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Is Fear Tempting You to Move Investments to Cash?

Seth Jentner09/10/2013

With all the recent talk about a possible global recession, should people move all their money into cash?

Most people are frightened by the financial news. Wouldn’t it be nice to have someone predict the market declines so you could move your investments out of the market into cash until the market decline is over, and then move back in to capture the next increase? Unfortunately no one has discovered a way to reliably predict the markets.

If a person is investing for only today or tomorrow, they should not even be in the market since the short-term return of the market is unknowable. However, if a person is investing for their retirement, their time frame is typically long-term, which can work to their advantage.

Without exception, the markets have recovered from all previous crises even though we experience fear and doubt during each crisis. If we can learn to tolerate temporary market declines, long-term investment portfolios can be invested in a balanced portfolio of non-correlated investments. In the event of a temporary market decline, if you need some money, the stable portion of your investment portfolio can be tapped into for cash. This will provide your other investments with the necessary time to recover during the next market upturn without selling them at a loss.

You might ask: “What if someone is only a few years away from their retirement?”

There is a common misconception that people are investing until they retire, at which time they will place their all their money in bonds, CDs and annuities to provide income for their golden years.

However, many people face life expectancies of 30 or more years after they retire. In order to keep up with taxes and inflation, these people need to invest in a combination of stock and bond investments throughout retirement. The key is to invest with broad diversification while tolerating the inevitable fluctuations in portfolio values.

By investing into a globally diversified portfolio, the probability of earning meaningful long-term returns is very strong. Because this approach does not focus on individual companies but invests in thousands of companies, the likelihood of your investment capital permanently disappearing is virtually nonexistent. If domestic and foreign stocks and bonds are included, the likelihood is high that the overall portfolio will provide meaningful long-term returns.

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