WSJ Says "Hold Some Cash"
The Wall Street Journal published an article Friday, "The Investing Lesson of 1937: Hold Some Cash." It says, "The manager of the world's biggest hedge-fund firm is comparing today's economy to the last years of the Great Depression. Ray Dalio, who runs the $170 billion Bridgewater Associates in Westport, Conn., and whose views are widely followed, recently told clients that he saw echoes of 1937 in current economic conditions. Then, as now, a recovery after a deep downturn sparked a stock-market boom. Then, as now, the Federal Reserve was poised to tighten monetary policy. The Fed's move that year helped trigger another downturn and a bear market. In a letter to investors, Mr. Dalio wrote, "we can't tell you what will happen when the Fed tightens this time around." Benjamin Roth took notes about what did happen eight decades ago, and hit upon a few insights that could prove useful if the Fed's next move -- or another event -- leads to upheaval or sends stocks tumbling from recent all-time highs.... Mr. Roth's hard-won wisdom can be put to practical use today. During boom times, cash often is viewed as a drag on one's wealth, earning measly interest while stocks surge. After stocks fall, it becomes clear how valuable it is. If you enjoy following markets and want to take advantage of future opportunities, consider keeping a small portion of your overall portfolio in cash. I choose 10%, though your willingness to patiently wait in low-yielding cash may justify a different percentage. Keep it separate from an emergency fund meant to cover bills should you lose your job or suffer an unexpected illness. Make a plan ahead of time for how to deploy the cash if stocks fall, so that you won't get caught up in the heat of the moment." See also the Systemic Risk Council's comment letter to FSOC about the asset management industry.
