CASHING OUT IS NOT A CASH COW

Written by Brian Puckett, CFP®, CPA/PFS, Attorney at Law.

We’ve recently been approached by a few nervous investors, who, thanks in part to Election Day jitters, are considering cashing out a sizable portion of their portfolio. While this may seem like a good idea at first, there are more downsides to cashing out than you might think. A sounder course of action is to stick to your long-term plan and not let Election Day distractions disrupt a sound investment strategy.

Certainly cash is becoming more popular these days. According to the most recent Wells Fargo/Gallup Investor and Retirement Optimism Index survey, 43 percent of investors reported having moved their money to cash or cash equivalent savings over the past year — far more than those moving money to stocks or bonds. Investors also revealed they have an average of 19 percent in cash savings and 11 percent in CDs or money market accounts.

But while some people view cash as king, there are several reasons why it may not be as desirable for long-term investors. For starters, unlike the 1980s when you could earn savings interest rates of 14 percent or more in CDs, today’s rates are only a small fraction of that. Stocks, on the other hand, have a well-documented history of outperforming the major investment choices, including gold and bonds. What’s more, when you factor inflation into the equation, you lose even bigger with cash because it erodes your purchasing power, meaning you can actually end up with negative growth. Some savvy investors call this “going broke safely”.

Here’s another problem with taking a cash-heavy position. Nobody can time the market effectively. Even professionals often fail miserably when trying their hand at market timing. So, by cashing out, you take on the new risk of earning a substantially lower return. The more often you switch in and out of cash, the more risk you pile on. It’s a loser’s game.

Remember, that, over time, the stock market has a strong history of rebounding, even after significant corrections. If you are investing for the long-term, you’ll most likely have time to ride out market fluctuations and still come out ahead. Jumping in and out of cash positions makes long-term growth even harder to achieve.

Certainly there are reasons an investor would want to keep a portion of his or her portfolio in cash—such as short-term needs and goals—and we even advise it in some instances. However, we don’t recommend most investors keep a high portion of their portfolio in cash for the reasons stated above.

While cash may seem to perform better in the short term, research supports the importance of sticking to your asset allocation, which is specifically tailored to your age, your risk tolerance and investment goals. We know staying the course may seem scary in light of Election uncertainty and other outside pressures, but we urge you not to let unfounded fears topple a sound investment strategy.

At Align, we help you craft a portfolio that’s best suited for your particular needs. Please don’t hesitate to reach out to us if you have any questions or concerns.

Brian Puckett | JD, CPA, PFS, CFP®
13921 Quail Pointe Drive | Oklahoma City, OK 73134
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With Investing, The Best Recipe is to Put Politics Aside

Amid the election year hoopla, pundits are already theorizing about the impact the candidates will have on the stock market and broader economy. As tempting as it can be to get caught up in this rhetoric, we urge you to tune out the noise and instead stick to your long-term strategy. Making decisions based on political leanings or emotional fervor can seriously threaten your financial well-being.

Consider that cycles of stock market booms and busts tend to happen with surprising regularity—regardless of which political party rules the roost. Also, remember this: no matter who wins the presidential slot, bringing about widespread economic change is highly dependent on myriad factors beyond a candidate’s control, including the balance of power in Congress. So much of what he says/she says prior to the election might never come to fruition. Consequently, retooling your investment strategy based on what may or may not happen months down the road is a risky move.

Certainly there are those who will have you believe, like Chicken Little, that the sky is falling, and you need to take cover. Proceed with caution here. Unscrupulous salespeople can use fear-tactics to peddle just about any product, regardless of whether it’s in your financial best interest.

Back in February, Barron’s ran a cover story noting that U.S. stocks had fallen sharply since Trump and Sanders starting gaining ground in the polls. The article postulated that this could be more than coincidence, but history strongly supports the notion that markets are cyclical. We know from experience that swings and dips are perfectly normal, whereas making quick investment decisions based on unfounded fears and political leanings can do more harm than good to your nest egg.

Think back to 2008. The markets were in turmoil and fears ran high that President Barack Obama’s policies were going to obliterate the Dow. And yet, thanks to the passage of a hefty stimulus bill and other measures to help banks contend with their troubled balance sheets, stocks ultimately rallied, putting an end to the unfounded concerns of the Negative Nellies.

As hard as it may be, we urge you to ignore those around you who suggest that you should take into account politics when determining your investment strategy. Sticking to your asset allocation—which takes into account your age, your goals and your tolerance for risk—is a much better recipe for success than stirring up the pot with which candidate is likely to win an election and what may or may not happen to the economy and the stock and bond markets as a result.

Certainly, there are many ingredients that go into a successful investment strategy, but at Align, we feel strongly that politics isn’t one of them.