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It's all situational.

For me, I am not chasing liquidity or current income; I am chasing long term returns. So, the opportunity cost of me moving more assets into cash is not worth taking money out stocks, especially at such a point in the market where everything is 'on sale'.

For those looking to retire soon, or those wanting income, now is as good as time as any to put money in TIPS, CDs or other high-yielding vehicles.

All one needs to do determine what their time horizon is and compare the Vanguard Prime Money Market Fund to the Vanguard 500 Index Fund.

Obviously, transactions costs play a huge role. If you plan on selling off other assets to move into cash, you may be looking at commission costs or back-end loads, hence negating any advantage. But, if you have some money sitting in a worthless non-interest bearing checking account, there are a ton of options to move too. (Just watch account fees and minimums!)

Good article Larry!

Cheers,
Jason

It has been my experience that the single most important investment decision you can ever make is into what asset class you choose to put your money, regardless of transaction costs incurred to accomplish that choice. The reason asset class choice is so important is because it overwhelmingly establishes parameters of potential performance limitation, and expectation of future return on assets, more than any other variable decision in the entire money management process.

However, moving out of other asset classes into cash is not necessarily a market-timing move. For instance, over the period from May 4th through May 15th of this year, I sold nearly 50% of my entire personal equity portfolio and moved the proceeds into several taxable money funds and CDs, paying a range of 4.29% to 4.98% interest. Although the timing of this rather significant (for me) liquidation appears somewhat fortuitous from a short-term perspective, in retrospect, this decision had nothing to do with any attempt to time the market, nor had I ever before liquidated such a large percentage of my stock holdings. Instead, as a retired individual with only a limited cash flow of interest income, dividends, a modest pension payment from Goldman Sachs, several self-directed IRAs, and a meager monthly social security disability payment, I find myself in greater need of ready cash now than ever before in my life. Also, in a substantially lower tax bracket now than when I was employed, as a retiree I can more comfortably absorb the resulting tax liability. Finally, there was a personal health consideration (as Larry is aware) which further motivated me to sell a chunk of blue-chip large-cap stocks and move to cash. When the Fed ultimately stops tightening in its war against the fear of future inflationary expectations (which often become self-fulfilling), that cash position will probably be reinvested, over time, using modified dollar cost averaging, back into other diversified asset classes, such as a combination of long-term growth stocks, emerging markets, high-yield junk bonds, and TIP's.