Why it’s Good to Have Cash on the Sidelines Right Now
Rule of Thumb
Most so-called expert investors say it’s good to have 10% of your portfolio in cash. You always want to be ready for when a good deal emerges in the market. With the state of the market and the economy currently, it may be smart to have a little more than that. I plan to have 20-25%
Current Stock Market
With the stock market reaching all time highs, that means its getting harder to find good deals. Most of my investments were made in late 2018 and early 2019. Other than grabbing some high yield index funds, it’s a good time to start accumulating cash.
Another reason to have cash on the sidelines is any economic uncertainties or world events that can trigger a downturn in the market. As I write this article, the Dow Jones just closed down almost 1,000 points today due to the spread of the Coronavirus outside of China. The virus has a big effect because a lot of shops in China are closing down. Flights are being cancelled. Business transactions between the US and China are at a halt. That’s a lot of money being lost and missed sales opportunities. This may cause a lot of companies to miss earnings estimates for the quarter. Cash comes in handy in these situations. There will be dips, and with dips come buying opportunities.
As a fan and student of Warren Buffet, when he makes a move, I take notice. As of December 2019, Buffet and Berkshire Hathaway are at a near record $128 billion in cash. Although I make my choices based off of my own research and opinion, I do watch the Oracle’s moves closely.
Patience and discipline are key in investing. If you can be patient and not have a fear of missing out and can go possibly 6 months or a year of waiting for the right deal and the right price then you will be rewarded.