Trust Services and SIMPLIFY
Should You Take Money Off the Table?
The last eight years have played out well for U.S. investors, as U.S. stocks have only gone up. However, they are currently priced more expensively than they have been 90% of the time over the past 100 years. When you couple these high valuation levels with global unrest, you may wonder if you should take some “money off the table” and go to cash.
Should you get away from the risk in stocks until things settle down a bit? To be sure, investors have asked exactly the same question at various points in time such as the lead-up to the elections last November, during the market pullback in January 2016, and amidst the concerns in China in September 2015. We can continue to go back in time and identify similar calls for concern.
The simple truth is…investors will always have reasons to fear the stock market. However, more money has been lost getting out of the markets and waiting for a crash to happen than has been gained. Perhaps taking money off the table is riskier than it seems. For instance, if you sold your stocks back in September 2015 due to market concerns, you would have missed out on the 35% returns that stocks have had since then.
Don’t get us wrong: we’re not minimizing the emotional roller coaster that comes with investing in the markets. We feel it too. After all, when U.S. stocks go down, they lose approximately -14% during a year on average. They’ve even clocked losses greater than -60% before, which can be downright white-knuckling for investors. No matter who you are, no one wants to see that much of their invested wealth instantly evaporate.
If you’re thinking of taking money off the table, we’d like to encourage you to consider the following suggestions before making any decisions:
First, understand and accept some realities about financial markets.
Markets are unpredictable. We have yet to identify anyone who can consistently and reliably predict market downturns. The future is uncertain, and investors have to move forward with this uncertainty. Fear, no matter how rational it is, is not by itself enough to drive investment decisions.
Markets are volatile, especially for long-term investors in stocks. So, if you’re wondering if the market is going to sell off at some point, the answer is “yes,” and volatility is the price of admission. Fortunately, there is no direct correlation between volatility and future long-term returns. However, near term market drawdowns are not good considerations for your long-term planning.
Second, understand and accept some realities about your investment goals.
Ask yourself, how important it is to you to:
Not miss out on a rally in stocks?
Avoid a potential sell off when it does come?
Maximize the probability of meeting your long-term investing goals?
If you answered “really important” to all three questions, we may have some bad news: investors cannot have all three of those things because they are in conflict with each other. You’ll have to not only choose which one is most important to you, but also acknowledge that the others will have to be compromised. For instance, if you simply cannot bear to watch the market rally and not participate, then you have to accept the potential drawdowns you’re exposed to. Or if you simply cannot accept the volatile ride of the markets, you may have to accept less lofty long-term goals. The keys here are to recognize that there are trade-offs to every goal and prioritize what’s important to you.
Lastly, get prepared.
Get an investment plan that works with your goals and priorities. No one plan works for everyone because everyone has different goals. The biggest losses that occur in investors’ portfolios are more often tied to a mismatch between investors and their investment strategies, than a loss on the investments themselves.
Stick to your investment strategy. Difficult times make investors doubt their plans. We find that an unemotional third party is critical to identifying the right strategy for you and reminding you of the long-term value of that strategy when your emotions would play tricks on you. A wealth advisor fits that bill perfectly; don’t underestimate the value of having someone walk alongside you in your planning.
Whether or not now is the time to take money off the table depends on what you do with these three steps. For some, it will mean that stocks are not appropriate for them right now. For others, it will mean they may actually need to add to their position in stocks. Either way, fears rarely result in making good investment decisions. Instead, we advocate that investors stick to a disciplined framework to investment decision-making that is more consistent with your timeframe of when you need your money.
If you’d like to learn more about our investment process and philosophy, please contact a Ronald Blue Trust advisor by calling 800.987.2987 or emailing
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Disclaimer: Ronald Blue Trust obtains historical and other information from a wide variety of publicly available sources. The information and material provided is for informational purposes only and is intended to be educational in nature. We have taken reasonable care and precaution to ensure that the information is fair and accurate, or has been compiled from sources believed to be reliable. Nevertheless, we do not make any representations or warranty, express or implied, as to the accuracy, completeness, or fitness for any purpose or use of the information. The information may not in all cases be current and it is subject to continuous
change. Accordingly, you should not rely on any of the information as authoritative or a substitute for the exercise of your own skill and judgment in making any investment or other decision. We recommend that individuals consult with a professional advisor familiar with their particular situation for advice concerning specific investments, accounting, tax, and legal matters or other matters before taking any action. We shall not be liable for any direct, indirect, or consequential loss arising from any use of or reliance on the information contained here. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimate, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Investing involves risk and the value of your investment will fluctuate over time and you may gain or lose money. Past performance of any security, sector or investment style is not necessarily indicative of future results.