What Smart Investors Should Do Today

04/19/2013 8:30 am EST

Focus: STRATEGIES

Richard Band

Editor, Profitable Investing

If stocks rise this year, it won't look anything like a straight line, says Richard Band, who explains how you can prepare for the specific challenges facing the market right now.

Richard, we’ve had a pretty good run lately, especially in the last four weeks, so can it last?

Well, I think the record shows that when the market starts out well in January, that strength tends to repeat during the year. But it’s not always a straight line.

Right, so we might still have some volatility coming.

Yes, yes indeed. And you know, folks that have been around the track a few times like you and me, we know that you have to take that in stride. Inevitably there’s some kind of a correction, and the big question for people is, do I get in right now or do I wait for that correction?

It’s awfully hard to time it, isn’t it?

It is tough, it is tough, but I would say this year we’ve gone a long while since the last 10% or greater correction. So I would suggest that probably people ought to be saving, I would say, at least half of the cash they want to put into the market until spring.

Do you have a certain allotment right now that you would recommend for people?

Well, we don’t hold a lot of cash. We generally hold most of our kind of our dry powder in the form of short-term bonds, because as you know, cash pays almost nothing.

But if people do want to keep some money in real hard cash, I recommend that they put it into an Internet-based banking account, such as Barclays US, where you can earn at least 1% on your money. I mean, that’s not much, but it’s better than zero. You do have to go online to get that; you won’t get it at any bank branch.

Then would you reduce your allocation in stocks sometime within the next few months? Is that what you’re saying?

Well at the moment, yes, I think you can take a little bit off the table. Here are some of the things that I’d be looking to sell. I would be looking to sell a stock or a mutual fund possibly if it hasn’t reached a new high in the last 18 months.

Makes sense.

You know, we’ve had a good run here for the past 18 months—really the last 4 years—but especially it’s been pretty consistent for the last 18 months. If a stock hasn’t been able to make a new high in that period, and it's still languishing, there’s probably something wrong with the business. You might take that out.

There are some others. I would really stay away from some of these penny stocks if they’ve come down to $5 or less. I don’t mean the companies that always have been penny stocks, but once upon a time great companies like Nokia (NOK) and Radio Shack (RSH) and so on that I’m afraid have broken business models.

I would sell those, raise a little cash there, and that will give you something to play with later on in the spring.

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