How to Reach My Cash-on-Hand Goal

One of my goals, as mentioned in the last post, is to get to a point where I am always fully and efficiently invested. This means keeping only a minimal amount of cash on hand.

I’m going to exclude from the calculation cash that is needed in the short-term such as for taxes. I’m only talking about the cash that can reasonably be invested long-term.

Tonight I calculated that I have 86.9% cash on hand. Only 13.1% of my money is currently invested in anything. The rest is sitting idle.

I explained why in a previous post. I recently got out of the stock market to buy a house and pay a large tax bill. And now have the cash from the sale of my previous house. Plus, of course, my business continues to generate a profit.

So how am I to achieve this “low cash” goal?

I need an investment plan. Plain and simple. When new money comes in, I already need to know where it should go. I should log into my bank account on the 15th day of every month, place the money to work, and that’s it for the month.

Over the weekend, I divided a small piece of my pie into the following slices:

• 30% Canadian Dividend equities
• 30% US Dividend equities
• 30% Balanced Growth and Income (which is about 33% bonds, 66% equities in Canada, the US, and International)
• 10% Equity Income

Now I wonder if I should just divide all the money that way. That’s certainly a simple approach.

Do I Need More Bonds?

No. God, no. I hate bonds. We’re in a rising interest rate environment. Bonds aren’t safe. In the portfolio above, about 10% of the total is in bonds, and that is enough.

Do I Need More International?

In the portfolio above, about 15% is in International equities. Emerging markets and European markets. Maybe I need more. I’ll consider adding that later in the year.

Historically, the USA is the best country to invest in. Canadian stocks have lagged by a lot. China was growing but now isn’t. Being invested in the USA seems the safest approach.

What About Individual Stocks?

I have a small trading account where I can play with stocks and options. That should be my play money. Only 1%-2% of my portfolio should be playing around in that risky end of the market.

I could see myself picking a company like Apple, Microsoft, Amazon, Berkshire Hathaway, or something and adding a portion to those individual stocks. The stocks will have to be “held for 10 years” type companies.

Every month, I should send 1% of my new money to a play account.

What If the Market Falls?

That’s the risk, right? I put a substantial amount of my life savings to work, and I lose 10% in the first few months.

It will hurt, sure. But inflation hurts too. I just can’t see inflation on my cash in the bank account. But it still exists. I always have to think about inflation.

That Portfolio Seems Highly Correlated

You are correct. If equities suffer major losses, most of my investments will be affected. This portfolio is not balanced across all asset classes.

If you look at the holdings of those funds, you’ll see a lot of banks, utilities, and stoic old companies. Companies that pay a dividend because they aren’t growing enough to justify keeping their profits.

What About Real Estate?

That’s a decent idea. Maybe some solid REITs. That’s a good asset class for tough times.

What’s the Final Decision?

Maybe I will have to investigate more options. For now, the above divisions seem to work for my goals.

The next time I invest, I’ll try to do it in those percentages again.