Ask Mike:
If you are fearful of a major correction, why are you getting back in?

Question:

Mike,

I have been following the ETF portfolio for over a year and have enjoyed the service as well as the results.

Last week you rated the market as a -4 with the possibility of a 10% correction. I was surprised that you want to start moving back in after going to cash. Wouldn't it be more prudent to sit on the sidelines for a week and see what transpires? This could be a pivotal week to see which way the market goes.

I know we are in a pre-election year which bodes well for the market but we are also in the 4 year bottoming phase.

Sincerely,

Phil R from Woodinville, WA

Mike's Response:

Hi Phil,

Thank you for the note and the support.

Here is my reasoning for getting back in the market:

1. The odds of a correction are high, but not certain.
2. I am only putting a portion of my cash back in the market. Being 100% in cash might be a little overly cautious.
3. In a major correction, investors look for safe havens. I believe I have selected ETFs and stocks that become more attractive in a market correction.
4. I have put my limit orders in below the Friday close. At least I'm buying at below market, if the trades execute, so if the market tanks this week, my basis won't be quite so high as buying at or near market.

Now... having said all the above, I see nothing wrong with waiting another week (or more) before getting back in the market if that is your preference. There is a strong argument to stay in cash until one of two things happen... either we get the 10% correction or we see the market move up another 5% to 10%..

I would rather be in a hedged position, where I have a balance of cash and equities in my portfolios, but continue to nibble at the market with holdings that should outperform in a global economy. My focus right now is to get out and away from most US stocks and US ETFs and stay more in the Euro-Asia markets with ADRs and ETFs.

And as always... I could be wrong. Your concern is valid. In a week or two, we may see that my getting back in the market was an error. On the other hand, if I can make 2% or 3% in the meantime, I will be way ahead if the correction does happen.

Best regards,

Mike