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As a Red-Hot Market Cools, Avoid the Urge to Go to Cash

The market has soared 19% year-to-date … but this week, investors have had to get used to seeing a whole lot of red.

So with earnings winding down and the markets showing some sign of weakness lately, is it time to go to cash and protect your big profits?

Not for most.

Market timing is darn near impossible, and the best strategy for retirement investing continues to be buy-and-hold — even in the face of short-term risks.

Dan Wiener, editor of the The Independent Adviser for Vanguard Investors, says that buy-and-hold is still the way to go — even if that means sticking with the market should the recent levels prove to be a near-term or even medium-term top.

In fact, Wiener himself expects a brief rollback from the highs. In his latest issue of Independent Adviser, he warns about volatility in both the bond and stock markets in the next month or two as Congress returns to its bickering, GDP growth remains bleak and we move into the “easing of quantitative easing.”

But does that mean sitting things out? Wiener says no way — and actually thinks “it will provide some of our fund managers opportunities to pick up some bargains as the markets churn.”

Here’s more from Wiener:

“Market timing sounds so simple and elegant; however, I think it pays to remember that it takes not one, but two correct market calls to be successful at it. You’ll have to sell before the markets fall and buy before they rebound, which I can almost guarantee they will once the dust settles. Market timing isn’t my cup of tea, and I don’t think you’ll find it a winning strategy. If the market’s moves give you a bit of heartburn, simply turn off the TV and stick to watching movies on the Internet, and leave the pundits to their punditry.”

Wiener also cautions that markets at inflection points provide unscrupulous marketers and stock “experts” an opportunity to peddle their wares — so keep a healthy dose of skepticism and keep your goals realistic.

Here’s Dan Wiener again:

“… with markets at or near peaks, the snake-oil marketers are out in force. The most ridiculous recent email I received claimed a ’145% Annualized Return for Seven Years Running!’ and promised to double my money over the next 12 months. Anyone who stopped to do that math would realize that 145% compounded over seven years would turn $10,000 into $5.3 million. Ridiculous. But there’s so much “bull” in a bull market that I’m almost immune to it.”

Sound advice.

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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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