Investing a Lofty Cash Stake in a Lofty Market
The stakes are high for investors who are getting close to drawdown, but less so for investors with longer time horizons.
After a recent presentation, I spent some time chatting with an investor with a worry on his mind. He told me that he had pulled money from stocks a few years ago, but the market crash he had been expecting didn't materialize. Two years later--and two years closer to retirement--he was wondering what to do next. Was it too late to move the money back into the market? He couldn't afford to have so much of his portfolio earning next to nothing. On the other hand, he worried about his timing: Stocks were no cheaper now than when he made the shift into cash, and bonds--with their ultralow yields--didn't look a whole lot more appealing.
His predicament isn't unusual. At any given point in time many investors find themselves with larger cash hoards than they really need, due to market-timing decisions gone awry or windfalls like inheritances or home sales.