The real reason to hold cash

The reason to hold cash

Should you hold your cash?

Should you hold cash to try to “pick the market”? I recently read an interesting article in the Australian Financial Review (30/7/2014) by Steve Johnson. Johnson writes about Tobias Carlisle, a US investor and author of the blog Green-backd, who conducted a statistical study covering 88 years of US market returns. His conclusion? As Johnson writes, “you would have been better remaining fully invested (in the market) the whole way through”. So then you should always be fully invested – right? Not quite. Despite Berkshire Hathaway’s Warren Buffet calling cash “the worst investment you can have”, he has sat on billions of dollars in cash. Why? Johnson offers two good reasons. Firstly, individual bargains occur more regularly than market-wide bargains (such as an overall market decline). Secondly, holding cash gives us “optionality”. As Johnson writes, “I don’t hold cash because I think it’s going to give me a return. I don’t hold cash because I think the market is expensive and is going to crash. I hold cash because it gives me an option. The option to be the one who can act when everyone around me is panicking”. Now more than ever, investors need smart and sound financial advice. Want to read the full article? Just contact us. It’s worth the read.

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