Q&A: I Have Too Much Cash but I Am Scared of the Market, What Should I Do?

I have too much cash but I am feeling scared to put it into the market, what should I do?

Here is my current portfolio breakdown:

• Cash 16.5%
• International Bonds 0.8%
• US Bonds 1.7%
• International Stocks 21.8%
• US Stocks 56.7%
• Alternatives 2.5%

I know I need to dump that cash somewhere as it is growing mold and inflation will eventually eat it. I am just not sure where I should be putting it. I know it is bad to time the market but I personally feel the market will be coming down soon, and I don’t want to throw it all in along with my other cash. But I don’t want it to sit either.
Where is best to put it for the time being? CDs suck, Savings suck. What is best?

Decision paralysis is usually the result of not having an adequate plan. Your asset allocation indicates the presence of a partial plan, but it’s missing an important piece.

The missing piece is the part that that protects you from being wrong, which is a perfectly natural consequence of making decisions in an uncertain environment. Every investor spends a lot of time being wrong because the future of complex systems like markets and economies is unknowable. Being wrong is OK – if you plan for it.

For example, let’s say you found something you’d like to invest in but were nervous about the overall valuation of the market. What if you were able to identify a stop-loss or protective exit point that would get you out of the position during a market decline? Further, let’s say that you then sized the position so that a loss would cost you something like 1% of your portfolio value. Could you live with that? If so, now you have a rough draft of a process that will allow you to make investments without having to predict the future.

Having said that, we should also note that holding significant amounts of cash isn’t always a bad thing. The luxury of saying no to investments that appear overpriced is an advantage that is underappreciated. Your job as investor isn’t to get everything right, it’s to put yourself in a position to grow while avoiding disaster. No need to overcomplicate things.

The last part of your question asks, “what is best?” What is best is the realization that there is no holy grail in investing. The future is uncertain, as it always has been. Don’t worry about being perfect, worry about how you manage the inevitability of being wrong. Learning to cut your losses short while letting your winners run is a great prescription for conquering fear of the unknown.

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About Patrick Crook

Pat Crook is a financial advisor in Corvallis, Oregon with over twenty years of experience. He has developed a specialized form of investment portfolio management designed to address the risk concerns of those in or near retirement as well as organizations like charitable endowments and foundations. To learn more or set an appointment, he can be reached at 541.753.1808.