What do you do when there’s nowhere to invest?

nowhere to invest

Nowhere to invest? With a sky-high stock market, it often seems like there’s nowhere to put money.
Image courtesy Renjith Krishnan via FreeDigitalPhotos.net.

I had an interesting exchange with a reader named Bradley recently. Bradley’s basic question was “with the market at all-time highs, where do you put your money? It’s a good question because it does feel a bit like there’s nowhere to invest right now.

And it’s a particularly relevant question for me because I’ve been facing this exact dilemma with the recent windfall from the sale of my fourplex. Making matters “worse,” I just sold another piece of property so I have even more cash coming my way.

If you’ve ever made the mistake of reading any news site comment sections related to the stock market, you already know that there are two main contingents who both believe they are 100 percent correct: One says the market is headed for a crash very soon and only a fool would gamble his money in the stock market. The other group, equally sure their beliefs are correct, say the market will keep going up, up, up and only a fool stays out of the market worrying about a crash. (To get a handle on your investment portfolio, be sure to sign up for a free account from Personal Capital.)

Naturally, both sides are right and both are wrong. In reality, we all know that this market will undergo a significant correction at some point. We also know that the market will grow its way out of that dip. What we don’t know, of course, is when and we don’t know how long it will take to recover. That’s why the most important factor in any investment is the investor’s personal situation. For example, this is why people nearing retirement are typically advised to move to safer holdings as they age, although ironically people in this situation currently are among those who feel strongest that there is nowhere to invest. For some perspective, consider that my first money market account back in the late ’90s paid five percent!

There was a pretty interesting piece in CNN Money in January. While generally sticking with fairly standard allocations and advice, the writer reminds us that good ol’ cash also used to be seen as an asset class.

I recommend heading over and reading the whole thing. Lots of interesting data points pulled together, such as the fact that the market usually has a 10 percent drop once a year but hasn’t seen one in 2 1/2 years (at the time the article was published).  The writer suggests 10 years of disappointing returns await. And, oh yeah, the level of borrowed money in the market is already reaching pre-crash levels. So we’ve got a bubble again, inflated with Fed policy, borrowed money, greed and blind trust.

I might be the last honest blogger, because I’ll just tell you the truth: I have no idea what’s going to happen or when. I held my real estate winnings in cash at the end of last year, partly because I was expecting at least a small correction (which we’ve finally gotten a little taste of) and partly because I haven’t had time to really focus on it. (Which is not to say I didn’t do anything with my money last year. I actually was moving and reallocating funds quite a bit, which is still going on.)

So far this year, I have picked up a few individual stocks when I see a good value, but I’ve held off on buying much more in the way of mutual funds so far. And, in fact, I’ve been moving more money into cash, as I finally dump some stuff I’ve been packing around with higher costs. I’m dreading the tax impacts after this year, but I just want to clean up my portfolio.

My short-term strategy right now is to go ahead and sell my high-cost funds (I have seven of them left at this point with various amounts of money in them). Thus, my cash position is increasing. I’m selling those semi-quickly. Meanwhile I’ll be moving this cash back into individual stocks and/or low-cost Vanguard funds — however, this will happen much more slowly, basically dollar-cost averaging my way back in. By default, depending on how slowly I move these dollars back into the market, I’ll be effectively keeping significant assets in cash as well. I don’t want to say I’m hoping for a big market crash, but if one were to happen, this would be a pretty awesome time.

So that basic framework aside, let’s get back to the main question: what do you do when there’s nowhere to invest?

Let’s start by recognizing that, really, there is always somewhere to invest. Maybe with a sky-high market, now isn’t the time to move a large sum in all at once. But there are always a few undervalued stocks. But you have to be careful. It always rains after I wash my car and the market always dips when I make a purchase. And with the market so inflated, I have been thinking quite a bit about what options do exist outside the usual menu we typically think about. Here are a few things I’ve thought about.

Pay off debt

If you’re carrying any consumer debt at all, this is a good place to start. Whatever your interest rate is on the debt you’re carrying is your effective return by paying off that loan. Still carrying a car loan? Maybe instead of buying into an over-inflated stock market, you pay that car off for good. The free cash flow you now enjoy could dollar-cost average its way into the market or you could save it up so you’re ready to pounce when things drop.

