The stock market has been on an amazing 8.5 year upward trend that is called the second-longest Bull Market run in Wall Street history. Starting after the precipitous drop in 2008 and bottoming out in March of 2009, the current Bull Market run has posted average annual returns of +13% and total growth of almost 200%. The tech-heavy NASDAQ has done even better – up on average +21% a year over the same 8.5 years, or +277% over the whole period.
These are truly amazing numbers, partly driven by how low things fell during the start of the Great Recession, when the S&P 500 lost 50% of its value. Still, the market has recovered all of the losses, and doubled again since that Bear Market. No doubt if you invested spare cash in the market back in March of 2009, you would be very pleased with your results.
We haven’t played the game of hoarding more cash when the market is way up and investing after a drop. It makes sense conceptually, but the returns all depend on very fortunate timing. A year ago, I was also writing that the Bull Market Run might be running its course, but it is up almost 20% since then. If I had sold out some stock at that point to carry extra cash, I would have missed out on all of the growth that has come with the so-called ‘Trump Bump’.
While I remain nervous about how high the market has soared on the Bull Market, we are am still keeping about 2.5-3 years spending available in cash. That’s what we kept on hand when we early retired 18 months ago and still seems prudent. My thinking is that the market is too unpredictable for us to not carry that insurance. Additionally, we still have stock options that HAVE to be sold on a schedule – so that has added to our risk.
While I would love to effectively push cash in-and-out of the market with the ebb-and-flow of its performance, there is too much volatility from year-to-year for us to feel like that is a workable strategy. I want as much in as I can all the time – but not so much that I don’t have enough cash on hand to weather any storms that come our way.
Do you try to time the market with cash? Have you been consistently successful?
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