Thinking about Cashing Out? Think again

Tony Zabiegala, Chief Operations Officer and Senior Wealth Advisor

Warren Buffett is quoted for saying it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”

There is no denying the fear and unease sweeping the markets today. Between the global pandemic, the shaky economy and the uncertainty of the upcoming presidential election, investors are worried about what might happen to their portfolio over the coming weeks.

While it is tempting to exit the markets at a time like this, there are several good reasons to stay put. Below, I outline three considerations investors should be mindful of when plotting their next move.

  1. Time horizon: There is a misconception that when you retire, you start funneling money into your mattress. However, this is far from the truth. In fact, we typically do not recommend cashing in your chips until long after retirement, as most retirees have another 15-20 investing years left and depend on the growth of the equity markets to sustain their lifestyle long into their golden years.

    If you are considering selling your stocks, think about your investing horizon. If you were to cash out now, would you be in a comfortable enough financial position to ride out the rest of your years, or do you still need to generate growth and income from the markets? If the latter, it’s best to stay invested. We also typically advise against exiting and re- entering after a few months, as you’d then potentially be subject to fees and negative tax implications. Last but not least, you have to factor in the inflation risk that comes with cash. Not only are you yielding nearly a zero return, but inflation is eating into your spending power.

  2. Market variables: What if a coronavirus vaccine were to be released tomorrow, or another round of government stimulus passed? Both scenarios would likely cause the market to spike upwards. If you exited the markets today, you’d miss out on these significant returns. The bottom line is markets behave in unpredictable ways. As investors, we need to expect and prepare for uncertainty and volatility. If we ensure the appropriate financial plans are in place, we should be able to weather the storms along the way.
  3. History and data: History shows that market timing strategies are futile. From 1999 to 2019, the average market-timing investor yielded an annualized return of 2.5%. During the same 20-year time period, the S&P 500 yielded a 6.1% annualized return. Data tells us if you are going to try and time the market, you must do so perfectly which – for both the amateur and professional investor – is nearly impossible. As such, it is best to avoid doing so.

While there will likely be volatility ahead of and after the election, we still believe staying invested in the markets will pay off in the long-run.

If you have any questions or concerns about your portfolio, please do not hesitate to reach out to me or your advisor.


About the Author:

Tony Zabiegala, CRPC

Tony Zabiegala is one of the founding members of Strategic Wealth Partners and serves as Vice President. He believes in providing clients with the highest level of proactive wealth management guidance possible, along with world-class customer service. A CHARTERED RETIREMENT PLANNING COUNSELOR™, Tony spends most of his days developing innovative long-term financial strategies, one client at a time. Tony began his career in 1998 as an engineer. But after a few short years in the field, he decided that helping people build their wealth and eliminate financial stress would be more rewarding. He made the switch to the financial services industry and has never looked back. Since then, he has successfully guided numerous individuals and entrepreneurs through both bull and bear markets. Tony is an active member of both the Entrepreneurs’ Organization Executive Forum and Vistage’s Key Executive Program, helping key employees in entrepreneurial businesses develop into leaders.

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