The groundhog investor looks out of his or her burrow every now and then and always sees more winter ahead.
To stay safe, groundhog investors wallow in cash. The markets are always too high for them, or falling too hard. Cash is comfortable, even if it's a money-loser on an after-inflation basis.
A sure sign you're a groundhog is that you've had at least 10 to 20 per cent of your portfolio in cash for a few years or more. That's long enough to have missed out on all or most of the strong gains over the past three years.
This September is shaping up as a vintage month of uncertainty for stocks. There's a lot of concern that both stocks and bonds are overvalued, and we've already seen some sharp one-day declines in major stock indexes. The big worry seems to be rising interest rates, even though this development would signal a stronger economy and, in turn, an improved outlook for corporate profits.
Groundhogs, use September as an opportunity to decide exactly what kind of an investor you really are. If you're not interested in more stock market risk, then recalibrate your retirement planning to ensure you'll accumulate sufficient savings. Without long-term stock market growth working on your behalf, you may need to step up the amount of money you put away.
Groundhogs who want to get out from under their mountains of cash need a plan. One thought is to edge your way in with purchases of broad market exchange-traded funds or mutual funds on a monthly or quarterly basis over the next six to 12 months or so. If the volatility we've seen lately continues, you'll be in a position to buy stocks at lower prices in the months ahead. If the markets tank, you can take comfort from the fact that you didn't invest all your cash at the peak.
Market timing should be avoided by investing groundhogs. Buy low after a correction? A major plunge in share prices will drive them so far into their burrows they won't see daylight until stocks have rebounded from whatever lows they hit. That means another opportunity lost to put do-nothing cash to work.
Rob Carrick