# Being 100% invested: a different way of thinking



## Zaxon (31 January 2019)

General wisdom is to keep a good cash buffer out of the stock market, anywhere from 3 months to a year's worth of expenses.

An alternative view could be this. Keep 100% of your non bill money invested at all times.  So, your normal weekly expenses are kept in cash.  But money to buy your future car or to tie you over if you lose your job in a year's time, is kept in the market.

Of course, if the market crashes, it could lose have it's value!  Very true.  But then it could go up by 30% instead, in which case leaving it sitting in the bank was a massive opportunity loss. Let's assume you have sufficient invested in the market to still pay for that car regardless of what happens to the market.

Let me create some concrete figures:

Option 1

$200k invested in the share market
$40k in the bank for your future car
$30k in the bank to tie you over between jobs
Option 2

$270k invested in the share market
With both options, let's assume a 10% share market return on average (but you can't predict the return for any given year), and 3% return on your savings account.

Argument #1
Money needed within in the next few years should NEVER be invested in the market. In the short term, the market could be down. The money would have been better off sitting in the bank.

Argument #2
You have enough money to cover your expenses, even if the market crashes. But on the balance of probability, you'll make much more money by keeping that $70k invested than having it wasting away in the bank. Sometimes you'll need to make up the difference from your $200k investment. But more often, when you redeem money, you'll be able to pocket the profits back into your $200k.

Is Argument #2 a valid way of thinking?


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## sptrawler (31 January 2019)

Zaxon said:


> General wisdom is to keep a good cash buffer out of the stock market, anywhere from 3 months to a year's worth of expenses.
> 
> An alternative view could be this. Keep 100% of your non bill money invested at all times.  So, your normal weekly expenses are kept in cash.  But money to buy your future car or to tie you over if you lose your job in a year's time, is kept in the market.
> 
> ...




Two things that come to mind, one the market hasn't even got back to where we were in 2007, two if you have a recession and unemployment goes to 10% the job security gets shaky.
But there is no gain without risk, as you say the money in the bank is going nowhere, inflation and the bank are taking it.
So having a plan, whichever plan suits you, is much better than having no plan at all.


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## Sdajii (31 January 2019)

The majority of people by nature are risk averse, and they try to avoid risk even to the point of increasing their risk. They create illusions of safety and risk avoidance all the time. I'm with you with argument #2, but most people will opt for #1.


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## Zaxon (31 January 2019)

sptrawler said:


> the market hasn't even got back to where we were in 2007




The XJO hasn't, correct.  The XNT, which includes dividends as well, may tell a different story...but I can only see that back to 2011.  So I'm not sure.



sptrawler said:


> if you have a recession and unemployment goes to 10% the job security gets shaky.




You certainly can get correlated downturns.  2008 saw housing dive (in the US), the stock market, jobs, and I believe even gold dive.  And you could argue there's likely to be a link between a down stock market and you losing your job, for sure.  You'd then need to ask, if a downturn is only once every 10 years, say, am I really better off having that money sitting in the bank all that time?  So much guess work involved in all this.



sptrawler said:


> But there is no gain without risk, as you say the money in the bank is going nowhere, inflation and the bank are taking it.
> So having a plan, whichever plan suits you, is much better than having no plan at all.




Very true!


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## Zaxon (31 January 2019)

Sdajii said:


> The majority of people by nature are risk averse, and they try to avoid risk even to the point of increasing their risk. They create illusions of safety and risk avoidance all the time. I'm with you with argument #2, but most people will opt for #1.




I think that's a very wise response.


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