You have probably been making a lot of money in stocks for some time now, or are jealous of those who have while you sat on the sidelines. However, there are reasons for raising cash in your portfolio right now. Here are five of them.
Stock Overvaluation
Just because stocks are expensive doesn’t mean they are going to decline. However, when they do fall they will likely fall significantly allowing those with cash to purchase stocks at much cheaper prices.
Rising Interest Rates
Interest rates are rising which means that your bond portfolio is likely to lose value. In addition, credit spreads are minimal so you are not getting paid for the risk you are taking when buying corporate bonds over government bonds.
Rising Rates, Part 2
Returns on CDs and money market accounts have been rising because the Federal Reserve has been raising short-term rates for 2 years. Rates are not enough to keep you ahead of inflation, but they are no longer effectively zero, allowing patient investors at least some nominal return while they wait for a great opportunity.
Cryptocurrency Hysteria has Abated
For a while Bitcoin and other cryptocurrencies were going straight up. It seemed like a good idea if you were keeping cash that you should be buying cryptocurrencies and have someone buy them from you at a higher price at a later date. That trade was never risk-free.
Liquidity Could Dry Up
Although this is unlikely in the near term, there are times when asset prices plunge because there are simply no buyers. Would be buyers are not sitting on enough cash and buying an asset, no matter how attractive, is reliant upon selling another asset.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
Add your Comment
or use your BestCashCow account