Should you move your money to cash when the market gets loud?

It usually happens late in the evening.

You finish watching an hour of debate coverage, or you scroll past a headline about inflation and interest rates, or you read someone predicting the market is due for a big drop. That familiar tightness shows up in your chest. You open your phone, check your 401(k) or brokerage balance, and you're down a few thousand dollars from last month.

A thought pops up right away: "Should I move this to cash? Should I just park it on the sidelines until after the election, or until things calm down?"

Having that thought doesn't mean you're reckless. It's a natural reaction. You worked hard for every dollar you saved, and wanting to protect it when the world feels unpredictable is human.

I'm not here to tell you what you must do with your money. That's your call, and it should always be your call. You have options.

What I do want to give you is the context, the data and the history, so whatever you choose, you choose it with your eyes open instead of feeling backed into a corner by fear.

Acknowledge the noise, but separate what you can control

A lot of financial commentary tells people to put their head in the sand and ignore the world.

I've never liked that advice. You live in the real world. You see gas prices, you buy groceries, you pay business expenses, and you care about where the country is headed. I get that. Pretending those things don't exist isn't living in reality.

The real shift is sorting what's happening into two buckets: what you can't control, and what you actually can.

You can't control who wins an election. You can't control what the Federal Reserve does next month. You can't control supply chains, conflicts overseas or how emotional the market gets on a random Tuesday.

What you can control is pretty simple:

1. Your cash flow, what comes in and what goes out.
2. The cushion you keep between your daily life and your long-term investments.
3. How you respond to the noise, and how much context you get before you pull any lever.

Moving money out of fear usually comes from feeling like there's no other choice. In reality, you have several. Let's walk through the facts behind each one.

Option 1: Keep a section of your money outside the market (the airbag)

Let's take the idea of holding cash or stable reserves seriously, because everyone needs a portion of their money protected from market swings.

The key isn't moving your whole life savings to the sidelines because of a scary headline. The key is having a dedicated section of your money that acts like an airbag, separate from the stock market.

If you have short-term goals coming up, or you're getting close to retirement and will be drawing on your money soon, a cushion of stable money to pull from means you never have to sell investments during a dip just to cover living expenses. That isn't panic. That's basic risk management.

Where people run into trouble is taking money meant for ten or twenty years from now and pulling it out to "wait for clarity." That comes with two hidden costs worth understanding.

First, money on the sidelines quietly loses buying power. The number on the screen stays flat, so it feels nice in theory. However, over time, inflation and taxes mean that same number buys less.

Second, stepping out means you have to be right twice. You have to pick the right day to sell, and then the right day to buy back in. I have never seen anyone capable of doing this.

J.P. Morgan Asset Management looked at the 20 years ending in 2023. Someone who stayed invested in the S&P 500 the whole time earned roughly 9.8% a year. Someone who missed just the 10 best days earned about 5.6% a year, close to half. Missing the 30 best days dropped it below 1%.

Here's the part most people don't realize: seven of those ten best days came within two weeks of the ten worst days. The scariest moments are often right before the rebound. Step out, and you risk sitting in the parking lot while the recovery happens without you.

Option 2: Be the house (play the long-term math)

Think about how a casino runs.

On any single roll of the dice or hand of cards, a gambler has a fair shot at winning. Casinos pay out winning bets all day long.

The owner doesn't pace the floor at night sweating whether table four hits blackjack. They sleep fine because they understand the math. Over a hundred hands, anything can happen. Over ten thousand hands, the odds win.

Broad stock market investing has historically worked the same way for patient investors. Here's how often the S&P 500 has delivered a positive total return, depending on how long you held it, based on market history going back to 1926:

A single day is close to a coin flip. Over every rolling 20-year stretch so far, it hasn't lost. While this is just historical evidence, not a promise, it does show very clearly why time matters more than timing.

The person trying to time the news is acting like the gambler betting on the next spin. The person who stays diversified and lets time work is acting like the house.

What history actually shows about elections

A lot of the urge to sell shows up around elections. We hear talk about taxes, regulation and big policy swings, and we worry one candidate will wreck our portfolio.

Dimensional Fund Advisors has studied markets across presidential elections going back to 1928. The S&P 500 finished positive in most election years, and over the long run markets have grown under both Republican and Democratic presidents. Charles Schwab's research has reached a similar conclusion: who wins the White House has not been a reliable signal for when to get in or out.

Why? Because the market isn't run by Washington. It's made up of thousands of businesses here and around the world.

No matter who's in office next January, people will still wake up, buy groceries, fill up their cars, heat their homes and pick up prescriptions. Companies will still compete, cut waste and work to turn a profit. When you invest broadly, you're not betting on a politician. You're investing in people and the world trying to move forward.

How to set up your guardrails

If you decide to let your long-term money keep compounding, you don't have to rely on willpower. Three guardrails do most of the work.

1. Build your airbag

Don't invest money you'll need for next month's bills or near-term emergencies.

Keep a solid buffer of living expenses outside the stock market. If you own a business, keep your operating cash and tax money separate from your household money.

That cushion isn't there to beat inflation. It's an emotional shock absorber. When something unexpected hits, you pay for it from the airbag, and your long-term investments get left alone.

2. Put your investing on autopilot

If you have to check the news every month and decide whether it "feels safe" to invest, you'll eventually hesitate.

Automate it. Set it up so the moment income lands, a portion moves straight to your goals and long-term investments, or pick a day of the month when that transfer happens on its own.

That gives you dollar-cost averaging. When prices are higher, your automatic transfer buys fewer shares. When headlines are scary and prices drop, the same transfer buys more. Schwab's research found that even investors with terrible timing, the ones who happened to invest at each year's high point, still ended up well ahead of people who stayed in cash. Being consistent beat waiting on the sidelines.

3. Set the target allocation, adjust as needed and let it ride

Once your portfolio is set up with a mix that fits your timeline, and you're invested in a way that lines up with your values, let the system do its job.

Ensure that your portfolio is automatically rebalancing so it holds its target percentages that you initially set. We cal this drift rebalancing. Then move the investment apps off your home screen. Checking your balance every few days doesn't make it grow faster. It just feeds daily swings into your nervous system.

That matters more than it sounds. DALBAR's long-running study of investor behavior has found, year after year, that the average investor earns less than the funds they own, mostly because of emotional buying and selling.

Once your long-term plan is in place, let it ride.

The choice is yours

At the end of the day, you're the CEO of your financial life.

If your timeline or your comfort level means you'd like a bigger cushion outside the market, that's a legitimate choice. If you want to let compounding work over the next fifteen or twenty years, that's a legitimate choice too.

The only thing I'd encourage you not to do is decide out of panic, or out of feeling like there's no other way. Look at the numbers. Look at your timeline. Decide what fits your family, put your system on autopilot, and let the rest of the world argue about tomorrow's headlines.

Sources

• J.P. Morgan Asset Management, Guide to Retirement: impact of missing the market's best days (2003 to 2022/2023)
• Dimensional Fund Advisors, Elections and the Stock Market
• Charles Schwab Center for Financial Research, Does Market Timing Work?
• Capital Group, Guide to Market Recoveries (rolling-period return history, S&P 500)
• DALBAR, Quantitative Analysis of Investor Behavior

Educational disclosure: This article is for educational purposes only and does not constitute personalized investment, legal, or tax advice. All investing involves risk of loss, including the possible loss of principal. Past performance does not guarantee future results. Always consult with a qualified financial advisor, CPA, or attorney regarding your specific situation.