Why Are You Sitting In Cash?
December 18, 2017
Far too many investors are sitting with far too much cash in their portfolio. What’s worse, they have been sitting in cash for years, waiting for a correction that may not happen for some time. When asked why, they reply, “The market has gone up so much recently that it HAS to correct.”
Why? When? Based upon what research? No one, and I do mean no one, knows when the markets will correct. But for a moment, forget about the media. Don’t look at a chart of the S&P 500 or the Dow Jones Industrial Average.
A broken clock is correct twice a day, so if you insist that the market is going to correct you will eventually be correct. We are four years into our secular bull market (see graph below). The average secular bull market lasts 14 years. The shortest secular bull market ever was nine years. This doesn’t mean that we won’t experience a correction or two along the way. Look at the secular bull market in the eighties. It went from 1982 to 2000, eighteen years of generally up markets. Within that timeline you had the 1987 stock market crash, the 1990 recession, and the 1994 recession.
A closer look at our current secular bull market (seen below), which began in 2013, shows a very normal secular bull market. No market goes straight up or straight down. The S&P 500’s price dropped by 0.7% in 2015, and January 2016 was extremely challenging.
Again, I can’t tell you that the markets won’t correct, no one can. What I can tell you is we are four years into our secular bull market. It should last for another five to ten more years if it were going to fall into normal ranges.
Leaving your money in money market funds guarantees that you will lose your buying power:
- According to Bankrate.com, the top 10 best money market rates are yielding between 1.30% and 1.50%
- Current inflation rate is 2.0%, core inflation
- Sitting in cash is guaranteeing yourself to lose 0.50% to 0.70% of your buying power every year
A market correction could happen at any point. Is it likely? I don’t think so. There are far too many good things going on to derail this current rally. The question really is, “How long are you willing to wait in order to be correct? How much is that going to cost you?”
Please talk with your Polaris Greystone advisor to have them review our investment strategies with you to determine which one will be best for that cash you are sitting on.
We look forward to meeting with you.
Jeffrey J. Powell
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