Ask the Fool

Sell? Buy? Cash?

Q: Since so many stocks are down now, does it make sense to sell some of the riskier ones and move that money into safer stocks that are also down? — L.D., Honolulu

A: Think about it this way: Which stocks inspire the most confidence that they’ll do really well over the long run? Which stocks are your best, most promising ideas? That’s where most of your money should be — ideally spread across 25 or more great companies.

Q: What percent of my portfolio should be in cash? — A.S., Lexington, Kentucky

A: There’s no single best answer for everyone. Remember that the stock market will go through occasional corrections and crashes every few years or so, which is why you shouldn’t invest any money you’ll need in the next five (if not 10, to be more conservative) years. First, be sure to have an accessible emergency fund with at least three to nine months’ worth of living expenses in it. Beyond that, keeping some of your portfolio in cash or short-term investments such as CDs, short-term bonds or money market accounts means you can access funds without having to sell any shares when they’re down. Having cash in a market downturn also means you’ll be able to buy shares of great companies when their prices have fallen. Consider keeping up to around 5%, or possibly 10%, of your portfolio in cash or short-term investments — increasing it once you’re near or in retirement, to at least one or two years’ worth of living expenses. Don’t go to all cash then, though, as retirements can last decades, and you may want a big chunk of your portfolio to keep growing for you.

Fool’s School

Trusting Financial Advisers

Most of us could do with a little (or a lot) of guidance from a good financial adviser. But financial professionals vary not only by skill, but also by how much you can trust them. It can help if the professional you’re dealing with is bound by an ethical requirement. Doctors, for example, take a Hippocratic oath to prevent disease whenever possible…

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