Cash Is A Position

I go to the Money Show every year to visit with

friends who have booths and are speakers. Then

when folks are filing out of lectures I listen

to their comments on what I know the speaker has

been saying.

The Money Show is for investors from all walks

of life; however, my guess is the median age is

close to 60. Those who go have accumulated a

nest egg and now are retired or very close to

retirement. They came to learn more about how to

make their money grow.

Last year there were 256 separate events not

counting what was given in the Exhibition Hall.

Almost without exception speakers were showing

how cash can accumulate faster if the listener

bought his product whether it was a mutual fund,

stock, bond, partnership or who knows what. Are

there that many money makers out there?

One speaker had an hour telling the market was

due to crash and the thing to do was buy long

term put options. He also said if you would not

do that to buy some government bonds which were

paying about 2 to 3%. The exit comments I heard

were pretty well summed up by one lady who said,

“Is he nuts. How can we live off 2%?”

When you are in a bear market the old saying

is, “He who loses the least is a winner”. No,

you can’t live on that small a return, but you

can lose large sums by trying to be invested at

all times. There have been many years in the

past where cash with no percent return beat the

heck out of the stock market.

Go back to 2000 and remember the NASDAQ lost 78%

of it value in 3 years. Since March 2000

investors in the 50 hottest-selling mutual funds

have lost an average of 42% according to the

Lipper Analyst. Fidelity Magellan, the largest

fund at that time remains a loser of 23% and

Janus, 4th largest, is down 45%.The Buy N

Holders have still not recovered their

investments.

If you had sold out near (I did not say at) the

top, say within about 10 or 15% your account

would have been pretty darn healthy when it

finally did start back up. You would not have

lost 30 to 40% or more of your hard-earned

money. That is what I refer to as a “reverse

profit”.

If you had put a loss limit on your portfolio of

10% on each position and taken out just enough

to live on it probably would that have been less

than letting it stay invested in the market? You

can easily check that.

Putting 100% of your money in a money market

while the market is declining does not mean you

are not invested. You are invested – in cash.

This protects your savings from huge losses that

can and do occur regularly in market cycles. I

have written about those 16-year cycles

previously.

The smartest investors set a limit from where

they bought from the highest price their equity

has reached as to where they will sell if it

starts going down. Usually 10% is the rule of

thumb, but it can be 5% or 20%. That is your

choice.

All investors must learn that cash is a position

or they are sure to lose their money.

Copyright 2005

Source by Al Thomas

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