Before the article, check out the latest on my podcast, <\/em>Personal Finance for Long-Term Investors<\/em><\/strong>:<\/em><\/p>\n Now, here\u2019s today\u2019s article: <\/p>\n Phil wrote in this week:<\/p>\n Jesse \u2013 if we do<\/strong> think that the stock market is overvalued right now, doesn\u2019t it make sense to sell some stocks and move that money to cash? <\/em><\/p>\n Or is that \u201ctiming the market?\u201d <\/em><\/p>\n Can\u2019t I just argue it\u2019s smart \u201crebalancing?\u201d <\/em><\/p>\n It kind of feels like semantics!! I\u2019m writing this as a 68-year old retiree (retired since 2017).<\/em> Interested to hear your thoughts.\u00a0<\/em><\/p>\n<\/blockquote>\n I\u2019ve been thinking about this myself, Phil. Yes, valuations are undoubtedly high<\/a>. But, as Aswath Damodaran might ask, does that mean stocks are overpriced<\/a>? <\/p>\n And most to the point: should long-term investors and retirees do anything about it?<\/strong><\/p>\n The \u201cBoglehead\u201d and \u201cMalkiel<\/a>\u201d in me both know that market timing is a fool\u2019s errand.\u00a0As John Bogle told us, \u201cDon\u2019t do something; just stand there.\u201d<\/em><\/p>\n At the same time\u2026<\/p>\n If there was ever an excuse to time the market, surely this is what it would look like? Or at least, I\u2019m sure that\u2019s the argument Phil and many others are telling themselves. <\/p>\n In fairness to the idea, let\u2019s do this: I\u2019ll share both smart and dumb reasons to shift money into cash right now. Let\u2019s see where your thoughts end up. <\/p>\n There are logical reasons to consider a move to cash right now. <\/p>\n Selling some stocks will lock in your gains and protect you if the market does correct sharply. This is purely a risk reduction measure. <\/p>\n If your 60\/40 starting portfolio is now closer to 70\/30, then I\u2019m all in favor of selling stocks to get back to 60\/40\u2026or perhaps 60 \/ 30 + 10% in cash.\u00a0<\/p>\n If your financial plan includes asset-liability matching<\/a> or a \u201cgoals-based\u201d investing framework, then recent stock market performance might have blessed you with \u201cexcess capital.\u201d<\/strong><\/p>\n The asset-liability framework suggests using low-risk assets (cash, bonds) to cover your spending needs for the near term. Then you use high-risk assets (such as stocks) to cover your long-term spending needs. <\/p>\n But then, you might have all your future liabilities covered, yet still have some money to be deployed. This is excess capital<\/strong>. <\/p>\n It\u2019s money you don\u2019t need. Your financial plan will be successful with or without it. For that reason, you can do what you want with it. Find a great charity. Take a flyer on your nephew\u2019s pizza business. Or, if you\u2019re particularly market-wary right now, keep it in cash. <\/p>\n Overnight \/short-term cash interest rates are at ~3.8%<\/strong> as of this writing. That\u2019s not bad! <\/p>\n Cash is a reasonable safety net at the moment, especially for a riskless asset.\u00a0<\/p>\n Cash provides peace of mind during periods of high volatility or uncertainty. Some investors call this a \u201cflight to quality.\u201d<\/a> <\/p>\n For long-term investors like us, I believe the #1 threat<\/strong> to our portfolios is personal behavior. Great investors\u2019 little secret is temperament.<\/a><\/p>\n One of the worst things that can happen is getting burned by a market downturn and swearing off investing forever, convinced investing is simply flawed. We want to avoid \u201cflight or fight\u201d reactions, where we feel the primal urge to sell our stocks simply to survive<\/a>. <\/p>\n If you need to de-risk to avoid that fate, I\u2019m on board.\u00a0<\/p>\n If you\u2019re looking for better answers to your money questions, <\/em><\/p>\n My free weekly newsletter helps busy professionals and retirees avoid costly mistakes and grow lasting wealth to and through retirement. <\/em><\/p>\n Join 4000+ subscribers, 100% free. <\/em><\/p>\n Sign up here: <\/em><\/p>\n I wouldn\u2019t begrudge anyone taking some risk off the table right now. But before you do, it\u2019s important to consider the many reasons to NOT<\/em> do what you\u2019re thinking. <\/p>\n Predicting the top (and bottom) of the stock market is nearly impossible. Even though some smart people describe the current market as overvalued, the really<\/strong> smart ones also say:\u00a0<\/p>\n In other words, we don\u2019t know if<\/strong> it\u2019ll pop, and we certainly don\u2019t know when<\/strong>. \u00a0<\/p>\n That\u2019s why you need to ask yourself some hard questions, like:<\/p>\n Are you setting yourself up for harder choices and more regret in the future? <\/p>\n I\u2019m not sure if moving to cash is right or wrong. Only time will tell. <\/p>\n But over the long run, I know that cash historically underperforms stocks, especially after inflation. And if we\u2019re all thinking like long-term investors, we\u2019d best not forget that fact.\u00a0<\/p>\n Even if current cash interest rates (3.8%) are higher than traditional inflation rates, the simple truth is that cash does not outpace inflation over the long run. By fleeing to cash right now, you are accepting that risk.<\/p>\n Back in April 2025, during the \u201ctariff tantrum\u201d and the stock market\u2019s subsequent volatility, I reminded you of that line from Russell Crowe in Gladiator<\/strong>: <\/p>\n \u201cAre you not entertained?! \u2026Is this not why you are here?!