keep on putting in money, month-after-month. Since the market goes up a vast majority of the time, I’d be going against the odds to not bet on things continuing to do as they do. And if things go down, then I get a great opportunity to buy on the cheap.

Sure, I could try to time the market and get higher returns. But in the end, I only need enough money. So why deal with the headache of trying to guess where things are going if I’m doing fine with what I’m doing now?

Stefan - The Millennial Budget
Guest

I am praying for a correction once I begin working but I will not be trying to time the market. In my very limited time of investing I have realized that you can never predict what will happen tomorrow. Just need to let the market do its thing and continue investing normally. If there is a correction I will cut back in any way I can and maybe find a way to earn some extra money so I can put more into the market. Buy and hold has withstood the test of time so no need to tinker with what works!

The Vigilante
Guest

I’m still in the workforce and will be for at least about 7 more years (probably more, but on a part-time basis after that). I feel very secure in my job, I am very employable at this stage of my career, and I could go solo if need be. My pre-tax contributions of every dollar I can spare will be going in regardless of bear, bull, or space monkey markets.

So….come on, recession!!!

Ten Factorial Rocks
Guest

Good post GS. Agree with your thinking except that no economist has EVER predicted any recession in the past 80 years correctly. In fact, even after a recession starts, many economists don’t get it right. So I wouldn’t place any bets on economists’ forecasts. As Warren Buffett said, the main purpose of economists is to make astrologers look good.

Josh @MoneyBuffalo
Guest
For me, the frustrating thing about the stock market is that it’s the only place for many to get any return on investment because interest rates have been so low for so long. Eventually the “law of diminishing returns” sets in, money can still be made by investing but not as much. When (or will) people lose confidence in the markets? Another frustration has been the economists & the uncertainty. Who thought foreign banks would charge negative interest rates or domestic interest rates would have stayed flat for so long? In recent history, I believe this in somewhat uncharted territory as we continue to transition from the 20th century to the 21st century as technology continues to revolutionize every aspect of life. There’s money to… Read more »
Joe
Guest

I think time in the market matters the most too. That’s why the vast majority of our net worth is still invested. We have some cash on the sideline just so I can feel useful. 🙂 The stock market has been pretty volatile lately. Whenever there is bad news, it drops like a rock. I think we’ll see a crash at some point, but maybe the economy will keep chugging. That’s the best case scenario for long term investors like me.

Mr Defined Sight
Guest

I like a mix of cash and investments to be honest. I’ve learned not to wait for corrections or crashes because that will just leave you on the sidelines. Cash serves a couple of purposes. Protection against a free fall and also the ability to buy discounted stocks! Who doesn’t like a good bargain?

Ms. Montana
Guest

I have been thinking about this more than normal. We were going to take the year off of investing, but I bailed on that idea. So now I have some cash to invest. I have never tried to time the markets, but admit I have been wondering about what the price might do in the next few months. Being 50% of the country will be horrified about the well being of our nation come election day no matter who wins, I might invest half now and half then. =)

Mustard Seed Money
Guest

My favorite comment from economists is when they predict the next recession. On average a recession comes every 5.5 years. I love when they say it’s got a 15% – 20% chance this year. Of course it’s between 15% and 20%, like it is every year based on the math 1/5.5.

I think this is why dollar cost averaging is so smart and you don’t have to worry about timing the top or bottom of the market.

FinanciaLibre
Guest

Cash is a fantastic investment for people who hate building wealth.

For everybody else it’s a pretty crummy place to park spare change.

And for long-term investors there’s no better bet than equities because it hardly matters what the market does this year or next or the one after that. Over any meaningful long-run investing horizon stocks win. Punto!

PatientWealthBuilder
Guest

no way am I hoarding cash in a low interest environment. I think that inflation is actually higher than interest rates which means cash in a money market or CD is still losing purchasing power on a net basis.

in addition, I believe the DJIA will be at 100,000 in the next 10-15 years. so what if it does take a major downward breather? That just means stocks are on sale.

ADI
Guest

I agree with your post. Having said that, it may be interesting reading in a couple of years time! Markets have a funny way of messing with investors.

Having lived (and invested!) through the GFC, my steadfast commitment to buy-and-hold turned out to be not-so-steadfast! I’m hoping that the next time around (whenever that may be…) I’ll be a little bit more disciplined.

Emily @ JohnJaneDoe
Guest

I think all out would be a bad call…timing is tough, and there’s no guarantees. Having a bit of a cash cushion? Not such a bad thing, especially if your income is uncertain. The market does seem high right now based on earnings, so I’m more inclined to let interest and dividends sit instead of rushing to reinvest them. Might need some cash if the right opportunity comes along.

