Should I hoard capital in preparation for the market correction?

Question

I think we are all reading the tea leaves and understanding the market correction is just around the corner. My primary home has a ton of equity and I'm playing around with the idea of cashing out in preparation for the downturn. I will use the cash to invest in investment properties. On the other hand, will I be over-leveraged (underwater) once the market turns? If I don't plan on moving, is there really a risk?

Eamonn McElroy · Answer

History does not repeat itself....but it does rhyme.

You won't be able to recognize a market peak when it happens, nor a market bottom, even if you are a savant.  This is because every single market in the world is made up of irrational actors.  Look at every bubble throughout history.  A few people might have recognized it was a bubble, but could never call the top or bottom.

How about this: continue to invest as long as each opportunity meets your ROI requirements as adjusted for risk and contains a margin of safety?  Isn't that a lot more logical and (much) easier to execute than leveraging assets and letting cash sit in a savings/money market account for an indefinite period?

Jason D. · Answer

@Daniel Gibbons if you cash out and hold, waiting for a downturn, what will likely end up happening, is that your cash is going to end up costing you more than if you bought a property now, and the downturn occured.

If you find a good deal, buy it. If it's a long term hold, downturns dont matter

Kevin Gray · Answer

Trying to time tops and bottoms is a losers game.  The stock market dropped over 20% at the end of last year...technically a "bear market".  Many people didn't even realize and missed an opportunity to buy in and now the market is up more than 20% since.  Or, what I saw most people do, is start selling investments because they thought it was the start of a bigger crisis.  If you have the equity and the prospective properties that check the boxes, why wait?  Certain areas may be preferred to invest in during times of recession.  People need affordable housing whether the market is up, down or sideways.  In fact, more  high end markets (New York City) have seen some areas drop in value substantially.  Look at Long Island City and what happened when Amazon pulled out!  Too many factors impact the value of a property to get caught up in timing a widespread recession.  As long as the consistent cash flow is there, I wouldn't worry too much about it.   Keep in mind, understanding the market you are investing in is far more crucial.  Whether you plan on renting or flipping is important.  Going to impact some far more than others.  Good luck!

Shaun Kelly · Answer

I definitely see where you're coming from and I find it strange that every reply so far has been to "buy buy buy". Someone even mentioned there was a season where the market was down 20% so that was your chance (that's not a real downturn or even a dip). Now, if you find a deal - snatch it up. If something is bringing in your desired ROI, grab it. I'm actively looking for a deal, but I am also keeping enough liquid cash to be able to take advantage of any upcoming recession. As we all know the saying (except those in this thread) about "buying when there's blood in the streets".

Caleb Heimsoth · Answer

@Daniel Gibbons. Best to sell everything and sit on cash for 25 years at a minimum

Raul R. · Answer

@Daniel Gibbons

Experience investors will take advantage of market corrections. The inexperience will remain in the sideline waiting to pull the trigger.

During recessions or market corrections it won’t be as easy as it is now to obtain financing.

Daniel Gibbons · Answer

*8-10 year

Daniel Gibbons · Answer

@raychambers The inverted yield curve, the normal 8-10 fluctuation, and actions by the Fed.

Ray Chambers · Answer

@Daniel Gibbons

Why do think there is some correction coming?

Should I hoard capital in preparation for the market correction?

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