Jump to content

Menu

If you have money in mutual funds/the stock market, and you think a big “correction� is coming soon


Recommended Posts

What is your personal strategy for (attempting to) protect gains? Do you move money into less volitile funds for the duration? Cash some out?

 

I have some liquid money that I plan to use for two kids’ tuition for fall; I will access part of it in July. I don’t know where yo put it. I don’t know whether to put it simply in a savings account, meaning I will earn practically no interest, but it will be safe from a crash or severe correction, or distribute it amongst a few safer funds and a savings account, where it will still earn some gains but will be vulnerable in a severe correction. One of my funds is T.Rowe Price’s Blue Chip Growth, which has done very well in the ten year, but which had a severe loss in 2008 (something like -46%). If we have another severe correction like 2008, I will be fully regretting every dollar I put in the fund rather than securing it away in a saving account, but of course, if there is no correction until later than July, I will be annoyed that I captured no gains by tucking it safely in savings instead of a solid fund.

 

P.S. Forgive me if this is too First World Problem for some.

 

P.S.S. I am not asking someone to tell me specifically what TO DO; just what are you doing/would you do, do you think, in this case. I know no one has a crystal ball and ultimately, it is a gamble I have to call myself.

Link to post
Share on other sites

What is your personal strategy for (attempting to) protect gains? Do you move money into less volitile funds for the duration? Cash some out?

 

I have some liquid money that I plan to use for two kids’ tuition for fall; I will access part of it in July. I don’t know where yo put it. I don’t know whether to put it simply in a savings account, meaning I will earn practically no interest, but it will be safe from a crash or severe correction, or distribute it amongst a few safer funds and a savings account, where it will still earn some gains but will be vulnerable in a severe correction. One of my funds is T.Rowe Price’s Blue Chip Growth, which has done very well in the ten year, but which had a severe loss in 2008 (something like -46%). If we have another severe correction like 2008, I will be fully regretting every dollar I put in the fund rather than securing it away in a saving account, but of course, if there is no correction until later than July, I will be annoyed that I captured no gains by tucking it safely in savings instead of a solid fund.

 

P.S. Forgive me if this is too First World Problem for some.

 

P.S.S. I am not asking someone to tell me specifically what TO DO; just what are you doing/would you do, do you think, in this case. I know no one has a crystal ball and ultimately, it is a gamble I have to call myself.

 

1.)  2008 wasn't a correction.  That was a crash. 

 

2.) Money you expect to access that quickly does not need to be in the market imo.  The gains you possibly miss out on pale in comparison  to what you are risking if there is a sharp decline (very possible) between now and July.

 

3.) Normally I would suggest you could toss that in a bond fund but that is also too risky in this environment.

 

Summary: savings account is the wisest move.

Edited by ChocolateReign
  • Like 15
Link to post
Share on other sites

I'm not very investment savvy but if I needed the money in July, there is no way I'd put anywhere but a savings account or very short term CD.  Not worth losing the principal for what -  maybe a couple hundred dollars max that you could earn between now and then in a riskier investment.

  • Like 11
Link to post
Share on other sites

We are so risk adverse that my husband pick the lowest risk option offered which is probably bonds. During the 2008 crash, we didn’t lose any money on paper but we didn’t gain as much as people gain in a good year.

 

We grew up in Asia and graduated during the Asian financial crisis. We felt that stocks is what we play with extra fun money, so that it would be okay even if some principal gets wiped out.

 

I have one years worth of state university tuition for each child in savings. My oldest won’t even be college age until 4 years later. I just feel safer keeping that amount there.

  • Like 2
Link to post
Share on other sites

There are quite a few online banks that offer about 1% return.  This is what we do for money we can't afford to lose in the short-term.

I've jumped on the Personal Finance Bloggers bandwagon, which is to invest sporadically in Total Stock Market index funds, which do fluctuate with the market.

 

We have a decade until needing those funds, so we will keep investing in those.

 

However, I've repeatedly advised our parents to sell their stocks, & it falls on deaf ears because the market is growing so quickly lately.

(We are extremely risk adverse as well.)

 

  • Like 1
Link to post
Share on other sites

Whatever you might gain on it in a few months is likely very small even if the market does well. Not worth the risk of losing any of it if the market doesn't do well. I wouldn't consider anything except sticking it in a money market account or even a regular savings account.

 

  • Like 5
Link to post
Share on other sites

I would definitely take it out of the market if I wanted cash for this fall (probably August as many tuition bills are due then).  If you know you want some for fall AND spring semester, I might stash some in a short-term CD.

 

But, for savings that we need (relatively) easy access to, we use Barclay's Online which currently gives 1.5% interest.  

