With Markets Flying High Do You Take any Proactive Moves?

I am making a move that I have never done before, I am going to proactively respond to what may be considered a heated market.  I will say up front that I am not fully convinced it is 100% the best move ever which is why I am only taken a limited stance.  The market is pretty ridiculous these days hitting new all-time highs every few days.  Overall the market is up 25% from 11/4/12 to 11/4/13

I have stated before that I am not a huge fan of my 401(k), but it does make up a good portion of my net worth.  As such it is only responsible to at least pay attention to it rebalancing and reallocating the portfolio once in a while.  Year over Year my return is significantly less than the index fund above:

Interestingly if you compare my 401(k) which is rebalanced and in active funds I am way up since 2008 (19.58% vs 44%):

401k Return 2008
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Granted, I may not be using the exact index measurement but I digress. With such a heated market, I figured maybe now was a good time for the next 2 – 4 months to take my paycheck contributions and put it into cash.  I am not convinced enough that the market is overheated to start selling my shares, but maybe I can get some cash and wait for a correction

Why I like taking a Proactive Move in my 401(k)

To me there seems to be 3 possible outcomes (with gradations of course):

  1. There is a market correction and I take my grand or two and put it back into the market saving a few percentage points.
  2. There is no market correction and we stay flat I then decide what to do in a few months.  Likely this would mean reallocating the cash position into a new rebalanced and reallocated 401(k).
  3. The market continues to fly high.  At some point I can either leave my cash position as is and just reallocate future contributions or I can sell the cash position and get back fully into the market.

I am not convinced enough to sell out of my positions so the move I am taking isn’t terribly huge in comparison to my actual account (just a few months of contributions going into cash).  It is a controlled way to follow my gut.

Why this is a Terrible Idea

A few months of taking a cash position won’t significantly impact over the long term if the market does go higher.  So why bother?  Over the long term will creating a cash position really matter? Meaning, in 10 or 20 years will missing this correction in terms of a few months of contributions even be noticeable?  I am not sure.

I am still moving forward because it feels like I am staring at an oncoming collision and not doing anything about it!

 

Ever make a move like this in your 401(k)?

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One Response to With Markets Flying High Do You Take any Proactive Moves?

  1. Have you looked to see if there are under-performing areas over the last year (maybe emerging markets?) that you could overweight instead of going to cash?

    I try not to compare my investments to the S&P 500, because I like to be more diversified than that. It helps explain why you are doing better than the S&P since 2008… your other investments probably didn’t take the big dip with bank crash in 2009.

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