How often in your life have you encountered opportunities to pick up a deal on something you’d love to own only to watch the opportunity pass because you did not have the extra cash? Most of us have missed opportunities for great buys because we didn’t have the money set aside to immediately take advantage of the deal.
Similarly, many of us have had the same experience with investment opportunities. We’ve wished we could take advantage of low stock prices, below market-priced property, and other appreciable assets on sale that have the potential to provide a great return if we only had the money set aside. After many opportunities lost, I concluded I needed to implement a system in my investment programs that included a cash pool to take advantage of bargain prices and provide me greater potential for higher returns.
So what is the rule of thumb? I recommend maintaining a 20-30% cash position adjusted based on price action. For example, if you have a $100 to invest in a stock investment account this pay period, you might only invest $80 and set aside $20 for that time a correction occurs, allowing you to buy more shares at lower prices. An investment system with a cash pool money management philosophy provides the ability to take advantage of bargain opportunities.
Historically, the stock market and other appreciable assets go up more than they go down. Putting too much cash aside will create a drag on your investment portfolio growth. Too little in a cash pool will prevent you from taking advantage of great opportunities. Investing is an individual pursuit, and everyone must determine their personal level of risk. Ideally, when using an investment cash pool system, you will run out of cash at the bottom of the market and be 100% invested for the upswing.
Maintaining a cash pool to take advantage of bargains is a consideration most investors should explore. The stock market, for example, averages at least one correction annually. Maintaining a cash pool gives the investor the buying power needed to make above-average returns. All TradeMyTrades Investing Systems include the practice of sustaining a cash pool.
Contact us to learn more about the TradeMyTrades Risk-Cash Ratios and how TradeMyTrades can support your investments in the Thrift Savings Plan, 401k, 403b, IRA, or other.
Join Premium to have immediate access to the Risk-Cash Indicator applied to the TSP C, S, and I funds.
Visit us at TradeMyTrades.com