Keep funds in cash

Why consider holding money in cash? Well, on one hand it’s a defensive move — you’re protected from a big crash. When everyone else is panicking, you’re kicking back on your pile of cash. That pile is, however, slowly disintegrating under you, however, as inflation eats away at your buying power. There is another advantage, of course. Imagine if you’d been sitting on big pile of cash during the real estate crash. I know if I didn’t have all my money tied up in, yes, real estate, I would have been on a shopping spree. Thus retaining cash can be an offensive move as well. Sit, wait for a big drop and start swinging your big weapon.

Pay off your house

If you don’t know where to put your money right now but you’re still carrying a mortgage, perhaps it’s a good time to increase your security by putting a bullet in your mortgage. If you’re worried about missing a big market dip, maybe open a HELOC on your now paid-off mortgage. If things look irresistible, you can pull out the funds from your house again and take advantage of market conditions. Remember the crash you’re waiting for could be two or three years away and you could be enjoying the cashflow improvement in the meantime.

Lower your overhead

Recently I wrote about forcing cashflow and how it can hurt you or benefit you. If you’ve got a sum of money and no place to put it, spending some of that money on increasing your cashflow situation can be a savvy move. For example, I’m still considering making the move on solar panels for our house (no-brainer if we’re going to stay in this house long-term). A $15,000 investment in solar would permanently remove our $75/month electricity bill. The downside is it doesn’t pay if we move. But the idea is the important part. For you, it could mean upgrading to a more efficient car, new insulation for your house, moving closer to work, buying new clothes that don’t need dry cleaning. You name it.

Increase your security

You could also tap your funds for  increasing your financial security as well. This might mean stepping up and paying for a few things now just so you don’t have to bother with it later. Maybe your roof is starting to fail — writing that check now while you have the cash not only removes a hassle from your list, but think about the alternative: Imagine you bought in big to the market at the top and suddenly find yourself with several years of waiting before you’re out of your hole. Then, while you’re waiting, the roof fails completely, leaving you in desperate need for cash. By making sure these aspects of your life are rock-solid now while you have this free cash, you’ll be in a much more solid position when crash time comes.

Be creative

People forget there are other places to invest outside the stock market. There are too many to list here, but for example a guy I used to work with owned shares in a local pizza place. There are always people looking for private investors — some people have friends or family who are interested in starting business for example. (Be careful!) You could even buy a small business if desired. Always wanted to own your own restaurant? Now is your chance! If you can think of it, you could probably make it happen. Have a great idea for a mobile app? You could probably hire a development team overseas for less than $20,000 and bring your idea to reality. In addition, there are online lending options such as Lending Club or Prosper where you can make a decent rate on your invested funds.

Jump in anyway

And, of course, where most of us will end up is back in the market, hoping any dip is not too deep or long-lasting. This is where I’ll probably end up as well. I’ll dollar-cost average my way in, at least, but more than likely I’ll limp my way back in and just wait out any dips, just like I always do. In the end, prudent, boring investing in low-cost index dividend funds is usually the best bet. But when you have a big chunk of cash you’re sitting on, it’d sure be nice to start out with a lower price.

What do you think? Any other creative places to put money while the market remains so high? What would you do if you had a large sum that needed a home?

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39 Thoughts on “What do you do when there’s nowhere to invest?

  1. That’s a tough question. When I was working, I just keep averaging in with my contribution. You have to keep investing through the ups and downs.
    If I have a big windfall, I’d be hesitant too. Vanguard did a study a while back and the best result is to jump in anyway. In the long term, the market kept going up and the longer you wait, the more you’ll pay in opportunity cost.

    In real life, I don’t know what’s the right answer. Right now, I’m holding a bit more cash and I’m adding more short/mid term bonds. I heard corporate bonds might be good too.

    Good luck
    Joe recently posted…7 Underhanded Tactics for a Frugal ValentineMy Profile

    • Pretired Nick on February 12, 2014 at 8:37 am said:

      Yeah, that’s pretty much where I ended up. I’m going to slowly limp in and we’ll hope there are some dips to take advantage of in the meantime. I feel good whenever I buy something, but I also get pretty nervous.

