"investors are acting as if the market is perched on a knife’s edge. A recent report from the Center for Applied Research at asset management giant State Street Corp. found that investors in 16 countries around the world have increased their cash holdings over the past two years to 40 per cent, on average, from 31 per cent. Canadians were a little more adventurous than most, with a recent average cash position of 34 per cent. Considering how low returns on cash are, that’s still an exceptionally high level.
Sheryl Purdy, vice-president at Leede Financial Markets in Calgary, says she began hearing a year or so ago about brokers, who, in dealing with nervous clients, were keeping substantial parts of their portfolios in cash. This prompted her to do her own analysis of the market’s vulnerability to a pullback. Her conclusion is that anxiety about soaring stocks is driven more by jittery investors than by market fundamentals.
“I don’t think we’re in for another serious crash,” Ms. Purdy said. “I think what we’re dealing with is shell shock for a lot of clients.”
The last time the stock markets were this strong, a crash for the ages lay dead ahead.
Parallels such as this are hard to ignore, but they’re of little use in managing an investment portfolio. So stay in stocks, or at least make only modest changes to your portfolio. The market will fall at some point, but it’s pointless for most investors to try and predict when.
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