First Person: Fear of a Stock Market Crash Calls Me to Cash

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I'm making financial decisions now that will protect me if the stock market crashes within the next two years. I first became worried about an imminent stock market crash after reading a MainStreet article that revealed the wealthiest investors appear to be moving to cash positions. According to a Spectrem study, 70 percent of people with household incomes of $750,000 or more plan to keep their money safe and sound in savings accounts. Forty-eight percent will invest in money market funds, which is code for sitting on the sidelines. It makes me wonder whether I need to be more conservative with my money before the bull stock market makes a turnaround. After losing $100,000 on paper during the Great Recession, I don't want to repeat the same mistakes.

Putting in stop-loss orders

My first move was to put in stop-loss orders for 20 percent the price I paid for stocks in my IRA accounts. I will limit my loss by 10 percent. However, the key for me is to check my individual stock investments on a regular basis so I can adjust my stop-loss order if my particular investment rises. By putting in stop-loss orders, I'm taking the emotions out of the equation. If there is a stock market crash, I'll have money in a money market within my IRA.

Changing my allocations

In my 401(k) plan, I'm not able to make stop-market orders. However, I am able to change my allocations to make them more conservative. I don't plan to invest in the riskier mutual funds. According to the MainStreet article, only a quarter of the wealthy people are buying individual bonds or bond mutual funds. Twenty-six percent were willing to consider overseas investments.

Paying off my house

Real estate doesn't seem to appeal to many of the wealthy people either. The study showed 14 percent plan to invest in real estate within the next year. I don't plan to go out and purchase an investment home at this time. However, I think it's a safe move to pay down my mortgage. I'm trying to build up my emergency fund first before sinking all my extra money into my house.

I was surprised to read a Wall Street Cheat Sheet article that showed the average American isn't really saving a lot of money. A new Bankrate.com survey indicated 54 percent of people are saving the same amount this year as they did last year. I am constantly tempted to spend instead of save. However, I don't want to be average. I would like to build wealth in my lifetime, which means I need to do what the wealthy do. At the time, it appears to be time to dust off the piggy bank, fatten it up and then bury it in my backyard.

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