Doug Sandler, my favorite equity strategist has published a great piece that is very topical, in my opinion, about whether to wait for market pullback when there is cash to invest. This has been a topic of much conversation in my office, as the relentless march up for U.S. markets has us all edgy and waiting for a significant correction.
Click here to read Doug’s article (it will load as a pdf).
Doug says many are waiting for a pullback, some since the market declines of the financial crisis, now eight years past. Cash on the sidelines breeds pessimism, people looking for bad news rather than cheering good news. So is a pullback likely? And if there is one, will it be worth the wait?
Within the next 12 to 18 months, if history is any guide, a pullback is likely. It may not be at the time, or to the degree that many investors have been expecting. The markets could continue higher until then and the pullback may not be severe enough to be lower than today’s prices. Pullbacks have been shorter and shallower than normal, so it may not be worth waiting.
As well, markets are most affected by the unexpected and that is what investors have come to expect from today’s political climate. So, for investors with an investing horizon longer than five years, trying to find a time to put money to work is difficult at best. Even those who trade professionally will admit only about half of their trades are profitable. And, with historically low interest rates, investors are not “paid to wait.”
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Our Dynamic Triggers Portfolio, powered by DynaLogic, solves the problem with a rules-based, long-term rational approach to investing, selling a bit at highs, and buying a bit at lows. For those looking to put money to work, the choices are invest immediately, invest but hold back 3% to 6% of cash to reinvest at opportunities, or investing a set intervals.
In any case, even going into a seasonally soft market time, it is worth looking at your cash on the sidelines and developing a strategy to reinvest.