It’s an age old question: keep fully invested, or keep cash available for opportunities? Let’s take a look…
Without going into all the benefits and detriments of each side of the question (you can get the fine debate points at numerous sites, such as Investopedia), suffice it to say inflation kills saved money, but having cash on hand for later purchases is always a good idea.
For me, I accept both sides of the question. I am willing to allow inflation’s effects upon my saved money because I wish to keep some cash on hand if and when prices decline to a level where I am comfortable to make purchases.
Since stock prices are [often/periodically/rarely/always/sometimes] irrational, there is no reason that their irrationality won’t provide times when purchases are fortuitous. Having the cash on hand when the irrationality occurs to the downside means I can potentially take advantage of bargains. Buying low is the name of the game, and having cash on hand allows this to happen. If I am always fully invested, I would not be able to purchase more when prices decline.
Nobody likes their money to lose value to inflation, and I am no exception. But this is the price one pays for engaging with investing.
Dividend Investors
Yes, even for dividend investors, price matters. If I have choice to buy when low or buy at average prices, I will pick low. For better or for worse, lower prices do not usually arrive frequently. Bull markets can go one for years, as we have all seen.
The market is a function of major trends, and a bull market pushes equities higher and higher. At such times, I nibble, buy at some dips, but mostly I wait and let my dividends buy more shares. It is when things start to decline that I must be patient. While previously noted that buying before a decline is a positive event for dividend investors , I try to eschew buying too early. Nevertheless, it has been said the time to buy is when one has the money.
Buying a stock when prices decline and then seeing the price decline further is never a fun experience. But if I am patient, and fortunate, time is on my side. Time in the market beats timing the market.
So another permanent conundrum reappears: when is low low enough? Declining prices can mean bargains, or it can be just another step in a major series of price declines. Since no one really knows, and all the so-called “experts” are free to say whatever they want, the determination to be made, then, is a gut feeling. Whan it comes down to it, the decision is one based on “feelings.”
What’s your plan? Let me know here.
The Fecundity dish shown is from 1650-1660, by an unknown English artist. Courtesy Minneapolis Museum of Art.
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