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Stock market question - do you think this is extreme or wise?


Quill
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So, if you listen to this sort of chatter, you will have heard that many financial analysts believe a stock market crash and recession is on the horizon, though of course no one can guess with any certainty when this might be. I have some money in various mutual funds which are not designated for college or retirement; they are just non-retirement fund. I keep money there in the hopes it will increase, which is generally the case. Of course, not when a recession hits and during the last crash, those accounts (literally) tanked by half in weeks. By happenstance, I had pulled a large amount out in order to buy a car just a few months before, so I ended up happy that that sum of money was “protected”; well, it was spent but at least the full value of that portion was realized. 

I am considering emptying those accounts and placing that money in a standard saving account until crash and recession happens. I think this is a good idea, but I don’t really know. I don’t know if there is some drawback to doing this that I am ignorant of. 

Additionally, my sons have UTMA accounts as well and I also considered pulling all DS18’s out and placing it in savings because that is his college money and if it tanks now, I will actually bawl my head off. 

Thoughts? 

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I think generally anything you need in the next few years should be moved to cash or low low risk investments since you have no time to make up the loss in value. So, college fund I would move. 

Depending on when you need the other money, and your personal feelings on risk, would determine how much or where to move that money. 

 

ETA- I think this is the going advice no matter what the stock market is projected to do really. The closer you are to needing the money, generally the less risky the investment. 

Edited by Toocrazy!!
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I think it's hugely depends on your risk tolerance.

I also think that any good financial analyst will tell you that they can't really predict the market.  If they could, they would stop being financial analysts and be independently wealthy, drinking margaritas on a remote island.

And any decent financial analyst will also tell you that holding it for the long term in stock market usually a good idea.

Now, wasn't this helpful? ?

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I’m not giving financial advice. These are just my thoughts.

If the money will be needed in the next five years, putting the funds in a savings account makes sense. You might also consider certificates of deposit (CDs) - the rates would be slightly better than a savings account and “lock up” the funds until maturity.

As far as parking any other funds, even experts are terrible at predicting market timing. The stock market could grow over the next five years then crash or crash tomorrow. You also can’t know when you should get back into the market. I tend to be a “set it and forget it” when it comes to retirement unless I expect it in the next five years.

Retirement funds should be re-balanced regularly, moving from owning more-risky assets (like stocks) to less-risky assets (like bonds) as you age. I prefer target-date retirement funds because the re-balancing happens automatically without incurring transaction fees. If you aren’t in target-date funds, you might consider them.

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2 minutes ago, hjffkj said:

I would move the college money but not the other money.  

 

I would say this.  

But what else are you going to use the money on?  Anything in the next few years?  I think it has to do with your tolerance for risk and you don't sound like you want to risk it.   So whatever makes you sleep better at night is the right answer.  Honestly if anyone knew the exact right thing to do and when, I don't think they would be sharing the advice. 

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The drawback of taking the money out of stock investments and placing it in a savings account is the opportunity cost you will face if the market does not fall.  If the market goes up 20% before a fall, you will miss out on that gain.  If the market goes up another 50% and then falls 20%, you will protect yourself from the fall, but you would be investing at a higher price than if you invested today.  

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It depends on how much is in the UTMA and how much is the college cost for your sons that you can cover with savings on hand. I know people affected by the great recession because the bulk of their children’s college funds were in 529 accounts and they could not rely on HELOC because properties went underwater.

Edited by Arcadia
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Even if there were a "crash", over the long term, the market goes UP.   If you might need the money, in the very near future, possibly consider putting a portion of it into a Savings Account or Bonds, but if you are diversified, over the long haul, your assets will grow.   A lot...

A mutual fund, such as one based on the S&P 500, is what I would consider a safer way to invest in the NYSE.

Diversify...

 

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The stock market has a period of moving sideways, dips, then goes back up again.  Based on past dips (crashes) it would be a good idea to move the money you will need in the short term (one to three years) into savings or money market. My dad liquefied half his stocks more than a year ago and moved the rest into funds that are less risk adverse and pay more dividends.  Our retirement accounts went down by half like yours but have returned to where we were before.  In six months, Hubby will be 59 1/2 and we can pull it all out. We have a few stocks but we generally let them ride the wave since we've already taken out what we need.

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I’d be putting the college money somewhere safe since you need it soon. Ally has a pretty good savings account rate- currently about 1.8%.  After rereading, I’d pull older son’s but not younger- he still has years before he’s in college. 

As for the rest, I’d ride it out. As mentioned above, we’ve been hearing that for years and nobody really can predict the future.  As long as you’re invested in funds that are diverse and have low fees, you’ll probably be fine.  Even when we have a downturn, it recovers fairly quickly. Bear markets usually last something like 15 months.  Sure there have been some doozies that haven’t, but they are notable and not typical. 

