July 23, 2024
In this video I discuss why moving to cash can lead to even greater risks than staying invested.
Hi everyone, it's Matt Stearns here. I hope this video finds you well. I wanted to talk a little bit today about some things I've been hearing from prospects, or you hear it out at the, uh, at the local bar or whatever, and that is the idea of getting out of the stock market because things look really bad right now, and you've lost a lot of money, and you don't want to lose more.
Really, some of the risks that that presents are, I think, underappreciated by the public, and that is because, you know, most people don't have the experience of trying to get in and out of the market and understanding just how difficult that really is. Because as soon as you make the decision to leave the market, become, you know, uninvested, and move that to cash for the time being, you also are placing yourself under a tremendous amount of stress, okay, to decide when to get back into the market. This is really the much, much, much more difficult thing to do, and I think it's really underappreciated when people move out how hard it's going to be to get back in at the right time.
So, you know, even if you were successful in timing the market on getting out, you have to successfully time it to get back in. We know historically that most investors can't do that properly because if you're emotionally compelled to get out, you'll often be emotionally compelled to get in—um, back in at the wrong time.
The classic example would be: we enter a bear market, and it goes down 20%. You decide, you know what? I don't like the economic outlook; I don't like the news I'm hearing on TV. I don't want to lose any more money; I'm going to move to cash. Okay? And then it might go down five percent more, but all of a sudden, the news story changes; the Federal Reserve said something, stocks are rallying, and they bounce back up 15%. All of a sudden, you're going, okay, well this seems like a pretty good time to get back in—the coast is clear. You get back in, things have come down, you sold, it bounces back up, you buy here, and then it continues to fall further. In that example, you missed out on that growth, okay? And you're falling from an even higher spot than you would have had you just stayed invested, and you end up losing a lot more capital.
The reality of this situation, I think, is much more real than people give it credit, and that is why the investment community is often telling people to stay invested even when the outlook is bad. Because the risk and the difficulty of timing when to get back in can be even more difficult, and, um, you know, it can really play tricks on your mind the way that the market works. So, I just want to raise that as a little bit of a caution. I see people talking about it or thinking about it, and, um, you know, even people, you know, you hear people say, oh, I got out of the market in June or July. Oh, they might have, but that still doesn't mean they're going to make money because they still have a huge decision on when to get back into the market, and it takes a tremendous amount of discipline and good timing.
So, um, that's my two cents on the issue. Um, that's not to say that there's nothing that you can do in a bear market, and I'm not going to give away kind of all of the things that I've been doing for my clients because that's what they pay me for. So, there are adjustments that you can make along the time to successfully take off some risk without moving your whole portfolio into cash. But when those thoughts cross your mind, I hope this video pops back into your head, and you can make a sound decision on what's best for you and your family and your financial future.
So, that's all I have. Thanks for tuning in; I'll talk to you next time.