\u201d<\/strong><\/p>\n<\/blockquote>\n Similar logic applies right here, right now. <\/p>\n We\u2019ve all shared in amazing returns and now the market might be overvalued, overpriced. Is this not why you are here?! <\/strong><\/p>\n Part of being a long-term investor is this very trade-off. We receive periods of outstanding returns in exchange for the threat (or reality) of negative performance. This is the bargain we signed up for. <\/p>\n Yet, I do understand the temptation. We\u2019re all \u201closs averse.\u201d<\/a> <\/p>\n If we can avoid the negative period\u2026why not?! Can\u2019t we eat our cake and have it, too? That\u2019s a human temptation. <\/p>\n But it\u2019s also changing the terms of our investment pursuit midway through the game. Stay the course. <\/p>\n So you\u2019re committed to this idea of selling your stocks, moving to cash. How are you \u201cright-sizing\u201d your bet? <\/p>\n Let\u2019s do some simple math. <\/p>\n We know a 20%, 30%, 40% drop in the stock market won\u2019t be fun. But\u2026are you going to sell ALL your stocks to avoid that potential drop?\u00a0Will you just sell off a small portion?\u00a0<\/p>\n If you\u2019re planning to sell a small sliver of your stocks, what\u2019s the real benefit? For example, selling 5% of your stock portfolio and then *perfectly* timing a 40% market drop just saved your portfolio a whopping 2%.<\/p>\n But then, if you\u2019re planning to sell 50% of your stocks\u2026are you sure<\/em>? Not only are you violating a key tenet of long-term investing, but you\u2019re doing so with a huge fraction of your net worth? <\/p>\n On the small side, this choice doesn\u2019t move the needle. On the big side, this might ruin your financial future. Where\u2019s your Goldilocks zone? <\/p>\n You need an objective reason why now<\/strong> is the right time for this move. Why not 3 months ago? Why not in 2021?<\/p>\n I\u2019m worried your reason might<\/em> be, <\/p>\n \u201cBecause every media outlet seems to be calling this AI bubble. Surely, where there\u2019s smoke, there\u2019s fire?\u201d\u00a0<\/em><\/p>\n<\/blockquote>\n It\u2019s true. Here\u2019s the past 5 years of Google Trend data for the search term, \u201cAI bubble.\u201d<\/p>\n But in response to this idea, I want to invoke some wisdom from Howard Marks\u2019 latest newsletter:<\/p>\n \u201cOne of the most prominent characteristics of the financial markets that I\u2019ve detected over the years is their tendency to obsess over a single topic at a given point in time. The topic eventually changes to another, but before it does, it\u2019s often the thing people want to discuss to the near exclusion of everything else.\u201d<\/p>\n<\/blockquote>\n Remember Silicon Valley Bank? GameStop? Yield-curve inversion? NFTs? That\u2019s just the last ~4 years! <\/p>\n I know concerns about an AI bubble are everywhere we look. But\u2026are we all in a bit of a financial media \u201cecho chamber?\u201d <\/p>\n I mean, let\u2019s be honest: you\u2019re here reading what\u2019s probably the #219 retirement and financial planning blog on the Internet. You, like me, might<\/em> be pretty deep in the weeds. <\/p>\n To sell, or not to sell?<\/p>\n The way I see it, both choices have rational, numerical, and subjective, emotional components.\u00a0<\/p>\n On the numerical side, it\u2019s an argument between:\u00a0<\/p>\n On the emotional side, it\u2019s all about minimizing regret, loss aversion, and avoiding a \u201cfight or flight\u201d scenario.\u00a0<\/p>\n If you\u2019re still on the fence, here are some tips to help you decide: <\/p>\n Phil \u2013 thanks for the question and I hope this helps. <\/p>\n These are interesting (but \u201cgood\u201d) problems for long-term investors like us. <\/p>\n Thank you for reading! Here are three quick notes for you: <\/p>\n First<\/strong> \u2013 If you enjoyed this article, join 1000\u2019s of subscribers who read Jesse\u2019s free weekly email, where he send you links to the smartest financial content I find online every week. 100% free, unsubscribe anytime.<\/p>\n Second<\/strong> \u2013 Jesse\u2019s podcast \u201cPersonal Finance for Long-Term Investors\u201d<\/a><\/strong><\/em> has grown ~10x over the past couple years, now helping ~10,000 people per month. Tune in and check it out.<\/a> <\/strong><\/p>\n![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/09\/The-Best-Interest-Pod-Template-5-scaled.png\")
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<\/figure>\n<\/div>\nWhy Move to Cash Right Now<\/h2>\n
Risk Reduction and Rebalancing Discipline<\/h4>\n
Asset-Liability Matching<\/h4>\n
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<\/figure>\n<\/div>\nCash\u2026Isn\u2019t That Bad Right Now <\/h4>\n
Psychological Safety <\/h4>\n
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\nDo You Want To Learn More?<\/em><\/h3>\n
\nThe Bad (or Dumb) Reasons To Move To Cash<\/h2>\n
Market Timing is Notoriously Hard<\/h4>\n
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<\/figure>\n<\/div>\nHistorical Data \u2013 Opportunity Cost and Inflation Erosion<\/h4>\n
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<\/figure>\n<\/div>\nYou Chose This Portfolio for a Reason. <\/h4>\n
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What\u2019s the Magnitude\u2026and What\u2019s the Benefit? <\/h4>\n
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<\/figure>\n<\/div>\nWhy Now<\/span>? <\/h4>\n
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What Should We Do?<\/h2>\n
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<\/figure>\n<\/div>\n7 Tips If You\u2019re On the Fence<\/h2>\n
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