Equity mutual funds have yet to experience a sustained outflow. Cash reserves among all equity funds were just 5.5% recently. This does not afford much protection against a surge in redemptions; apparently fund managers themselves are still more worried about being out of the market when the next run-up begins. If they have to start meeting redemptions and, at the same time try to increase cash reserves, Katy, bar the door!
They say a bear market has three legs, and the third is usually the worst. We have certainly seen two, at least for Nasdaq. If and when we get the third, I believe we will have a genuine bargain-hunting environment. That is when we'll want to raise our equity allocation and back up the truck. I'm looking forward to it!
J. Michael Martin, J.D., CFP, is president of Financial Advantage in Columbia, Md.