U.S. stocks are at record highs, even as the Federal Reserve is poised to scale back its massive bond purchases. Those have suppressed bond yields and made stocks attractive by comparison.

Cautious investors may wish to raise a bit of cash to reduce short-term risk, or simply to rebalance their portfolios.

The S&P 500 index has surged 26% this year, likely leaving many investors with a higher mix of stocks than they prefer.

That raises two questions: What to sell? And where to put the cash? Make selling decisions case-by-case based on valuations and growth potential, but in general, trim U.S. holdings before overseas ones and small companies before large.

As for a temporary place to park cash, bypass money-market sweep accounts offered by brokers in favor of money-market accounts at banks. It's an easy way to earn 1% instead of nothing—and that 1% will look pretty good if stocks and bonds suffer a pullback.


U.S. shares are 57% more expensive than emerging markets and 67% more expensive than Europe based on a long-term average of earnings, which smooths out economic swings, according to Mebane Faber, chief investment officer at Cambria Investment Management.

Within the U.S., look first to small companies for profit-taking. They've done better than large companies this year: The S&P SmallCap 600 index has soared 35%. It's normal for small companies to fetch higher price-to-earnings ratios than large ones, because of their potential for faster growth, but the premium recently stretched to 20%, versus a long-term average of 4%, according to Bank of America Merrill Lynch.

Investors who own shares of mostly large companies should consider taking profits on those with high dividend yields and modest growth potential, including staples, telecoms and utilities. Their steady income, while usually welcome, can cause them to trade in sympathy with bonds—not especially desirable as the Fed reduces bond purchases.

Investors who park their sales proceeds in money-market funds offered by investment companies can expect pitifully low yields. The Crane 100 Money Fund index recently yielded 0.02%.

Look to banks for better options. Investment companies face strict rules on assets they can hold in money-market funds, but banks, which offer money-market accounts, simply set rates low enough to earn a profit on loans but high enough to attract deposits.

Sallie Mae and GE Capital Bank recently offered 0.9% rates with no minimums, and Palladian PrivateBank, a unit of PrivateBancorp, offered 1% with a $10,000 minimum, according to Bankrate.com.

Unlike money-market funds, bank money-market accounts carry FDIC insurance up to $250,000 per account holder, per bank.
