I'm Selling Stocks, Moving to Cash; Should You?
Here are some points to consider -- they are the same ones I considered as I came to my decision to move to cash. Each hinges on present and positive variables remaining constant.
- We pay about $2,000 a month in rent -- a relative bargain given our location.
- In less than a year, we will have, with the exception of pesky student loans (I got burned by the private student loan scheme), no debt. Even our one car will be paid off.
- We have seen considerable monthly cash flow over the last two years.
- We have a more-than-ample emergency fund.
Then I asked the following questions:
Do I really want a housing payment in retirement? Would I feel comfortable having a monthly commitment of thousands of dollars per month in my 50s, 60s, 70s and onward? Do I want to work to reduce and eventually eliminate a housing payment going forward?
Having no housing payment boils down to an objective. If I reach it, I have a fighting chance of achieving the remaining goals I listed earlier.
After seemingly endless thought, I came to the conclusion that I should deploy my monthly cash in two ways: Eradicate all debt (but allow the low-interest rate student loans to persist) and unwind 80% of my stock portfolio into a cash position. By doing this, I increase my rate of savings by roughly 50% each month.
I give up the potential for the return that equities can produce, but I also eliminate risks, such as frustrating, even if temporary, on-paper losses and long recovery periods after, say, a dive off of the fiscal cliff.
With ample cash flow and the need for a large sum money within two years to cover a down payment on an income property, I see no sense in taking on any risk whatsoever.
In fact, in a situation where monthly cash flow comes in at several times monthly expenses, I'm not sure it ever makes sense to take on more than minimal risk. Cash flow provides safety and less anxious nights, and you do not have to give up much in the process.
Simply put, if you can achieve your goals and objectives within a reasonable amount of time, why shouldn't you do it primarily with cash? That's an open question, but I think it's one that more people should ask.