West said investors need to know “that it is OK to take some chips off table” after a decade of gains. But this needs to be done in a way that offers downside protection rather than completely missing out on market returns. Hir firm prefers to buy puts as a way to manage risk. If the market keeps going up, then an investor has a small headwind related to the put, and a cost, but it protects them from any larger downside. West said using puts takes out some of the bigger challenges of trying to predict where the market will go, such as interest rates and long-term bonds. But investors need to understand that by taking chips off table they can lose a little return. “We were down a little over 3 percent in 2008, so we didn’t have to climb out of that gigantic hole people fell down.”
Mitch Goldberg, president of investment advisory firm ClientFirst Strategy, said for most investors 45-years-old or younger, a discussion about cash is not even one to have. And even for older investors, “you can’t be out of stocks 100 percent. That is not what being an investor is all about.”
There are reams of long-term data on how investors who get out of the market to avoid a correction wait far too long to get back in, and miss out on entire bull markets. As is often said as a warning about how hard it is to time markets, “going to cash” means an investor has to be right twice — both when to get out and when to get back in.
Goldberg is concerned about conditions for investors who are in their 50s and more so, in their 60s or older, and for many he is moving between 20 percent and 30 percent into a Vanguard money market fund (VMMX), which has an expense ratio of 0.16 percent and pays 2 percent.
“How many times have we broken the market and how many times have we fixed it,” Boneparth said. “The right thing is to have a strategy and discipline, or do whatever you can to make sure you do.”
For any investor who finds themselves asking, “Should I go to cash?” but without asking that question within the framework of a larger asset allocation and investing plan, the most likely long-term outcome isn’t safety, but failure.
E-Trade survey was conducted Oct. 1–Oct. 9 among an online U.S. sample of 956 self-directed active investors who manage at least $10,000 in an online brokerage account, including 134 investors with at least $1 million whose responses are provided exclusively to CNBC.