  • Like 4
Link to post
Share on other sites

I don't really know what I'm talking about, but I am with everyone else--if you need it that soon, then get it out of anything risky.  You'll kick yourself if you don't gain on it, but you'll be devastated if you lose a big hunk of it.  The kick is better than the devastation to me.

  • Like 3
Link to post
Share on other sites

College tuition went into a 529 plan when they were younger (diversified and managed by Fidelity to gradually become "safer" as college became closer). It stayed there until needed. When the time came, it went (as needed) from Fidelity to a local bank money market account. Tuition was/is paid by cash rewards credit card, then paid off from money market. Enough is kept there to cover a semester or two, while continuing to save for the future semesters. Now that only one kid is in college right now, and halfway through, we no longer put any into the 529. We save and put it straight into money market. We'll deplete the 529 first, and finish off using the money market. Money being saved currently, though, will go into money market until graduation. When all is said and done, the 529 will be closed and anything left in money market can be left there or put into an IRA for our retirement.

  • Like 2
Link to post
Share on other sites

Our financial advisor considers a portion of one's portfolio in just cash as a wise way of having your eggs in more than one basket. 

 

We sold some stocks last year for that reason and the money is not earning anything to speak of, but it is there to buy things when stocks "go on sale."  It's possible that if interest rates go up that we'd consider CDs. 

 

I am old enough to remember when CDs were earning double digit interest. Nice safe way to make $$!

  • Like 2
Link to post
Share on other sites

Our financial advisor considers a portion of one's portfolio in just cash as a wise way of having your eggs in more than one basket.

 

We sold some stocks last year for that reason and the money is not earning anything to speak of, but it is there to buy things when stocks "go on sale." It's possible that if interest rates go up that we'd consider CDs.

 

I am old enough to remember when CDs were earning double digit interest. Nice safe way to make $$!

True, but I always have a cash account anyway, for emergencies/economic downturn. This is taking money out of mutual funds that are not dog-eared for a particular thing (IOW, they are not retirement accounts or specific education accounts like 529), and putting that money into just savings until needed for tuition. It makes me a little pouty to pull it out of funds where it could grow and put it in savings where it grows barely at all. However, I do remember 2008 and how traumatic it was to watch those funds collapse by half.

 

In a way, the most fortunate thing we did at the time, though I had no idea how lucky this would be, was that we took a large sum out in 2007 to buy a good car. Then the money wasn’t sitting in those funds when they were practically eliminated overnight.

 

We actually do need to replace a car...I might do this again...

Link to post
Share on other sites

80% if my older children's college funds are in very safe level investment category.  20% is in the medium risk category.  I have one in college now, one starting in fall, and one two years out.  The youngest is in higher risk category for a bit but will move soon.  He's 12.  These are 529 plans.  

  • Like 1
Link to post
Share on other sites

We don't keep money we need in the next 5 years in the market, usually put it in whatever FDIC insured account we can find with the largest interest.  1-2% is really good right now.

  • Like 2
Link to post
Share on other sites

We don't need our invested money anytime soon, so I'm taking the "don't look at it, just wait" approach to our investing.  If I needed it in the next year, I think I'd have it moved to a regular savings account.  I'm glad you have a plan! 

  • Like 1
Link to post
Share on other sites

Similar to above: We cashed out some money we know we need for college tuition. It is now in a money market. Our general feeling is: Unless you have other near term plans for the money, what goes down eventually goes back up. We also rebalance periodically when one type of asset grows out of proportion to the rest, but that's not tied to predicting the future.

 

Our situation was complicated by wanting to avoid major swings in our EFC. We saved our sell-off for 2018 even though the market was starting to get more volatile at the end of 2017.

  • Like 1
Link to post
Share on other sites

I will be paying college tuition for the next 11 years minimum, and some of those years will overlap multiple kids. One year ago I pulled my kids' college money (529 plan) out of funds that had a large exposure to stocks and now they are in incredibly conservative, mostly bond funds or cash. I did miss the gains of the last year but I have SO much security knowing we won't lose that money.

 

This administration is certainly attempting to be business-friendly (although I'm concerned about the steel tariff situation), but it is also very unstable and all it's going to take is one North Korean missile launch for life, the market, and everything to descend into chaos.

  • Like 1
Link to post
Share on other sites

FWIW Ally Bank seems to have the best short-term CD rates I have seen.  2% on 12 month, 1.85% on 9, and 1.75% on 6.  I think the 12 month does have a high minimum to get that rate but the other two are available for $5k deposits.

 

I personally would not hold any CDs with a maturity beyond 12 months in the current interest rate environment.

  • Like 1
Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...