MsMoneyMaximiser
Guest

Nice post! I’m sure many are thinking about this with the amount of doom and gloom in the news. I still plan to continue investing but am also holding some cash given the current uncertainty we are facing here in the UK on Brexit. With base rate down to 0.25%, can’t afford to ignore the stock market!

TheMoneyMine
Guest

Another possibility is that the market doesn’t crash but goes sideways for many years. I probably have at the moment more cash than I should, but we’re keeping this available to purchase a rental next year.
It’s definitely an interesting environment we’re in. It’s the first I’m living through times like while being aware of the market (I had really very little idea and very little involvement in 2000 and 2007) and only time will tell how it’s all going to play out.

Laurie @thefrugalfarmer
Guest

I still think a crash is coming. 🙂 We’re not pulling our investments, but we are hoarding a bit of cash so we can buy low when the time comes. 🙂

Andrew@LivingRichCheaply
Guest

I try not to time the market. I’ve had a bad history trying to do just that and realize I should just stay the course. Of course, I am human and I have also read about this long running bull getting a little tired so I feel a little uncomfortable being all in the stock market. While I’m not selling or moving money out…I do have some excess cash that in normal conditions I would plow in the stock market but am hesitant in doing so now. I regret not having more cash to invest after the 2008 market crash…well not have enough money and the guts to invest at that point perhaps…

Michael
Guest

Dollar cost average or Value Average and re-balance your portfolio periodically for drifts in your stock / bond allocation and keep repeating this in a disciplined way. Discipline is the key to success.

Timing the market is not a recipe for success. Speculating or waiting for interest rates to go up or down does not work either.

CD laddering is the way to go to get maximum yield on your savings. Holding bonds to maturity will ensure that your return is not affected by interest rates. Short and mid term bonds would not be as sensitive to interest rates as well.

Stockbeard
Guest

I want to believe I’m “buy and hold”, but having never seen anything else than the bull market, it’s hard for me to predict how I will react in case of a big drop. I’ll let you know, my goal is to stay the course but who knows what my emotions will dictate when stuff hits the fan.

Andrew
Guest
Green Swan, Love the discussion on this topic! It’s one I’ve debated internally and with friends in the past. Personally, I have a decent cash hoard right now. I haven’t sold anything, but I haven’t been going through with the indexing strategy of my portfolio. I understand that its damn near impossible to time the market and to do so would be arrogant. With the S&P near all time highs, I am personally not comfortable investing at this level after a 7 year bull market, which in my opinion has been driven a lot by the Fed. I know a lot of people have told me about losing out potential returns if the market continues for a few more years, but I’d rather lose 2-3%… Read more »
TheTirelessWorker
Guest

Interesting take on how economists view the future growth of the economy. I for sure will have to review my own outlook and see if now is perhaps fine to just do a bit of investing.

Matty
Guest

Totally agree with this. Its hugely unlikely that cash is going to appreciate in value so hoarding cash is only every going to result in a loss. May as well hold investments which have a chance of appreciating.

Abandoned Cubicle
Guest

Great food for thought! This is why it’s so important to diversify your portfolio. We have four rentals and hope to add a fifth next year. We opted to stop contributing to the 401k for a year or so, and even took a short term loan at one point, all in order to purchase rental no. 2. The plan is to rely on rental cash flow to off-set down years in the market.

Mrs Groovy
Guest

We’ll remain invested even during retirement. We have a few years of expenses in cash but that’s not new. We’ve kept cash on the sidelines to buy into the market during dips or for purchasing land, which gives us flexibility. But otherwise we’ll just fasten our seat belts if the ride gets bumpy, and stay the course.

LD
Guest
LD

This is a very timely post to read. We are sitting on $300,000 cash that has built up over the past couple years. We have been investing over that time, but not enough of the cash obviously. Trying not to time the market but really have been waiting for a bigger correction. Now that this stash has built, we have been discussing investing much larger amounts monthly until we significantly lower this cash cushion, or keeping it to invest in a hobby farm (my dream) within the next few years. We paid off our current mortgage last year which felt amazing! Anyway, would love your opinion!

DivHut
Guest
Steady as she goes for me. I have no intentions of selling and increasing a cash position. I am not worried at all about a recession or slowing economy. If you are a true long term investor you will inevitably hold stocks during boom and bust cycles. I went through 2008/09 with almost every stock you see in my current portfolio. I witnessed every holding go deep in the red but I did not panic nor sell one share. I simply stayed on course and continued to invest every month as I always have been doing and was able to average down quite a bit on a lot of my holdings. All you can do as an individual dividend investor is tune out the noise,… Read more »
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