  2. I know all about the concerns out there, but what specifically makes you say the market is inflated. And the corollary to that, what specifically will make you feel like the market is sufficiently uninflated to get back in? Do you have specific numbers or is it more of a feeling? Just curious how people try and make these analyses because I haven’t yet run across a good way to do it.
    Matt Becker recently posted…The Stock Market is Falling! In Other News, Grass is Green!My Profile

    • Matt, my favorite chart to look at to get a quick handle on the state of the market is this: http://www.multpl.com/

      So, we’re high, but not crazy high.

      I was hoping for a better correction than the measly one that we had recently. Everything is cyclical and drops are healthy.

      Back to Nick’s post. I think it all really depends on when you want to start cashing out. If you’re still at least a decade out, I’d go all in (Vanguard index funds mostly). Even if the market does correct down 10%, it will be a minor bump looking back.
      Mr. 1500 recently posted…Get a ChromebookMy Profile

      • Pretired Nick on February 12, 2014 at 12:48 pm said:

        Great points, both of you! You’re right that the word “inflated” is a little bit loaded, implying it’s higher than it should be. Who is to say? But, I think we can all agree the market isn’t UNDERvalued right now. So it really comes down to your own risk tolerance and life situation.
        My No. 1 indicator is when I start hearing stories of people who have never invested in the market start to talk about getting in because they can’t lose. I’ve been hearing that a lot lately. Makes me very nervous. The other factor that I think is interesting is how much borrowed money is in the market right now. That always makes me nervous.
        I’m with you, Mr. 1500, I was hoping for a bigger correction just so I’d feel more confident reallocating my funds. Oh well!
        I really should announce when I finally make some big buys so you all know when to sell!

        • I’d like to know what stocks you buy. I occasionally buy them too, so would be interested in your thoughts. If you don’t want to say it here, perhaps in an email?
          1500 recently posted…Get a ChromebookMy Profile

        • “My No. 1 indicator is when I start hearing stories of people who have never invested in the market start to talk about getting in because they can’t lose.”

          If I recall from history classes, didn’t Rockefeller pull a lot of his money out of the markets just before the stock market crashed because the guy shining his shoes at a train station was talking about stocks to him?

          Here I am talking about stocks and I don’t really know much… but don’t fret, I keep it simple and just have my money in 3 vanguard funds.

          • Pretired Nick on March 24, 2014 at 8:37 am said:

            I hadn’t heard that story, but that’s exactly how I feel about it. And, I agree, keeping it simple is the right way to go!

  3. I haven’t maxed out my Roth IRA for this year yet, so I’m putting in money whenever I can. One day I shall have your “problems” with proceeds from a rental property sale. 😉
    Well Heeled Blog recently posted…To Kid or Not to Kid – How did you figure it out?My Profile

    • Pretired Nick on February 12, 2014 at 12:49 pm said:

      Good for you! Timing is everything, but the only way to make timing work for you is to take some short term opportunity cost hits.

  4. I like it Nick, I like it a lot. I am in this same situation. None of us know where the market is heading in the short term, or as Sabeel mentioned yesterday…….when significant inflation will arise. I started letting my cash build up about a year ago…..obviously a little early :o) But, cash buys opportunities! Also, people tend to forget…..debt limits flexibility…..and paying off your debt is a guaranteed (albeit small) return. Thanks for the link also, I hadn’t seen that article.

    The only thing I’d add is to make sure your “creative” investments have some level of liquidity. There’s nothing like being land (or asset) rich and cash poor


    ps. When are you going to update this box to say Super Bowl Champ Seahawks?!
    Fast Weekly recently posted…My Retirement Portfolio Could Be Replaced With These 5 ETFsMy Profile

    • Pretired Nick on February 12, 2014 at 12:54 pm said:

      Thanks, Bryan! Since I have no debt right now I don’t have that opportunity to take the guaranteed return anymore.
      The other point about the creative investments is that you should only use money you can afford to never see again. Some of those kind of plays can eat up all your money quickly. Staying liquid is also super important, as you mention. A paid-off house can help you stay semi-liquid, though, if you keep a HELOC available.
      Good point about the checkbox! I forgot to change it, but since the season is over and I made my point, I guess I should stop torturing you guys!

  5. This is hard for me to answer. We have cash and we need to just jump in, but I haven’t made the decision yet.

    Right now we have money for 2013 IRAs and about $3K in a taxable account.
    SavvyFinancialLatina recently posted…Knowing Your Car Insurance Options When You TravelMy Profile

    • Pretired Nick on February 12, 2014 at 2:37 pm said:

      At least you’re pretty young, so the risks of going in aren’t as high as someone like me who is getting frighteningly close to 50! But even then, it’d sure be nice to know when there’s a big dip coming, right?

