With stocks so high, should you move to cash?

Written by MCJStaff   // July 15, 2014   // 0 Comments

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Article courtesy of the Wall Street Journal via “The Rundown”

Army Sgt. Bowe Bergdahl has finished undergoing therapy and counseling at an

As stock indexes hit record highs, nervous investors increasingly face a difficult choice: Do they keep betting as heavily on the markets, or do they move more money into cash?

The answer isn’t so simple.

Cutting exposure with the aim of putting cash back to work when valuations drop can be soothing at first, but maddening if stocks continue climbing. What’s more, many nonprofessionals don’t have the expertise to accurately gauge valuations.

And there is a fine line between adjusting exposure based on valuations and timing the market, which few individual or professional investors have done successfully.

Eric Cinnamond of Aston/River Road Independent Value is among a small group of mutual-fund managers who are comfortable letting cash pile up in their portfolios.

He believes small stocks are “outrageously expensive” and have significant risk. But his fund’s huge amount of cash-around 70% of assets recently-is earning almost nothing, hurting performance as markets move higher.

For investors who are considering such a strategy, here are a few things to keep in mind.

Patience Is Required

With interest rates so low and stocks climbing, holding a lot of cash in a portfolio recently has been costly. But value managers view it differently: Cash not only can buffer a portfolio against market corrections, it provides flexibility to buy again after prices have fallen a lot.

 


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cash

Eric Cinnamond

mutual-fund managers

stock indexes


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