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Nobody knows what you should do because we all have different strategies, risk tolerances, goals, account sizes, rules for exiting/entering etc. However, just speaking for myself, I've been almost 100% cash since 11/22-12/1. I'm currently around 3-5% invested.
Speaking only for my individual stock account, 95% invested. I've been adding cash to our savings lately, so I haven't been adding much new cash to this account lately, as I have other life priorities at the moment. That said, I have about 5% cash in the account at the moment and will begin adding to that early in 2022.
I'm a value/gaarp type of investor, and I invest in what I consider to be top quality companies for the long haul. I have a watch list of 17 stocks that I simply watch and wait to hit the right valuation, and then go very long. I and am currently long AAPL, BAC, BRK-B, HD, V and WSM, and getting close to pulling the trigger and opening a starter position in TROW.
IRA, 401K and kids accounts are all fully invested.
I'm always 95 to 98% invested, only leaving a small amount for adding to positions that I feel are underweight or unnecessarily beaten down (financials, anyone?). I would never sit on cash and try and predict the market, I'm not smart enough to know when the markets will crash, nor are 99.99% of the professional investment population.
I'm feeling I want to up the cash side of my portfolio. Maybe even leaning to overweight.
What are your thoughts on this?
The first American to win the Nobel Prize in Economics, Paul Samuelson, many decades ago, was consulted by a colleague at MIT.
Quote:
"Paul, I just don't know what to do. I'm worried about my investments in the stock market.
I'm worried about international tensions & their effect on my portfolio.
I'm worried about a possible War in the Middle East & its effect on my portfolio.
I'm worried about inflation & its effect on my portfolio.
I'm worried about technical innovation & its effect on my portfolio.
I'm worried about a trade war & its effect on my portfolio.
I'm worried about the Cold War & its effect on my portfolio.
I'm worried about The Hong Kong Flu & its effect on my portfolio.
Paul, I wake up in the middle of the night & can't get back to sleep because I'm thinking about these things. What do you think I should do?"
Paul famously replied,
"I think you should sell enough stock & raise enough cash so you can get 8 hours of sleep without waking up."
Im sticking with modern portfolio theory. I dont have cash.
MPT doesn't imply zero cash, does it? I thought MPT guides us to construct a portfolio of consisting of a combination of both (a) risk-bearing assets, and (b) risk-free assets. Risk-free assets include cash & short-term US T-Bills.
MPT doesn't imply zero cash, does it? I thought MPT guides us to construct a portfolio of consisting of a combination of both (a) risk-bearing assets, and (b) risk-free assets. Risk-free assets include cash & short-term US T-Bills.
No it doesnt, so I should have been more clear. It is about choosing a diversified portfolio based on your risk tolerance (so it could include any mix of diversified assets) and then sticking with it over time vs timing the market. So I chose a high risk portfolio and I am sticking with it through good and bad times and trusting that over time that strategy will perform well.
The classic answer to OP's question is that it depends on your age, assets, and risk tolerance. These are all different for the C-D folks who would answer. If you still have 20-30 years of earnings and investing ahead of you -- and you are fearless -- go ahead, keep the assets 100% in equities.
If you are older and retired, like I do, keep more cash. It doesn't matter what someone half your age would say and do.
Also, if you have saved more than enough for retirement, even considering the inflation, keeping most of your holdings in cash is fine, IMHO. I'd still keep something (25%?) in stocks, to keep the purchasing power of the cash, but not as much as someone younger. As somebody quipped, "If you've won the game, why are you still playing?"
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