Have you ever seen little kids swimming even after their lips turn blue and their teeth are chattering? They eventually come out of the water, but long after rational adults would.
Welcome to the U.S. stock market. Stock valuations are the highest they have been since the tech bubble, with valuations rising 25 percent over the last three years, yet the kids aren't even making waves.
In fact, the Dow rose every single month in 2017 and the MSCI All Country World Index has not dropped more than 5 percent for the longest period since its inception.
When kids got cold swimming at a public pool, they would race into the warmth of the hot tub before plunging back to play. International stocks, which by almost every measure are less expensive than U.S. stocks, may be that hot tub. But you can't stay in there forever, either.
So is it time to grab a towel and get out of the market? The problem with trying to time the broad market is that expensive stocks can get more expensive for a while. Getting too conservative too early can be as costly as being too aggressive too late.
It's time to get out of stocks if you know you are going to be needing the money in the next two to three years. This means if you have direct expenses coming up that are not likely to be delayed — college costs, cash to replace earnings when you retire, charity or other short-term expenses — sell stocks to set aside money for this.
Investing is rewarding over longer periods of time because of time and compound interest (your interest earning interest). If you need the money quickly, you have neither of those working for you. You have moved from investing to gambling. Then I can promise you that if the markets continue to advance, you will come up with reasons why you can keep your short-term money invested.
But even if it ends up working for you, short-term investing was simply a bad decision with a good result. Investing when you really need the cash is like swimming during lightning. You might not get struck if you keep swimming, but why risk it?