I just sold $5 million worth of stocks and now I'm worried about a market crash – what's the safest place to park this cash?

Every time the market experiences a bit of a losing streak or sinks into correction territory (that’s a 10% drop from the top), it can be easy to catastrophize and expect a complete meltdown in the stock market, the likes of which we may not have seen since the 2008 Great Financial Crisis. Undoubtedly, if you’ve been a stock investor for long enough, you won’t let those inevitable market bumps in the road or overly negative headlines get to you.

Most of the market choppiness encountered is more of a run-of-the-mill fluctuation that’s to be expected, rather than the precursor to some sort of once-in-a-generation type of crisis. Of course, that doesn’t mean we, as investors, should not expect a truly horrendous bear market or stock market crash to hit eventually. Buying the dips works until it doesn’t. As such, investors who quickly rush in on drops shouldn’t expect a quick double-digit percentage gain in just a matter of weeks (V-shaped recoveries).

In this piece, we’ll look into the case of a Reddit user who recently panic sold $5 million worth of stocks with the expectation that stocks would crash. Despite gaining significant ground in recent weeks, this investor still seems to be in risk-off mode, seeking safer places to park their lofty nest egg.

A market crash is truly horrifying, especially if you’re investing a fortune.

If you’re investing for multiple decades, there’s bound to be a crisis and a crash that will take time to recover from. Just as the seasons change, the weather could grow chillier for stocks over some period of time. For investors, it’s more a matter of investing through the blizzard and seeking shelter in high-quality stocks that don’t stand to take irrecoverable blows at the hands of a market-wide sell-off.

Though it’s never clear whether we’re entering a short-lived winter season or the beginning of a new ice age, investors should have a plan to make it through both sorts of environments. To paraphrase the great Warren Buffett, you should invest in stocks you’d be comfortable holding if the market were to stay closed for the next 10 years.

Amid Trump tariff volatility, it’s certainly gotten much harder to invest with such a timeframe in mind. In recent quarters, we’ve witnessed many big-league money managers (Warren Buffett included) take profits and pare down long-time stock positions in the face of unprecedented risks and somewhat elevated valuations.

Staying all-in on cash probably isn’t the best move, even for the fearful

Of course, there’s risk in staying on the sidelines for too long. For our 50-year-old Reddit user, they’re too heavy on the cash (all $5.3 million in cash) and could be at risk of suffering close to zero in the way of real returns (after-inflation returns). Even for retirees who should be taking risk off the table, going 100% cash is seldom advisable.

Indeed, our Reddit user should visit a financial advisor so their risk tolerance can be gauged. In any case, a mix of bonds, CDs, precious metals, covered call ETFs, and, of course, equities (and equity funds) seems to make more sense than 100% cash. You don’t want to be overly exposed to equities such that you can’t get a good night’s sleep. But, at the same time, you don’t want to be left behind if stocks find a way higher and the purchasing power of cash stands to erode with time. 

The bottom line

In my view, panic selling is a terrible idea, especially if one’s inclined to offload all their stocks. And while it seems safe to hide in cash, a ton of return could be left on the table as markets persevere through macro headwinds, the threat of tariffs, and other geopolitical unknowns. In short, someone needs to get our wealthy, but anxious, Reddit user to a financial advisor pronto!