 

 

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I agree with Lanny. Diversify.  I wouldn't take it all out and I wouldn't necessarily keep it all in the same place either.   For the record, my dh has been religiously following the market for 20yrs.  He's on several boards related to investing. For many years he's been hearing it is about to crash, along with everyone else. While no one knows when, autumn is often a typical time for it to happen.  

 

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1 hour ago, Lanny said:

Even if there were a "crash", over the long term, the market goes UP.   If you might need the money, in the very near future, possibly consider putting a portion of it into a Savings Account or Bonds, but if you are diversified, over the long haul, your assets will grow.   A lot...

A mutual fund, such as one based on the S&P 500, is what I would consider a safer way to invest in the NYSE.

Diversify...

 

My “best” non-retirement account is a 500 Index fund and it has enough in it to get the “Admiral” rate of return. So I have kept that one funded above the balance threeshold so it will remain in the Admiral class, though a serious crash would probably drop it below that balance threshold. It is this account I am most inclined to keep funded and not move. 

It will still hurt if it crashes, though. 

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36 minutes ago, PrincessMommy said:

I agree with Lanny. Diversify.  I wouldn't take it all out and I wouldn't necessarily keep it all in the same place either.   For the record, my dh has been religiously following the market for 20yrs.  He's on several boards related to investing. For many years he's been hearing it is about to crash, along with everyone else. While no one knows when, autumn is often a typical time for it to happen.  

 

I know and this is part of why I am getting very squeamish, especially about DS’ college money. I will need some of it by January to pay for his next semester, but if there is a crash, obviously there will be less in there than there is right now, which is what makes me inclined to pull it now because of October being a likely time for a crash, historically speaking. 

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15 minutes ago, Quill said:

My “best” non-retirement account is a 500 Index fund and it has enough in it to get the “Admiral” rate of return. So I have kept that one funded above the balance threeshold so it will remain in the Admiral class, though a serious crash would probably drop it below that balance threshold. It is this account I am most inclined to keep funded and not move. 

It will still hurt if it crashes, though. 

You might want to check out exchange traded funds like the SPDR.

Here's a brief wiki explanation:

https://en.wikipedia.org/wiki/SPDR

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I agree with pulling out your son's college money. Then, I have a proposal for the other non-retirement money. Why not take out some of it (pick a number - either percentage or $$) and put it into a CD. That way, you have that amount out (like you did with the car money) and some still in. If the market tanks, you can cash out the CD and dollar-cost-average your way back in at a good price.

The negative to pulling out money is two-fold - missing out on the future gains and paying taxes on the profits you earned. Make sure you leave enough $ from they money you pull out to pay the tax man.

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I would definitely pull out the college age sons money and put it in a CD or MM account.  CDs here are over 1.5 now, so the money would still be growing.  The high school age son could be moved to lower risk funds.

 

We are leaving most of our money in, but we are individual stock holders and it differs based on stock and sector as to what else we are currently doing.  If you do not need the other money, then leave it and let it crash and recover.  You do not lose unless you sell, and if you reinvest dividends then yoi will be getting more shares cheaper!   If you will need it in the next 2 or 3 years, consider pulling some of it out into a CD or MM acct.

I agree that signs are pointing to a crash or dip soon,  but no one can tell when.  I've been encouraging my DH to lock in sone gains, buy we know we could miss out on more growth, too.   Our compromise is usually to sell off part of the stock, but keep back a portion.  We have cash saved up to buy in the next big dip.

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The college money I would put in "laddered" CD's.

The rest of the money it really depends on your appetite for risk and time horizons. I made the mistake of asking Mr. Quant Jock DH and after spending 20 minutes crunching numbers, his opinion was "I wouldn't be buying right now but I wouldn't be selling either."

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One thing to consider is whether there will be tax consequences of selling a large amount today.  

Another thing to consider is where you will put the money.  Bonds are generally considered safer than stocks because they have a lower level of volatility.  But, whenever interest rates rise, bond prices fall.  Suppose, for example, that you are holding a 20-year, $10,000 bond that pays 4% interest.  If you hold the bond, you will received $400 in interest each year.  If interest rates rise during those 20 years and you want to sell the bond (to get the money for college or to use to purchase stocks),, you will have to sell the bond for less than $10,000.  

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50 minutes ago, jdahlquist said:

One thing to consider is whether there will be tax consequences of selling a large amount today.  

^this

Dh and I have been in the stock market long enough that pretty much anything we sell is going to trigger capital gains. So, in addition to speculating on the market, you have to speculate on what will happen with capital gains rates as well.  

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