Before the article, check out the latest on my podcast, Personal Finance for Long-Term Investors: On Apple Podcasts On Spotify On YouTube Now, here’s today’s article: Phil wrote in this week: Jesse – if we do think that the stock market is overvalued right now, doesn’t it make sense to sell some stocks and move that money to cash? Or is that “timing the market?” Can’t I just argue it’s smart “rebalancing?” It kind of feels like semantics!! I’m writing this as a 68-year old retiree (retired since 2017). Interested to hear your thoughts.  I’ve been thinking about this myself, Phil. Yes, valuations are undoubtedly high. But, as Aswath Damodaran might ask, does that mean stocks are overpriced? And most to the point: should long-term investors and retirees do anything about it? The “Boglehead” and “Malkiel” in me both know that market timing is a fool’s errand. As John Bogle told us, “Don’t do something; just stand there.” At the same time… Returns have been so good. The S&P 500 return since January 2023 (35 months) is 22.46% per year. These kinds returns do not and cannot continue forever.  Zooming out, since Phil retired in 2017, the S&P has returned 14.5% per year. Simply outstanding. Valuations are high, especially among the biggest stocks in the market.  If there was ever an excuse to time the market, surely this is what it would look like? Or at least, I’m sure that’s the argument Phil and many others are telling themselves. In fairness to the idea, let’s do this: I’ll share both smart and dumb reasons to shift money into cash right now. Let’s see where your thoughts end up. Why Move to Cash Right Now There are logical reasons to consider a move to cash right now. Risk Reduction and Rebalancing Discipline Selling some stocks will lock in your gains and protect you if the market does correct sharply. This is purely a risk reduction measure. If your 60/40 starting portfolio is now closer to 70/30, then I’m all in favor of selling stocks to get back to 60/40…or perhaps 60 / 30 + 10% in cash.  Asset-Liability Matching If your financial plan includes asset-liability matching or a “goals-based” investing framework, then recent stock market performance might have blessed you with “excess capital.” The asset-liability framework suggests using low-risk assets (cash, bonds) to cover your spending needs for the near term. Then you use high-risk assets (such as stocks) to cover your long-term spending needs. But then, you might have all your future liabilities covered, yet still have some money to be deployed. This is excess capital. It’s money you don’t need. Your financial plan will be successful with or without it. For that reason, you can do what you want with it. Find a great charity. Take a flyer on your nephew’s

Imposter Syndrome and Retirement   “Face it Til You Make It” is the cure for imposter syndrome. It is an obvious variation of fake it til you make it. We all face high-stress situations when we feel inadequately prepared. Imposter […]