The Love of Cash

When I initially set out to define my investment goals, I had bought into a prevalent belief: time in the market beats timing the market.

And that’s generally true.

Schwab published a study that showed that someone with absolutely perfect timing – investing $2000 at the low point of the index every year – just barely beat someone who invested the same $2000 in the market on January 1 each year. Dollar-cost averaging also came out very strong.

So unless you can tell with pinpoint accuracy when stocks will reach their lows, you’re almost just as good always to be invested in the market.

So I set one of my investment goals to have minimal cash in the bank (10%). Always have my money working for me in stocks at all times.

I’m now starting to question that belief. Having cash in the bank isn’t that bad.

Last year’s stock market was up and down. I think I ended the year down around 5% as I sold some of my losers, like Intel, and was happy to be out of tech stocks. This has made me appreciate the average of 50% in cash that I was throughout the year.

Maybe I need to have a higher percentage in cash than 10%? Something I am thinking about.

I still have 31% cash (plus another 8.5% in a GIC), which is 28% higher than my goal of 10%. How will I invest that other 28%?

I’m still torn between this “invest it all now” mentality versus a “hold on to cash for a rainy day” one. It’s not easy to let go and be all invested.

At least I seem to have broken the need to look at the ups and downs of the stock market every day. I have more confidence in my current investments.