An important step in preparing for a historic bear market is to embrace cash or cash equivalents.
This may seem obvious, but even with the stock market in a downtrend, cash is shunned by many an investor -- retail and professional. Many of these investors believe the bull market will resume -- sooner rather than later.
As the May Elliott Wave Theorist noted:
The percentage of assets dedicated to equities in American Association of Individual Investors members' portfolios remains near a bullish extreme... They think a "correction" is in force but not a bear market.
So, AAII members have been holding more stocks than cash.
Here in July, investors continue to hold out hope for a resurgence of the bull. This chart and commentary are from the just-published Elliott Wave Financial Forecast:
This chart shows the percentage that U.S. households have in equities relative to their total assets and provides long term context. At 27.5%, the latest reading, from the end of the first quarter, is higher than the peak reading of 26.3% at the top of the dot-com mania in the first quarter of 2000!
Professional market observers likewise dislike cash (Bloomberg, July 27):
S&P Analysts Haven't Been This Bullish In 20 Years
The point is: If you have a portfolio of mainly cash (or equivalents), you'll be in the minority, which history shows is usually the best place to be when a market is transitioning from a bear to bull or bull to bear.
Just make sure your cash is kept in the safest institution possible.
You see, speaking of history, Elliott Wave International President Robert Prechter wrote this in his March Elliott Wave Theorist:
Between 1929 and 1933, 9000 banks in the United States closed their doors... Well before a worldwide depression dominates our daily lives, you will need to deposit your capital into safe institutions.
You may say, "My deposits are insured up to $250,000 by the Federal Insurance Deposit Corporation -- why should I worry about my bank's stability?"
The March Elliott Wave Theorist explains why you should not rely on the F.D.I.C. and provides a wealth of other insights into protecting your financial safety -- as well as your physical safety.
If the bear market turns out to be as severe as Elliott Wave International anticipates, social and political turmoil are likely to erupt.
Learn how to get the March Elliott Wave Theorist for free by following the link below.
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