Benefits of Shifting From Stocks to Cash Options
- The history of the stock market can be traced back 200 years, to when bonds where issued to fund the Revolutionary War. At that time banks started issuing stock to raise funds. As the U.S. economy began to expand in the mid-1800s, companies needed more money to expand and remain competitive. To do this they began selling shares.
- When you own shares of a company, you take part in the market appreciation. This is one way you make money. You can also do so through the accumulation and collection of dividends. These are both sound reasons to own shares of a company. Historically, owning stocks allows you to earn better returns than staying in cash.
With greater returns come greater risks. In owning these companies, you also assume a bigger liability. In owning stock you have the possibility of losing 100 percent of your investment. If you have all your money in cash in an FDIC-insured account, it's insured up to $250,000 per account owner; that amount is legislated through the end of 2013. - There are many reasons to shift from stocks to cash:
- If you suspect the market is going to go down.
- If you have a large expense, such as a house purchase or a college education, coming up.
- If your risk tolerance changes so you just don't feel comfortable with the market.
- If you have come into money and now your main objective is conservation of principal and not growth.
- If you are about to start withdrawing assets and need to make sure your money is there in the future. - Shifting from stocks to cash ensures that your funds are 100 percent liquid. It ensures your money is accessible when you need it. It also allows you to see your assets move in one direction: up. As long as your cash is making some interest, your account will always go up.
- Keeping assets in cash allows many investors to sleep more comfortably at night because they don't have to worry about what is happening in the stock market. It offers peace of mind because they don't have to worry about market cycles and market corrections. Instead of feeling like they are on a roller coaster ride of ups and downs, these investors can enjoy a more stable ride.