Cash in itself is a poor investment over the long term. It loses value every year due to inflation – on average about three percent.
Many investors keep little or no cash in their account because they feel they should be fully invested. Successful investors do not do this. They always hold some cash in reserve so they can take advantage of buying good stocks at deep discounts during market downturns. Nothing increases your odds of success better than buying good stocks on sale.
Opinions vary widely on how much of your investment portfolio should be kept in cash. A good rule of thumb is 10% to 20% under normal circumstances. But depending on market conditions, I have seen financial professionals recommend as much as 40% to 50% and a few heading for the hills at 100% cash.
During the serious market downturn in 2008, I gradually moved to 50% cash because this was an exceptional market condition. Because of my cash position, I was able to buy a good stock at a ridiculously low price and more than tripled my investment in 18 months. I could not have taken this opportunity if I hadn’t had some available cash in my account.
But in general, I personally stick with the 10% to 20% level.
So keep some cash in your account. You never know when a quality stock will go on sale and you can make a lot of money.