CNBC’s Jim Cramer told investors that it’s important to take advantage of big rallies to prepare for a down day in stocks. In other words, you should raise some cash when stocks are rising.
“The next time you see a big rally for a day or two, please take advantage of the momentum and raise cash,” he said. “You may not know this, but without cash, your portfolio has zero flexibility. The best time to raise cash is when the market is booming.”
Cramer stressed that stock market rallies aren’t just about making money in the moment, but about predicting the future, and that bad days are just as inevitable as good ones. Investors can “get the most out of” a winning streak by doing the prep work to prepare for tough times.
But that doesn’t mean investors should sell everything when stock prices rise, Cramer said. It’s wise to strike a balance between preserving capital, keeping your money safe, and capital growth or capital growth. Always keeping some cash on hand can help protect your portfolio in the long run, he added.
Even stocks from good companies can become too expensive, so investors need to be willing to sell even their favorite stocks when prices start to soar, Cramer said.
“You should have a plan to sell all of your stocks, even the best ones, and that plan should be in place before you buy, simply as part of the process,” he said. “Part of being a good investor is knowing when to get out, and it’s better to make that decision up front than waiting until the moment is right.”
