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Investor Pessimism Rises - Cash Sees Large Inflows

According to a recent Bank of America report, cash saw huge inflows for the week ending September 21st as the Federal Reserve announced its most aggressive financial tightening yet. Cash had inflows of $30.3 billion while global stocks and bonds had outflows of $7.8 billion and $6.9 billion. This has led to selling pressure with widespread losses for almost all major asset classes.

Cash sees huge inflows

It is easy when seeing this level of selling and pessimism to consider doing the same. After all, it is a natural human reaction. However, while there are no guarantees, history has favored the contrarian. This is best summarized in Warren Buffets famous mantra, “Be fearful when others are greedy and greedy when others are fearful.”

This is key component of my investment philosophy and why at the end of the year in my new year’s resolution article I encouraged caution and investors to review their levels of risk. The market cycle has clearly changed since then.

While we may not be a market bottom yet, and things may be volatile for the coming months, the good news is it is times like these when investors can find opportunities to distinguish themselves from the crowd and ultimately find long-term returns that are very attractive.

Steps and actions to consider:

1. Review your current investment plan and make sure it still makes sense. Consider any upcoming cash needs for brokerage accounts or 529 plans.

2. If you are able to reduce spending and save more in your 401(k), 529 plan, or brokerage account consider doing so as all major asset classes offer more attractive long-term valuations and entry points.

3. If you are considering selling some of your investments review and consider the impact of doing so.

4. Consider turning lemons into lemonade by tax-loss harvesting within a taxable brokerage account. This involves selling investments to capture the loss while moving the investments simultaneously into a similar but different investments.

5. Now is also a good time for a “gut check” on your risk tolerance. Risk tolerance changes over time as your life evolves. If you are feeling more stressed than in the past, be aware of this and consider changes after this market cycle shifts.


GuidePoint Financial Planning - Reston Financial Planning

Ryan Phillips, CFA, CFP® is the founder of GuidePoint Financial Planning. He is passionate about helping busy families plan, save, and invest for their financial future. Contact him today if you are interested in learning more about the benefits of working with a fee-only (no-commission) financial planner.

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