With the market near all-time highs, and inflation threatening to curtail people’s purchasing power, there is good reason to worry about what the market might do next.
For one thing, normal stock market volatility means that you can lose money any given day that you are invested, while $1 in cash is always worth exactly a buck.
On the flip side, with inflation running over 6% and cash only offering interest rates well below 1%, keeping money on the sidelines means you’ll certainly lose buying power over time.
With the market near all-time highs, chances are there’s something you own that looks like it might be worth lightening up on in order to meet your overall asset allocation goals.
Yes, you may very well leave some money on the table if the market continues to rise, but you’ll also be protected from missing out on more immediate needs just because the market isn’t cooperating.
With a five-year buffer, the market can go down and stay down for a few years, and you still won’t be forced to sell your shares just to cover your near-term costs.
When you need the market to perform well to cover your bills right now, you’ll quickly find that you don’t have the ability to wait for the long term once a downturn disrupts your plans.
That assessment should help you determine your buy, sell, and/or hold decisions for the businesses whose shares you own.
If you look at your stocks and can easily see their long-term cash-generating abilities as being worth more than the company’s market value today, then you’ll probably want to hold on.
Company by company, stock by stock, make that assessment for yourself and you’ll likely arrive at a decent answer about whether it’s safer to turn your shares into cash or to continue to hold.
Getting yourself prepared while the market is still strong is a much better idea than kicking yourself after the fact.