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I try not to hold much cash. Cash is a problem because if one holds cash and just cash than they are technically getting poorer every single day as their money continues to lose worth. That said, I don't want no cash. I think it's smart to have some cash set aside for emergencies. I've heard people say that people need to have 6 months worth of expenses saved up in cash. Some people, however, say 3 months, and I have heard others say one should have an entire years worth of expenses saved. There is no real correct answer here. I like to have a years worth of expenses saved in cash, but for others, it makes more sense to save 3-6 months of expenses in cash and invest the rest.
Not only do I believe that people should have an emergency fund of cash, I believe that people should also have cash set aside to take advantage of stock market opportunities. I call it the buy the dip fund. I like to have money set aside for when one of my stocks go on sale. That way I can take advantage of the decrease in price and accumulate a larger ownership percentage of the businesses I like.
With the market's huge downturn, people are seeing massive drops in value of their holdings. It can be discouraging. With this in mind, I've seen a lot of people stop their buying of stocks and start hoarding cash instead. I don't think this is necessarily a bad strategy, but I am, myself, continuing to buy stocks. The reason for this is because no one actually knows when the market is going to start going back up, and I have no intention of trying to time the market. Also, I want to buy my stocks at a discount, so I want to keep buying during the way down so that I can accumulate as much stocks as possible.
My goal right now is to build my "buy the dip fund" as much as possible while stocks continue to fall. I'm still buying the same amount of stocks every week as I normally do, but I am also saving up cash that I plan to invest later. I think it is important to have cash set aside for this, but I am not cutting down the amount I am investing each week even slightly.
Most of my money is actually in an S&P 500 Index Fund and not in individual stocks. It's a boring way to invest, but 90% of active investors would be better off going 100% into the S&P. I like investing into individual stocks as well, but I prefer to have 60-70% of my portfolio in the S&P. With the cash I have set aside for "buying the dip", I want to put a lot of that in the S&P, but I really want to use that to lower my average stock buying price. SoFi, for instance, is a stock that I originally bought at $12 a share. My average share price for SoFi, however, is around $5. That's because I bought a large number of shares at $5 when the stock price crashed and lowered my average share price. Now, when SoFi trades at $12 again (which I think it will) I won't be broken even, I'll actually be up over 100%.
So, is it time to hold cash? I think that cash has a purpose, and it can be good to have some on hand. I'd save up a few months of expenses, and I would also save up some extra for stock discounts. Everything else, however, I would invest.
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