Risky Game of Cash: Avoid Market Timing

Dr. Richard Baker, AIF

“That squirrel had a death wish.” The squirrel was trying to cross the road but was indecisive and started darting back and forth until finally going back to the side he had just come from, barely missing my truck tire. Many investors are like that squirrel, darting back and forth about whether to stay in cash or reinvest in their portfolios. Parking too much of your portfolio in cash might seem like a good plan in today’s investing environment, but it has its risks too. Peter Lynch was correct when he said, “Far more money has been lost by investors in preparing for corrections or anticipating corrections than has been lost in the corrections themselves.” Higher rates this year have led many investors to leave cash out of the market and on the sidelines. As of the end of August, Americans have $5.6 trillion in money market funds, which is a record high and nearly 20% more since the beginning of the year. Here are three reasons why having too much of your investments in cash can be a risky game. First, the opportunity cost is high. You’re missing out on daily market growth and income while waiting for the perfect time to reenter the market. Fear can lead investors to sit in cash as stocks march higher. Second, you won’t keep up with inflation. Even though CDs, Money Markets, and Treasuries are paying more than they have in a while, they will never outpace inflation. Third, you can’t time the market. It is impossible to perfectly time reentry in the market, even for professional investors. Reluctant investors rarely get the timing right. The main thing is to stay consistent with your investment plan. The odds of long-term investors reaching their goals aren’t good when they aren’t fully invested. Since it’s impossible to time the market, don’t stress about finding the perfect time to reinvest. Don’t be the squirrel. Have an investment plan and stick to it. I’m not saying to put your investments on cruise control because I am a huge proponent of active management. But understand there is danger in starting and stopping because sometimes it leaves you lying on the road with tire tracks across your face. Have a blessed week!

This post contains affiliate links. If you use these links to become a client, we may earn a fee. www.FerventWM.com Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. Investing involves risks including possible loss of principal.,

Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.

Fervent Wealth: Too Much CashPhoto byAlex Lisovenko

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A Freelance Financial Writer who founded Fervent Wealth Management and authored "How do I Retire?" and other books.

Springfield, MO

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Setting the Table for Year-End Markets

"Will you set the table?" When my wife says this, I know I'm about to do a little work, but soon it will be time to eat. The market blues of August and September hopefully set the table for good times ahead. Stocks snapped a five-month winning streak in August after the S&P 500 ended negative 1.8%. And while the monthly stock winning streak is over, upside momentum may continue. Although stocks went negative, they did so in an orderly fashion, which is a good sign of healthiness for the market. The market's overall trading volume was low, telling me investors were not panic selling. While the stock's monthly winning streak has ended, there might still be some solid months ahead. Historically, after the end of a five-month positive streak, the market has gone up an average of just over 7% over the next six months. Interestingly, this same scenario has happened six times since 1950, and all but one were positive over the next six months, according to LPL. Don't get overly worried about September because it is generally a dud. September is historically the worst month of the year for stocks since 1950. Stocks have averaged a negative half percent and have finished negatively more times than not. The good news is that historically, stocks have rebounded from a weak September with a pretty strong October. The October-November-December period is the strongest part of the year for the market. This and the fact that the market usually does well just leading up to the US presidential election gives me optimism. While the next few week's outlook is mixed, I am encouraged by the historical market trends around the presidential election cycle and the frequent strong returns of the year's final quarter. With this short-term outlook, I'm maintaining a slight overweight to fixed income (bonds) over stocks in the accounts I manage. I'm not negative or bearish towards stocks but more neutral to them with an expectation of upcoming buying opportunities. I had a table-setting misstep while doing a college internship in England. I was trying to be helpful and set the table but was quickly corrected on how the "British do it." In my mind, I was thinking, "This from a country that doesn't even know which side of the road to drive." I didn't say it because I still wanted to eat. Let's hope the market isn't as picky about the table setting and serves up something great for the year's end. Have a blessed week!

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China Troubles Impact Markets

"Did you pull up the anchor?" I was trying to steer the boat west, but something under the water was pulling me east. In the same way, China's economic problems are beginning to affect the stocks in the West negatively. Any long-term investor trying to build a diversified portfolio will likely have some international stock holdings. Usually, those holdings are split between Large Foreign stocks and Emerging markets stocks. The emerging market sector is easily the more aggressive of the two, and of all emerging market countries, China is by far the big fish in that small pond. China's stock market makes up roughly 30% of the MSCI Emerging Markets (EM) Index. Also, because China is the major trading partner with Taiwan (15% of EM) and South Korea (12% of EM), it influences over half of the MSCI Emerging Market Index. Any investor with emerging market investment might be surprised that they likely own a sizable position in Chinese stocks. The market is getting concerned about China's recent economic struggles. The MSCI China Index is negative 51% since its February 2021 highs. The Hong Kong Stock Exchange (HIS), where many large Chinese companies list their shares, has declined almost 10% year-to-date as of August 24, 2023. China's exports and imports have declined year-over-year, and foreign investment in China dropped 80% this year compared to last year. Most significantly, China is showing signs of a full-on real estate crisis as its largest property developers have begun filing for bankruptcy. I am underweighting emerging markets in my portfolios, with only 2-4% holdings depending on the client's risk level. This is about half of my neutral setting (benchmark). International stocks are a key piece of a diversified portfolio, especially when the dollar is weaker against other currencies. Though I'm a little pessimistic about broad-based emerging markets, I am looking for opportunities for my clients that will eventually present themselves. The US and Japanese economies are doing well, but it seems the economies of Europe and China have some difficult days ahead, which could provide some buying opportunities. However, I would avoid investing directly in Chinese stocks for several reasons and favor emerging market funds for diversification in an ever-changing market sector. Of course, your investment strategy needs to align with your goals, time frame, and risk level. We had anchored the boat just off some bluffs that our teens enjoy jumping off (much to their mother's displeasure). Sometimes, the anchor gets so stuck in the rocks under the water we have to cut it loose, but on this occasion, we were able to pull it up. China has some challenges, but I don't think we need to cut the rope. Maybe we should just pull in some of our exposure and plan to return later. Have a blessed week!

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