Shifting to More Cash

At this point, every long investment strategy seems to be losing except for cash, CDs and bonds. US stock indices, foreign market indices, large cap, small cap, and real estate have all underperformed this year. Until July, 2008, commodity investments were the last sector to offer good returns. Now, even commodities have fallen. While some commodities still have a positive return for 2008, the declines in the last 2 month have wiped out most of the gains.

There have only been two bright spots in my portfolios: CDs/bonds and my company stock. The CDs and bonds have been returning 4-5% annually. After falling 20%, the company stock in my retirement accounts has climbed back to within 7% of the all time high in December, 2007.

For now, I have switched to a cash is king investment philosophy. As CDs/bonds mature, the funds are reinvested in CDs/bonds. As my company stock rallies, I am selling covered calls and selling stock outright. The cash generated will be invested in CDs/bonds. While I do not plan to sell existing diversified stock holdings (which are down about 20%), I am not making any new investments at this time. Averaging down does not seem wise with the market likely to fall farther in the next few months.

At this point, it looks like the few that pulled out of the stock market at the beginning of 2008 made the right call.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

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