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An advisor told me to go to cash on Dec 31. My question is when should I get back in?

Jan 24, 2014 by Edward from Saint Johns, FL in  |  Flag
9 Answers  |  14 Followers
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7 votes
Richard K. Armon Level 10

Edward, congratulations on going to cash. No one knows what the market will do so market timing can be as good or bad as any other strategy. Going forward, I am currently looking at stocks I would want to own if the market continues to sell off an additional 10%. I hope to own AT&T at $30 by selling puts. Enjoy having cash. -Rich

Comment   |  Flag   |  Feb 04, 2014 from Wayne, PA

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4 votes

This is kind of a loaded question. I would agree with the others that if an advisor had a thesis that you should move to cash they would also know when to move back in. So far they have been right but I don't think this is the forum for market timing information.

Comment   |  Flag   |  Jan 24, 2014 from Leawood, KS

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4 votes
Peter C. Karp Level 20

Hi Edward,

As previous responses have indicated, there is no simple answer to your question, and ideally your advisor should have a strategy for re-entry.

Unfortunately, market fluctuations are unavoidable and difficult to predict, and investors who attempt to “time” the market risk missing periods of high returns or rebounds following sharp downturns. Choosing when to invest in this manner is difficult from a statistical standpoint, as some research has shown that missing just the 10 best days in the market can cut your returns by half. Accordingly, if you cannot accept the risk of losing money during brief spurts of volatility, perhaps you would benefit from a more conservative investment style.

I suggest that you seek an advisor who can work with you to understand your individual investment needs and help you avoid making emotion-driven investment choices during turbulent times. Please call us if you have questions or additional information to share.

Disclosure: The posted information is for informational purposes only. This message does not constitute an offer to sell or a solicitation of an offer to buy any security. All opinions and estimates constitute Karp Capital's judgment as of the date of the report and are subject to change without notice. Accordingly, no representation or warranty, expressed or otherwise, is made to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein. Securities offered through Financial Telesis Inc., member SIPC/FINRA. Financial Telesis Inc. and Karp Capital Management are not affiliated companies.

Comment   |  Flag   |  Feb 03, 2014 from San Francisco, CA

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2 votes

The market is still at or near record highs. If you have been invested during this most recent bull market you probably have done okay. So, why would you want to reinvest within just 3 weeks while the market is still high?

You can park the funds in something like a no-load ultra short bond fund and reinvest after the next market correction. "Sell High and Buy Low", not the other way around.

Comment   |  Flag   |  Jan 24, 2014 from Canton, GA

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2 votes

Was the money for a specific purpose? If not, then I find it hard to understand why any advisor would tell you to put your investments (which should be allocated in a diversity of different assets) to put it all into one asset that historically is the lowest performing asset over long periods. Also, this is the problem with market timing of any kind. Not only do you need to be right, but you need to be right twice in a row. When to get out and when to get back in. Market timing does not work. If this is long term money, face your fear of short term market losses with discipline and a well balanced portfolio. And unless this advisor has a good reason that is specific to your circumstances for what he told you, stay away from their advice as it is not worth anything.

Comment   |  Flag   |  Jan 24, 2014 from Malvern, PA

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2 votes
Rich Winer Level 20

Anyone who employs a timing process that dictates when they should sell stocks and exit the market must also have a process that dictates when to get back in. Ask whether you should be in or out of the market at any given time and you will likely get a lot of conflicting advice. I have a timing element to my stock portfolio investment process, but I am still about 80% invested. My timing approach is on a stock by stock basis, because even if the market declines, I may have stocks that are still doing well. On many of the recent down market days, my stock portfolio has been up. So my timing approach is not based solely on the market an how much it's gone up or down. I also follow The Chartist, a newsletter by Dan Sullivan who has a great long term track record with his newsletter and real money portfolio. Sullivan is either 100% in the market or 100% out. At the moment, he is still fully invested. So, I have no idea why you were advised to exit the market on December 31. Last year, every correction was short-lived and the market rebounded quickly. If that happens this time, you will feel rather foolish.

If you trust the advisor and like his approach, perhaps you might want to hire him to manage your investments and determine for you when to be in or out of the market. At a minimum, you should ask him why he thought you should move to cash on December 31, when he thinks you should get back in and why. Timing the market is hard to do, and impossible to do perfectly. Whether you try to time the market or employ a buy and hold strategy, you should understand your strategy and why you are using it. Then, you should follow it consistently.

Comment   |  Flag   |  Jan 24, 2014 from Woodland Hills, CA

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2 votes

HI Edward! Sounds like you only got half the information you needed. Since you are asking your question in this forum instead of with your advisor, I am wondering if you are second-guessing his/her advice. Definitely check back with him/her on the approach to getting back in the market, but you may want to investigate other financial advisors in your area. Your situation shows why it is so important to find a financial advisor that you feel comfortable with. Good luck!

Comment   |  Flag   |  Jan 24, 2014 from River Hills, SC

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2 votes

I agree with others - if this advisor knew when to get out, then he MUST know when to get back in, right? So ask him! Truth is, no one knows. Very few professional OR retail investors can consistently call the peaks and troughs of the market. Most experienced professional advisors won't even try - we;ve all been wrong so many times before that we don't even try. So we build portfolios that are designed to weather these storms so we don't feel the NEED to bail out when times get tough.

1 Comment   |  Flag   |  Jan 24, 2014 from Bridgewater, NJ
James D. Kinney, CFP®

I had a client who put his 401k all in cash based on a "tip" from a "well connected" money manager who manages several hundred million in assets, who told him to get out of the market. That was in Jan 2013, and he would have been $200,000 richer today if he had just stayed invested. Everyone has an opinion. By definition half the opinions are wrong as long as there is a buyer for every seller in the market.

Flag |  Jan 24, 2014 near Bridgewater, NJ

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0 votes

Hi Edward, Why did he tell you to go to cash? Did you objectives and goals change so that you would need the money over the short term? If so, then it is appropriate. If your goals are still long term, then you should not have sold all of your stocks positions. Your want to establish an asset allocation (a balance of stocks, bonds and cash) that will provide the returns that you will need for your goals. Then you occassionally re-balance back to these target allocations on a set date - not on the predictions of an advisor. This will allow you to stay disciplined and patient with your plan as the markets have their normal yearly volitality. See my post of Jan. 23rd on understanding that the market temporay declines are not to be timed but expected. (www.RootsofWealth.com)

Comment   |  Flag   |  Jan 24, 2014 from Allendale, NJ

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