Are Stocks in a Bubble? Should You Hoard Cash?

The stock market's riding high right now. Maybe too high, depending on who you ask.

Wall Street analysts are throwing around the word "bubble" more often lately. It's the same kind of talk that happened before 2008 and 1999, right before those markets crashed hard. When stocks look shaky, investors start thinking about pulling money out and stashing it somewhere safe - money market funds, Treasury bills, or just a regular savings account.

"A lot of my clients have been sort of panic-calling this week," said Monica Dwyer, a financial planner in West Chester, Ohio.

But pulling money from stocks for long-term retirement savings isn't something to do on a whim. So, should people be hoarding cash right now? Let's break down why this question even matters.

Stock Prices Look Really High Compared To Earnings

Stock indexes have been smashing records in 2025. That's normal - the market generally goes up over time.

What's not normal is how high stock prices are compared to what companies actually earn. The cyclically adjusted price-to-earnings (CAPE) ratio for the S&P 500 sits at 39.65 right now.

The last time it was that high? The dot-com bubble peak in 1999-2000. It also spiked in 1929 right before the Great Depression.

Not exactly comforting historical company.

So Are We In A Bubble Or Not?

Depends on who you ask.

Fed Chair Jerome Powell recently said stock prices "are fairly highly valued." Translation: they might be overpriced.

JPMorgan Chase CEO Jamie Dimon went further on October 14, telling reporters, "You have a lot of assets out there which look like they're entering bubble territory."

Every other day there's another headline warning about a potential bubble fueled by unrealistic AI hype. But other analysts disagree, arguing companies are profitable and the market's fundamentally solid.

The tech giants have driven most of the stock gains over the past decade. The "Magnificent Seven" collectively returned 698% between 2015 and 2024, according to The Motley Fool. The S&P 500 as a whole? Just 178% in those same years.

If there's a bubble, those stocks pumped it up.

Investors Are Already Moving To Cash

Money market funds held a record $7.7 trillion in assets in September, the Wall Street Journal reported. That's not a coincidence.

Money market funds are paying better returns than they used to. With stocks looking potentially overvalued, plenty of investors are fine sitting on the sidelines.

But that doesn't mean regular investors should cash out everything and stuff it under the mattress.

Timing The Market Is Ridiculously Hard

Here's the fantasy: Pull out when the market's high. Wait for it to crash. Buy back in at the bottom. Easy money, right?

Wrong. Investment experts say getting the timing right is nearly impossible.

"Any time you're trying to avoid a downturn, the risk of being wrong is pretty high," said Peter Lazaroff, a financial planner in St. Louis. "And you have to be correct twice."

You need to nail two decisions: when to sell high and when to buy low. Both are harder than they sound.

Sell high? The market could hit a record today and beat it tomorrow. You won't know the peak until it's already passed.

Buy low? During the Great Recession, the Dow lost over half its value between 2007 and 2009. Anyone who bought back in during 2008 missed the actual bottom.

"We've seen over and over that actually implementing an approach like that is very difficult," said Amy Arnott, portfolio strategist at Morningstar. "You end up missing out on some gains."

Having Some Cash Isn't A Bad Idea Though

Financial advisers tell older clients to reduce their stock exposure as retirement approaches. The goal is avoiding volatility and having enough cash to cover expenses if the market tanks.

"Right now, I'm telling clients to shore up their cash," said Zaneilia Harris, a financial planner in Washington, D.C. "Just in case something is needed, you're not pulling from your portfolio when it's down."

Even younger investors might want to build some cash reserves. Doesn't have to be much - just enough to take advantage if stocks go on sale.

"If you don't have cash to put in the market when it's down, you're missing an opportunity," Dwyer said.

How To Buy Low Without Hoarding Cash

Even cash-strapped investors can benefit from a market drop.

"If you don't have any cash sitting around and we see a big market drop, increase your 401(k) contribution, bump it up a percent or two," Dwyer said. "You're probably not even going to notice it."

A higher 401(k) contribution scoops up more shares when stock prices fall. It's another way to buy the dip without needing a pile of cash waiting on the sidelines.

The Bottom Line

Trying to time the market perfectly is basically impossible. But having some cash reserves makes sense, especially for people closer to retirement.

 Just don't bail on stocks completely trying to outsmart the market. That strategy fails more often than it works.