With the bull market now more than six years old, many investors are worrying that the end may be near. But in a recent MarketWatch column, Chuck Jaffe says investors should beware “bad motivations” for changing up their portfolios.
One bad reason: The idea that the market can’t go up forever, and/or we are overdue for a downturn. “Bill Nygren, co-manager of the Oakmark Fund, reminded me recently that for well over half of his career, he has been investing when the market was at all-time highs, and that he hoped that would continue for the rest of his career,” Jaffe says. “If you have concrete reasons — beyond the length of the run — to make a change, go for it, but don’t let the length of the rally determine anything. After all, in 2009, when the market was about to turn around, average investors were not rushing into the market under the equally flawed logic of ‘It can’t get much worse.'”
Another bad reason to bail on stocks, according to Jaffe: The notion that you can’t lose money in cash, so you should cash out and wait until the next downturn passes. “You can lose purchasing power, however,” he writes. “Anyone who has been sitting in cash for the last six years — because they didn’t see the rally coming and haven’t trusted it when it arrived — has nothing to be particularly proud of. In his annual letter to shareholders this year, the legendary Warren Buffett noted that investments in cash, cash-equivalents and currencies are more risky long-term than investments in stocks.”
To read all six of Jaffe’s bad reasons to change your portfolio, click here.