In this hot market, it feels like the winners are just going to keep on winning. And while momentum investing can be risky, especially when things run a bit too hot, and overbought markets set the stage for a more painful correction at some point down the road, I do think that there are also risks in staying sidelined for too long. Undoubtedly, for investors who just can’t seem to resist timing the market over the near term, it can be even riskier to wait for a pullback over some arbitrary timespan, only to buy at higher prices as momentum continues to surge.
Perhaps acknowledging that stocks can go either way is the best move for beginning investors who have too much cash on the sidelines. Of course, having every dollar of liquidity tied into stocks, with no optionality (or emergency fund) once the market comes crashing down, is also not a good idea.
The right balance needs to be struck between stocks, bonds, and cash. And that balance will be different for everyone. For some, 60/40 (stocks-to-cash) might be the way to go. For others, it’ll be closer to 75/25 or 40/60. Act too cautiously and conservatively, and your overweight cash position could drag returns lower, especially in inflationary climates when one’s real returns could be pulled close to zero. Act too aggressively, however, and one could risk steep losses, especially for new investors who might be more easily startled at the first signs of a bear market.
Don’t let fear of the bear stick you to the sidelines with excess cash
Bear markets and corrections, which represent drops of 20% and 10%, respectively, are never fun, but they’re not the worst thing in the world. And if you’ve got the right timeframe, such drops may be less horrifying and perhaps something that’s to be expected when you go about investing in stocks, even at fresh highs.
At the end of the day, you should have enough of a cash cushion to be ready for emergency expenses as well as enough that you’re not entirely put off by the concept of a bear market. If a 20% drop happens and you’ve got the cash to spend, how can such a descent be a bad thing, provided you’re being forced to sell? All considered, new and young investors have time on their sides and should not let fear nudge them into an overly conservative portfolio heavily weighted in bonds, cash, and GICs, and light on stocks or REITs.
Barrick stock: It’s shone bright in 2025, but don’t expect a reversal soon
If you’re like some investors with too much cash, buying into strength might not be the worst idea in the world, provided you can buy more if weakness follows shortly. Take shares of premier gold miner Barrick Mining (TSX:ABX), which are up over 132% in six months or about 188% in the past year. That’s a ridiculous amount of momentum from a stock that’s been sleeping for well over a decade.
Shares have gone straight up in the past year, but the valuation still makes sense (23.1 times trailing price-to-earnings (P/E), especially if you’re of the belief that gold is headed much higher from here. Indeed, US$5,000 per ounce could be the next big test for spot gold prices. And if the level is breached, Barrick could have even greater ground to gain. The gold miner’s comeback has been incredible, but it might not yet be over.
