If you are not always 100% invested, meaning you have some cash in your account, is that considered an investment? You bet it is.
I always try to maintain some cash on hand in my clients’ accounts. That is part of our basic strategy. We know that stocks, bonds, etc. don’t always go up, so we want to be able to make some purchases when prices come down: the first part of the buy low, sell high routine. In order to do that, we need to have cash available so we can make those purchases when the time is right.
In order to generate that cash, we like to sell when our investments have gone up in price (sell high). You should have a strategy in place for when you want to sell so you can take the emotion out of your decision making process. This strategy could be as simple as selling 10% of your investment once the price goes up 25%. Remember, you always want to sell when you want to, not when you have to.
Now, I’m not telling you to sell everything all at once and then try to time the market to jump back in. Nobody has ever been a successful investor trying to buy at the low point and sell at the high point. That is a fool’s game that you’re just not going to win. However, if you buy a little at a time and then sell a little when prices have gone up, you can lock in your profit and can now be ready to buy back in if prices drop.
The stock market right now is at a great point to take some profit. It’s due for a breather and just needs a catalyst (November elections?). How much you take off the table should be a part of your strategy. And if the market keeps going up, you’re still mostly invested and participating in those gains. If it dips, you’re now ready to buy some quality investments on the cheap.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
