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“The stock market is the only market where things go on sale and all the customers run out of the store….” -Cullen Roche
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A little over two years ago, on October 23, 2023, to be exact, I posted a blog titled EXPLORING THE OPTION: LIQUIDATING MY STOCK HOLDINGS AND MOVING TO CASH.
In that blog, I spoke about a reader who begged me to agree with him that his best option was to sell all of his stockholdings and move to a cash position. He had read current stock market information, listened to stock market pundits, and followed stock market podcasts, and was convinced that the Market was overvalued and due for a major correction. He didn’t want a Market drawdown to wipe out all his hard-earned portfolio gains. He felt his best option was to sell all of his stocks, move to cash, and wait for the beginning of the next bull market. He felt this strategy would protect his profits and best position him for the start of the next bull market.
Within the last month, I’ve had this same conversation with two separate investors. Their complaint was the same as the person who begged me to agree with them two years ago.
The two most recent investors were concerned that the stock market is overvalued and that a major correction was long overdue. They did not want a major market correction to wipe out their hard-fought gains. Does this dialogue sound familiar?
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My first question to both of these investors was the same, and concerned timing.
The question was: “When do you need the money?”
Both of these young investors are more than 20 years away from Retirement, and both were speaking about the majority of their Retirement investments which are located in qualified retirement accounts.
If either of these investors had needed these funds before three years, my response would have been radically different. Because they are many years away from retirement and do not need Retirement money now, there is no reason to sell stocks and move to 100% cash.
Similar to my listener of two years ago, these two investors felt that selling stocks would indeed capture and protect all current stock market gains.
I would encourage readers who have not read the first blog to do so before continuing this blog. I say this because I’m not going to repeat all of the information posted in that blog.
Instead, I am going to concentrate on two separate points. The first point that I want to emphasize is that when someone uses this total sale and moving to the sidelines strategy, they must be right twice.
Any investor must pick the best time to sell and then determine the optimal time to return to the stock market.
This strategy is easy in theory, but difficult in reality.
When things look the worst, and when it seems like the worst time to invest in the stock market is usually when the next bull run begins!
Investors who are loss-averse may sell when market valuations are high, but are rarely able to pick the optimal time to repurchase stocks because it always seems like the worst time to get back in the market.
A significant number of investors exited the market 10 to 15 years ago and have missed several bull markets and a rise in valuations. This group fears re-entering the stock market at an all-time high valuation and then subsequently experiencing a drawdown which would significantly reduce the value of their portfolios.
They are stuck, and the same fear that caused them to sell stocks many years ago has prevented them from returning to the market and participating in significant returns over the last years.
The second point is a scenario in which my listener of two years ago sold all stocks and moved to cash. My listener would have placed his cash in money market accounts until he re-entered the market.
From October 2023 to November 2025, the total return for money market funds ranged between 8.5% – 9.5%, averaging 4.5% annually. For example, if the listener had a portfolio valued at $100,000, that same portfolio would be worth approximately $109,000 today, two years later.
Not bad, as an almost 5% guaranteed return over the last two years is a good return.
But, if the listener instead remained invested over the last two years, that same $100,000 portfolio would now be worth approximately $160,000!
Being all cash for the last two years cost this investor over $50,000, over a 60% return in two years) when compared to the same portfolio being 100% invested in the S&P 500 index.
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Is it possible for this investor to lose $30,000-$50,000 over the same two-year period?
It is certainly possible, and in many cases it is a reality. The stock market value on average increases three out of every four years. But, this increase is not linear.
Bear market drawdowns may decrease portfolio value over a multi-year period. I often hear investors saying they lost a certain amount of money in the market on any given day. It’s important to understand that these losses are only paper losses if the underlying securities are not sold.
If one zooms out more and looks at rolling 10-year periods in the stock market, the information becomes even more positive.
Over rolling 10-year periods the S&P 500 has historically delivered a positive return in approximately 93% of periods, with negative returns occurring only about 7% of the time.
Negative 10-year returns have been infrequent, with the most notable periods occurring during the Great Depression and the Great Recession. The average annual return has varied, but historical data shows periods with returns higher or lower than the average, highlighting the importance of long-term investment discipline.
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Investors needing cash in three years or less should reduce stock exposure while increasing cash. For more information on this particular subject see: PORTFOLIO DE-RISKING.
Like a lot of things in life, it really depends on where you’re standing. Investors with a longer horizon need to understand that portfolio values will decrease periodically (they’ll lose money, even if it’s only paper losses), but will eventually recover.
Investors with a shorter horizon don’t have time for portfolios to recover after normal stock market declines during bear markets and should take protective measures using portfolio de-risking. For more information see: WHAT’S YOUR HORIZON?
I’m certainly happy that in this particular situation, I can return to my young investor of two years ago and tell him that by swallowing his fear and remaining invested, he has gained an additional 60% in portfolio value instead of the 9% gain that being on the sidelines in a money market fund would have generated.
With a declining stock market during the last two years, the young investor would experience short-term losses but would capitalize on eventual gains during the next bull market.
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The stock market is very efficient and generous, and rewards those who are faithful and remain invested over long periods.
The stock market is also brutally efficient by stripping away principal and profit from those trying to time the Market or leaving the Market for extended periods.
Investing in the stock market doesn’t protect an investor from market risk, but is one of the best safeguards against inflation risk.
The investor who is sitting on the sidelines, paying taxes on gains (In after-tax accounts) or having most of the profits eaten by inflation (In pre-tax accounts) is not really gaining much ground.
Over my 50+ year investing career, I have been handsomely rewarded for remaining invested through six separate bull and bear market cycles.
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Experiencing portfolio decreases of 30 to 40% can be gut-wrenching and painful.
The pain of loss is felt much more severely than the happiness of gains!
The stock market rewards those who stay invested and remain faithful to a well-thought-out Retirement plan. See: MAPPING YOUR FUTURE: DO YOU HAVE A SOLID PLAN?
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FINAL THOUGHTS
It’s certainly easy to pat oneself on the back when advice plays out exactly as stated.
By selling stocks two years ago, my young investor would have missed out on 51% of additional gains.
It’s important to understand this would not always be the case over any particular two-year period.
It’s easy to be a hero during an extended bull market.
Heroics become harder when fortunes reverse and the stock market declines.
The majority of investors would be better served by dollar-cost averaging into the stock market. Dollar-cost averaging involves the periodic purchase of stocks. The advantage of dollar-cost averaging is that more shares of stock are purchased when prices are lower.
I mentioned dollar cost averaging in several blogs/podcasts, but have never created a blog or podcast devoted specifically to the strategic power of dollar cost averaging. That will be on my to-do list for 2026!
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