Sell in May and go away; Timely advice for 2011?

The old axim to "sell in May and go away" may turn out to be a wise aphorism again in 2011, as equity markets, oil and gold are all looking toppy, which could mean near-term trouble for green energy stocks and mutuals funds.

If your investment horizon is more than fifteen years away, you may want to ride this one out, however if your funds will be needed in five to ten years, consider moving 40% to 60% of your tax-free accounts to cash. For taxable accounts, contact your advisor to assess implications before making any moves.

When to get back in? Well, historically a great entry point has been the 2nd Tuesday in December, right near the end of the tax-loss selling, and just before the year end rally leads into a normally strong January.

Another strategy would be to inch back in if markets decline and plow back in if they tumble; in this scenario, you might start a dollar-cost-averaging plan to buy a specific amount each month, and then double or triple the amount if markets fall 15% to 20% or more.

I would only move all to cash if your investment horizon is less than 5 years, as 100% cash is too risky for longer term investors, who may be affected by inflation in the future.