The Importance Of Holding On to Cash
Holding on to cash is truly one of the hardest things for a highly motivated investor to do. It takes an extraordinary amount of discipline to not only save money, but to not actively invest all your money. If you are a prudent investor, you will take your money and save a specified amount of it monthly in a combination of stocks and other securities. Chances are, this is through your 401k or IRA. This is not a bad thing to do. In fact I applaud those who are actually able to live below their earnings. Most people in general, have no self control and spend every dollar they have on temporary pleasures. The fact that you are able to take anything off the top and put it towards your retirement is an accomplishment all in of itself.
The truth is, it’s just not that easy to manage money. For investors, it’s very easy to get in over your head by over-investing your money. I think everyone at some point in their life can relate to that broke feeling you get after investing a good chunk of your cash in great investments, but then not having too much let over for other opportunities; or even daily living for that matter.
The worst feeling is having to sell an investment to pay for a bill or some other obligation because the cash just wasn’t there.
Now what about saving cash just to have cash? This is what I’m suggesting to you and here’s why: Above I said, “it takes a great deal of discipline to save money and not invest it.” What I actually meant was hold onto cash for the time being until a golden opportunity presents itself and then invest in that opportunity.
The investment of a lifetime will probably only come around few times throughout your life. I do realize I contradicted myself by implying that there can be more than one investments of a lifetime in one lifetime, but none-the-less, they do come around and are available for those who have liquidity to act on them.
In just the past 5 years, I can think of multiple “opportunities of a lifetime” that have arisen due to the global collapse that took place. US stocks would have been a perfect place to park a pile of cash you were saving for a big opportunity. The collapse has recently made real estate an excellent buying opportunity to get into and we are seeing it steadily increase in certain areas like California, Las Vegas, and Phoenix. These areas are bouncing back pretty sharply in the last year and a half.
Personally, I took advantage of the real estate market and parked the majority of my excess reserves into California and Tennessee. I did have some of my money in stocks at the time, but it wasn’t nearly as much as I had invested in my homes which has also been very profitable.
I’m as human as everyone else and it’s just not realistic to be able to get in and be active in every possible trend, but to never be a part of a significant money making opportunity…well that’s just ludicrous…
Here’s just a quick example of a current potential opportunity… In just the past few months, gold and silver have been absolutely hammered down and are sitting at prices that might potentially end up being “investments of lifetimes.” There is no guarantee that gold and silver will double in the next short while, but what we do know is purchasing these metals after the prices have been severed is much less risk than purchasing when the prices were at the top.
Those who have the money to be able to get in at these prices will be able to reap the rewards of actually having the liquidity to act on an opportunity.
Sometimes it’s nice to have some extra cash lying around for speculative opportunities. This year I had the opportunity to purchase Litecoins for $0.50 and watched my money go up 8 times in less than a month. I don’t suggest using your cash savings all on speculative opportunities, but it sure is nice to have the option to do so.
In addition the monthly savings towards investments, you should always be putting a portion of your savings towards cash for a potential opportunity to jump on a great deal. A simple figure to go with is 10%. This may not sound like much, but overtime, it will add up and you will be glad you had it.
Be prudent about this… It is extremely difficult to watch your stocks go up a few percentage points and not wish you had put every dime you possibly had into that one investment. Again, keep in mind that you are saving the cash for an opportunity to jump on a deal that may not present itself for a very long time again. The opportunity to purchase stocks in 2009 is gone…Those who were able to act did, while others are now wishing they did.
Learn to spot opportunities. The best way is to follow a few sectors and pay attention to when valuations get attractive. After the prices fall enough, jump on the opportunities. Usually, the easiest opportunities with the greatest potential occur after the pop of bubbles.
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Just some things to keep in mind through your journey as an investor…
Best Wishes In Your Trading,
Editor at CrushTheStreet.com