The unemployment rate is up. Dividends are down. Some companies are declaring bankruptcy. But the stock market is roaring. Make sense?
The market will correct in a big way. It’s coming. I don’t know when, and that’s not important. Here is what you can do to be ready.
If You Are Within Five Years Of Retirement, Move To Bonds
If you are within 5 years of retirement, you should probably be careful when you listen to me. Because I am not within 5 years of retirement. If you are, I would probably be 50% invested in U.S. Treasuries or a safe bond ETF or mutual fund. That is your safe money fund, ready for when you need income.
Your remaining 50% can be invested in cash and individual stocks. Consider this your investable money. Right now, just like everyone else, you should be at least 30% in cash with the remainder in 10 individual companies. Not comfortable with this? Then invest in QQQ or SPY.
Develop The Right Mindset
Right now, be afraid. Be very afraid. The market is going nowhere but up, which is really scary. Everyone is elated. Cool, be afraid.
When the market does take a big drop, that’s the time to be greedy. Buy more of your 10 companies, but buy in small chunks. You just never know if the market will turn up, or take another leg down.
If the idea of losing half of your market value scares you, it’s time to change that attitude. The market taking a big dip is an opportunity. Remember that you have years before you need the money… hopefully that’s true. If not, move even more into cash.
Keep A Chunk Of Cash
I suggest having at least 30% in cash. Not bonds. Not a money-market mutual fund. Cash, ready to invest. Keep more if you feel you must or less if you feel that things will keep going up. But again, be ready for the next opportunity to buy at a bargain.
Note that the market might keep going up for the next year. Cool if it does, you have 70% invested. You could consider the 30% an insurance policy.
Know That Just As The Market Goes Up, So It Will Go Down
Again, I have no idea as to when, and it doesn’t really matter. The market is pretty high right now… you can gut feel it. It feels like you’re winning the lotto and you want it to keep going, so you bet some more. That’s how you know it’s high.
There is seriously nothing wrong with keeping some cash and being mentally ready for the next downturn.
- Why Cash Is an Investor’s Best Friend in Times of Investing Trouble – Investor Junkie
- Cash Is A Position – Old School Value
- What is the role of cash in an investment portfolio? – Share Sight
- Be Fearful When Others Are Greedy and Greedy When Others Are Fearful – Quick Sprout
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