STOCK MARKET TIMING TIP #5: DON’T GET ANTSY & JUMP IN!
DON’T GET ANTSY & JUMP IN: Don’t let low rates of return on cash equivalents be your sole reason for buying. The market will reward your patience and discipline with solid double-digit returns.
Many investors assume that their money must be “at work” all of the time. But there may be times when the best values for your liquid assets are not to be found in the equity or fixed income markets. Instead, the best use of your money at these unique moments may be in paying off debt, buying items of value for personal use, increasing your insurance needs, or simply protecting it from risk.
There’s something good to remind yourself about when low returns on cash equivalents cause you to start feeling antsy to trade: it’s much better to earn a positive risk-free rate of 1%, than it is to suffer through a negative 25% return in a downward trending stock market.
Comment: It’s perfectly okay to sit in a cash position for extended periods of time even when it is yielding less than 1%. Don’t let salespeople talk you into going after higher yields when it comes to your short-term and intermediate-term money. The extra yield over a year or two is less significant than keeping your powder dry for a market that is setting up for an eventual big move in either stocks or bonds.
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“Bet big when the odds are in your favor, bet small when you’re less convinced, and don’t bet at all if you’re not sure.”
Jim Cramer ~ Host of CNBC’s Mad Money