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This post originally appeared on The DIV-Net. I must admit, I wish I had more cash in my investment portfolio right now so I could diligently put it to work into this ever tanking market. It would allow me to continually take advantage on days like Monday when the Dow dropped some 250+ points and the total stock markets are in shambles. [ad#tdg-embedded]
Keeping some cash in your portfolio at all times allows you to do one thing: take advantage of the market drops when they happen. I know this may reek of market timing, but here is how I tend to manage my portfolio. Each month I contribute a set amount of cash into my portfolio and invest into the assets that a require topping based on my overall asset allocation. This happens automatically no matter what. The funds come automatically out of my bank account and into my brokerage account each and every month when it is put to work. I invest this money no matter what.
However, I also keep a small percentage of my portfolio in cash at all times so that I can invest additional funds when we see larger than normal market drops. I never know if I am buying at a bottom and usually the market goes even lower after I put this money to work, but catching these drops is nice when they happen in the long run.
There certainly is an argument for keeping all your money invested at all times. It is easier to invest this way as there is no guessing on market direction and it takes any emotion out of the equation. However, I think it is also wise to hold onto some extra cash for situations such as Monday when things really go bad. It allows you to act quickly and buy more! I suspect in the long run investing on a day like this will pay off.
I couldn’t agree more. That’s a very similar concept to what i’m preaching on my blog and i’m happy to see you teach people the same conservative lesson.
Like you, I wish I had more cash to spend. Having said that, I always like to stay fully invested at all times. When I buy a stock I have already bought it at what I believe to be a good value. While buying at an even lower price would be better, how low is low gonna be?
I think Buffet said something like ” if you keep waiting for the robins, you might miss spring”.
My available cash is simply whatever dividends have accumulated in my account, plus whatever contributions I have made during the year.
Once enough cash has piled up, I look for something to buy. If there is something I want at a price I want, then I buy. If not, the c ash sits there until I can put it to good use.
I spent my last bit of cash to buy Coke at a 4.4% dividend yield. With a recent dividend increase, and a good chance it will continue to grow well into the future, I cant complain.
If I pay 75 dollars for a 100 dollar box of steaks, and then a month later someone else buys the same box for 50 dollars…….oh well.
While 50 dollars is a much better buy, I really cant complain at my price.
I should also mention that any stock I buy will start falling in price, and anytime I sell a stock it will begin to climb!
This happens to me 100% of the time, and my track record of prices moving against me are better than anyone alive on the planet, so really I dont worry about it.
So long as my dividends increase, and my yield on cost goes up, then I am happy.
With dividend growth, as the income goes up, so will the price of the stock eventually.
Thats what makes dividend growth investing such a beautiful thing.
I agree with this approach entirely. I also keep 2-5% of my portfolio in gold and perform real due diligence, including reading the SEC reports before I invest. My website started discussing PLDT (NYSE: PHI) (PSE: TEL) on April 10, 2008 and I have had to learn GAAP and how easy it is to manipulate the market by developing countries, whom appear transparent.