Gordon Pape: Is It Time to Increase Your Cash Reserves?

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With all that’s happening in the world, is it worth incurring capital gains tax to raise cash?

Q – In your last issue of your Income Investor newsletter you urged us to be cautious of the global mess bring created by Trump and the impending stock market crash. My question/conundrum is this: is it worth incurring the capital gains to move to a cash/defensive position to avoid this coming market fall? – Barry D.

A – This is an excellent and timely question. I wish I could provide a definitive answer. But to do that would require clairvoyance, which I do not claim to have.

Here is what we know. This nine-year bull market is the second longest in history and won’t run forever. Stock prices are high, and the risks of an all-out global trade war are rising, which will not be good for anyone’s economic prospects. Many respected market analysts are warning that there is trouble ahead.

You have to make your own decisions in that context. Review your portfolio and determine how vulnerable it would be if we had a repeat of 2008. Would the potential loss be worse than the capital gains tax you would pay on your profits?

I would never suggest selling everything, since we can’t know how events will evolve, especially given the unpredictability of President Trump. But I do think that increasing cash reserves is not a bad idea at this point, especially for older people with a relatively short time horizon. – G.P.

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