If I think there is a pullback in the market, what can I invest in that will let my money work for me?
The market is as hot as it has ever been, and the timeline suggests that it is almost due for a pullback. Is it a good idea to close out my investments and hold on to cash for a while? Are there any other ways to invest that allows my money to work for me?
My honest opinion after 21 years in the industry is why?
As you stated you want your money to work for you. What is your goal for this money? If the goals is less than 3 or 4 years you should not be in the market. If your goals (tangible goals) are longer than that you must take a what your risk profile is and if how you are invested fits that profile.
I have seen many market corrections, bubbles burst, planes fly into WTC, 2008 credit crisis. The one truth that I live by with my clients is the market does not care about me or you. So we must look at what are your goals, timeline and risk profile and do they match up.
The hardest part of trying to time the market. Is when is the bottom? Is it 5%, 10%, 20% or more?
Stick your your investment policy, keep your eyes on the goals and rebalance your portfolio when the target allocation moves beyond levels you are comfortable with. You will be further ahead than trying to sell at the top and buy at the bottom.
There some "market neutral" funds (mutual funds) out there which you might consider. Trying to time the markets usually do not work over the long-haul (15+ years) as well as staying fully invested in a well balanced portfolio.
You cannot time the market. Repeat: you cannot time the market. "The timeline" suggests no such thing. Sure, there will be fluctuations but if you sell now and hope to buy back you are committing an error that could keep you out of the market for the rest of your life. You only have a 50% chance of success. There is never more than a 50% probability of a market move in either direction. Now, you might get lucky, and and if it turns out you are right, to be truly successful you have to buy back after the decline. But there are lots of other possible scenarios. What if you liquidate and the market goes up 10% more and then declines? Will you wait, hoping for more decline, until the market is once again higher than where it was when you sold?
You don't give a few essential details -- your age, your income, the size of your nest egg, and the types of investments you currently hold. So any advice you get on this site is likely to be of limited use. But my advice is to stay fully invested, and add to your savings steadily and regularly regardless of where the market is. But high-quality companies and don't be afraid of the market's short-term fluctuations.
Oh -- did I mention that you can't time the market?
Here's how I respond to my clients when they ask me the same, or similar, message: "What if you're wrong?" "What if you go to cash and the markets continue to advance?"
Because the truth is, there always seems to be someone predicting a major market pullback regardless of what the market is doing.
So let's approach your concern from another viewpoint; one that asks, "What can I do to manage losses when the market pull backs?" In our firm, we have a "risk management growth" investment strategy based on the understanding that our clients hire us to 1) grow and 2) protect their investments. How do we do this?
Create an "exit strategy" for each of your current holdings, whether they are stocks, bonds, mutual funds, ETFs, etc. Do this by asking, "How much am I willing to lose from my current position?" If, for example, you have SPY (SPDR S&P 500) ETF and it is trading for $245. Fortunately, we'll assume, you bought it when it was trading at $200 and have enjoyed a gain of 22.5%. How much of this gain are you willing to lose? Instead of selling everything, why not create an exit strategy that takes effect when the ETF goes down 5% (to $232.75)? You would still have gained over 16%, which many would agree is pretty healthy. When you sell out of a holding, decide whether or not you want to keep your money in cash or in a mid or long-term bond or even some other investment.
Why should you do this? Because even when the market dramatically declines (as it did in 2008) there were asset classes and sectors that performed quite well. If you pulled completely out of the market, you would have missed these gains.
Assuming capital gains are not an issue, you could sell your holdings. Then invest in bear funds or short the market as a whole. This would give you the inverse return of the market in general.