Q&A with David Edwards: Should I sell my mutual funds when I sense a bear market approaching?

Question: Should I sell my mutual funds when I sense a bear market approaching and then buy the funds again once the bear market is here to get them at a cheaper price? I have about $93,000 invested in non-retirement mutual funds. I have been considering trying to time the market by selling these funds when I sense a bear market approaching (incurring a $1,700 capital loss), and then buying the same funds at a cheaper price once the bear market has arrived. I have no debt and an emergency fund. Is this a good strategy, or too risky?


Answer: Here’s a better way of taking advantage of bear markets. 

1.  Determine if your $93K is “five year money” - funds you don’t need to touch for five years. If so, you can invest 100% in stock mutual funds. 

2.  Set up an automatic investment each month - $100, $250, whatever amount will not stress your monthly budget.  

3. With the auto investment, you are HOPING for bear markets, because you’ll be buying more shares with the same amount of cash. Meanwhile, as the market rises in the long run, your overall stash will continue to grow. 

Some additional notes: 

1.  Harvest the loss you have now, roll the proceeds into a low cost index fund (the Vanguard family is fine). In time, add international funds. As you get to your 40’s and 50’s, start mixing in bond funds.

2.  You can go to a robo solution (Vanguard, Schwab, Betterment, Wealthfront, Personal Capital) and they can do this for you automatically for a fee.

3.  If any of your $93K is NOT five year money (down payment on a house, for example), set that aside in a different account invested in cash or short maturity bond funds.


Do you have more questions?
Feel free to contact me.

David Edwards, President
Direct: (347) 580-5281