  6. I am a bit worried about holding the funds in cash because I believe that if there’s crash coming, inflated…. inflation would follow which might really hurt your cash funds. On the other hand, it’s better than losing it all on the stock market following its crash.

    I am a bit more old school and I still believe that investing in real estate is the best way to go, if the option to start up a business that you’re sure is profitable is not viable. Also, in this particular case and with how the market looks like now, it might indeed be the best moment to send as much as possible towards debt and start considering investing when the waters are calmer.
    C. the Romanian recently posted…The Importance of Identifying Market PatternsMy Profile

    • Pretired Nick on February 13, 2014 at 2:37 pm said:

      I do love real estate, but there aren’t that many bargains to be found these days. If I was working and had debt, there is no question I’d pay off debt and then dollar-cost average with my paychecks. Since I don’t have debt or a job, it’s trickier.

  7. I made this tough decision earlier in January because I had already allocated a huge chunk of cash to invest in my Roth IRA for my 2014 contributions. I have a large amount of debt as well, so I had three options: keep my emergency fund larger, make another large payment of debt, or invest in my Roth IRA like I had originally decided to do.

    I ended up just putting the money in my Roth IRA since I’m in it for the long haul, and I want to be able to take advantage of maxing it while I’m still young. I doubt I will see the returns that I did last year, but I’m still happy with my decision to jump in anyways as you put it. Here’s to hoping that my returns outpace the interest on my debt again 😉
    Debt Hater recently posted…Increase the Student Loan Deduction AmountMy Profile

    • Pretired Nick on February 13, 2014 at 2:39 pm said:

      No question, Debt Hater! If you’re young, I don’t see any reason to sit on the sidelines. Although debt can be a drag on future investments, so you have to be smart about it, but you know all about that!

  8. I’m with Mr 1500 and Matt above…if my timeline is long term than maybe I just jump in. I’m not a market timer, but I’d be lying if the “market highs” don’t concern me when I’m investing. I’d probably go with a few of the options you mentioned…definitely pay off debt unless the interest rates are ultra low. Maybe invest some of it and hold some of it in cash.
    Andrew@LivingRichCheaply recently posted…Are You (Financially) Better Off Than Your Parents?My Profile

    • Pretired Nick on February 13, 2014 at 2:41 pm said:

      Exactly — that’s where I’m heading as well. Just heading in slowly, but preserving quite a bit of cash for a potential strategic move. If we undergo a very large correction, I’ll be marching in big time.

  9. Nick,
    I’m 95% invested in stocks and just bought two more individual ones. (HCN and KO) I just mad my Roth IRA 2014 contribution and debating between Ishares Mid Cap or Emerging Markets. I’m still a bit chicken shit about emerging markets but I think it’s a great value so I’m leaning towards that.
    Charles@gettingarichlife recently posted…Why Try If The American Dream Is Dead?My Profile

    • Pretired Nick on February 19, 2014 at 3:08 pm said:

      I’m maybe a little heavier in large cap and adding more in international, but who the heck knows? You just have to do your best!

  10. Tough one to answer, Nick. My generic answer is to just always throw your money into assets according to your asset allocation. A windfall is a nice way to rebalance without having to sell assets (and suffer tax consequences).

    If you aren’t comfortable applying your money into your designated AA, maybe part of that windfall might be well spent on a fee only financial advisor? I’m just spitballing though. There’s no great answer.
    Done by Forty recently posted…Anchoring My ExpectationsMy Profile

    • Pretired Nick on February 19, 2014 at 3:09 pm said:

      It’s a good point. My asset allocation is pretty messed up right now because I have so much money in transition. Sadly, we know I have too much in cash, yet I want to be ready to pounce if something good comes along. Never a perfect answer!

  11. I love the idea about paying an App team to develop your idea!

    I must have at least 1 idea a month for this sort of thing, being a software developer myself, but never have the time to do anything about it. £10K is nothing compared to what a good idea for a monetizable app could make, if well executed.

    Great list!
    theFIREstarter recently posted…Blog update and Weekly ReadingMy Profile

  12. The market moves the most, with the least people on board. That is what has been happening.

    Only recently has the retail investor been jumping in. They were all gun-shy from the previous dips. The market is the ONLY place to put your money and get a decent return. Companies have been doing massive share repurchases.

