When to save your money

I regularly add cash to my portfolio, personal finances permitting, but injecting cash at the top of the market is not a good feeling. Sometimes it’s unavoidable, but when fundamental valuations across the market start to look stretched, it’s time to start stockpiling this cash elsewhere.

During the last bull market, some geographical regions, such as emerging Europe and Russia, accelerated well ahead of the rest, I failed to diligently rebalance and paid the price. I’d have more money to reinvest now if I’d thought about it.

Whilst rebalancing these runaway sectors, I’ll give closer consideration to reducing my whole portfolio, maintaining the target allocation of course. Liberating cash in this way is something large fund managers can rarely do, so I intend to use this advantage next time round.

Clearly, not all corrections are going to be as drastic as the Credit Crisis, but for those lesser moves I’d aim to stay fully invested. None the less, rebalancing out performing investments and holding back new cash may be appropriate.

I hope that reducing holdings, along with the stockpiling of new cash, will enable me to capitalise on future bear markets.