Who knows if today was a one-off or the start of something more prolonged. What is for certain is that it’s days like today that cash is very valuable.
Not only does cash not deteriorate on negative days, but it can be used to buy beaten-down shares. Investors that are fully invested with spare cash will simply have to watch their portfolio fall.
People with a bit of cash on the side have the flexibility to purchase something if they think a particular share or shares are good value.
You can’t know when share markets will crash. That’s why I think it’s a good idea to always have an amount of cash on the side for at least a share parcel or two at all times to buy in a fall.
Berkshire Hathaway had US$111 billion cash at the end of its last quarter – that’s a lot of money it can put to work!
Another important consideration with cash in our personal lives is to have some cash set aside for emergencies. Whether it’s $1,000 or up to six months’ of living expenses, it’s a good idea to keep some cash in-case of an emergency.
Over the long-term shares will soundly outperform cash. However, in the short-term cash can be very useful to snap up some bargains.
Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS. The Motley Fool Australia owns shares of AFTERPAY T FPO and WiseTech Global. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.