Cash is King Once Again

Posted February 12, 2009 by Bernz

Not that long ago, investing was all about the hot stocks; the Googles, Apples, and RIM’s of the market. Solid, reliable stocks were considered boring and cash…well, cash was just unheard of in portfolios. Why would you want to have cash hanging around when you could be investing it in a stock or mutual fund that was about to reach astronomical heights?

cashis-king1In a bull market, most investors keep their cash balances to a minimum as they try to stay fully invested. However, when markets slide, cash is the right investment to hold. Cash holds its value regardless of the condition of the market and it always generates a positive return. That’s more than most stocks can say these days.

Holding cash in your portfolio also allows you to take advantage of bargain basement prices on quality stocks and mutual funds that will occur in the future. This allows you to pick and choose your time to jump back into the market with both feet. Being fully invested in a down market leaves you with the unattractive sole option of selling out of an under-performing stock to buy a bargain. This locks in your losses and paints you into a proverbial corner when it comes to finding the money to take advantage of deals.

One of the reasons that Warren Buffett and his Berkshire Hathaway fund have weathered the stock market tumble so well is that they slowly divested over the past few years and kept higher and higher cash reserves as bargains in the stock market became few and far between. Since October 2008, however, Buffett has recognized value in the market again and has upped his holdings in solid companies like Conoco Phillips and General Electric. He was able to move in at exactly the right time because of his cash reserves.

The next time you sell in your portfolio, don’t be so hasty to jump right back in. You have the luxury of biding your time and finding exactly the perfect treasure at the bottom of the bargain bin.

Cash once again is King.


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One Response to “Cash is King Once Again”

  1. Everything Finance Says:
    February 12th, 2009 at 1:14 pm

    Great Article. Nice Work.

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