    RE is another, but prices have been climbing so fast that most retail RE investors are now left out.

    The economy is going great guns. When the economy expands from .5% to 1%, it goes up 100%. If it goes from 3.5% to 4%, it’s only up 13% even though it is the same amount of growth. We are somewhere in-between. The economy will continue to accelerate.

    Look at all of the “Help Wanted” signs. People are retiring early at a record pace due to the Obama health care opening up more good jobs. If a minimum wage increases, more tech spending will result helping tech workers even more.

    If you count my entire portfolio, I am ~50% in stocks and 50% in RE. Both have been doing fabulous.

    Let’s hope it continues..
    No Nonsense Landlord recently posted…Property Managers, The DownsideMy Profile

    • Pretired Nick on March 10, 2014 at 8:33 am said:

      You are sure right about Obamacare! It’s been so frustrating for so long (especially when I was working) watching aging baby boomers sit on their unneeded jobs just for health care. Ridiculous. I’m already seeing a lot of career movement among my friends since the law began to kick in. At this point, I’m about 50/50 in RE/stocks as well if you include my house and retirement money. But now that I’m out of the rental game for the time being, it actually feels good to not be so heavily weighted toward real estate.

  13. We’re still in our early 30’s so I don’t worry too much about the highs and lows of the market. However, I do hate the idea of buying at the top. I just topped off my SEP IRA when I did my taxes and felt kind’ve uneasy about it.
    Holly@ClubThrifty recently posted…Valuing Stocks and the Efficient Market HypothesisMy Profile

    • Pretired Nick on March 10, 2014 at 8:34 am said:

      Well said. I don’t get caught (at all, really) in the fluctuations in the market, but it does rather eat at me to make a big purchase right at the top. I haven’t made my IRA move for this year yet. I’m hoping to catch at least a small dip before I move in.

  14. Theres more than one market !!!!
    Asian smaller companies is tracking below its 200day moving average – must be worth a punt.
    Also with the troubles in Ukraine – eastern european emerging markets or russia will also be below their tracking mean and well worth looking at.
    Who was it who said that the best time to buy is when everyone else has left
    getrichwithme recently posted…Doing The BusinessMy Profile

    • Pretired Nick on March 11, 2014 at 1:58 pm said:

      That’s a good point! I know I just don’t know enough about all the various options out there, but good reminder to pull our noses out of our own little world and explore a little bit!

  15. I appreciate your honesty about what will happen in the market. It can be stressful trying to make reasonable decisions when the major groups are parading such opposite predictions with equal confidence. Your approach seems reasonable given the current situation. Thanks for sharing it with us!
    Leonard @ The Wallet Doctor recently posted…How to reduce your food costsMy Profile

    • Pretired Nick on March 24, 2014 at 8:40 am said:

      Thanks, Leonard. It’s easy to be honest when all I’m saying is I have no idea what will happen. (:
      Thanks for stopping by!

  16. My 401K and much of my personal investments are in the market. Large portfolio of real estate I view as like a bond fund. and a bit of cash.

    Let’s hope we do not have a repeat of 2000 or 2007. If it’s the seven year itch, we are due in 2014…
    No Nonsense Landlord recently posted…My Seventh Property, my first 4-plexMy Profile

    • Pretired Nick on March 24, 2014 at 8:41 am said:

      Yes, I have a similar situation, but when funds come in in one big chunk it’s harder to know what to do in the short run. I wouldn’t mind a big dip right now — but only if it happens soon! (:

  17. I guess when there is nowhere to put your money as you mention create a large safety cushion. Is there such a thing as too big an emergency fund? I don’t think so. But this could only relate at a time when there is literally no other place to put your money.
    DivHut recently posted…Recent Dividend IncreasesMy Profile

  18. This has been and continues to be a very good question especially with the stock market today at such high levels and traditional savings rates with CD’s or savings accounts paying close to nothing. Personally, I have lowered my household overhead by cutting cable, high cell phone and land line bills with Ting and Ooma. I still try to invest monthly in the stock market but have been less aggressive than in the past. I guess keep it in cash and wait is all you can really do.
    DivHut recently posted…Dividend Investing For The Sweet ToothMy Profile

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