Keeping cash reserves - How does it work?

[PennyHopeful]

I was just after any insights as to how the whole concept of keeping cash reserves works in a trading or investing plan. I am more of an investor interested in long term growth and steady dividends. I have read a lot of information that says you should have 10, 15, 20% of your capital in cash in case of a drop in the market which presents excellent buying opportunites like the one we have just seen. I cant really see how I can do this without a large cash flow. I have a home loan, investment loan and my fortnightly pay is pretty much gone servicing these as well as bills groceries and the odd night out The problems i see with it in practical terms are:

1) I want my money working its hardest at all times. Even though i can put this cash into my redra home loan account and save 7.5% on it that option still isnt that appealing to me.

2) Suppose you did have 20% of your capital as cash and then a buying opportunity did present. Once you purchase stocks your cash reserve is effectively gone and without cash flow how do you get it back?

Seems to me to be difficult on an average wage to view keeping cash reserves as feasible however it really hurt not having funds avalable over the last couple of weeks to snap up some bargains.

Any thoughts?

 

[tech/a]

Re: Keeping Cash Reserves. How does it work?

I was just after any insights as to how the whole concept of keeping cash reserves works in a trading or investing plan. I am more of an investor interested in long term growth and steady dividends. I have read a lot of information that says you should have 10, 15, 20% of your capital in cash in case of a drop in the market which presents excellent buying opportunites like the one we have just seen. I cant really see how I can do this without a large cash flow. I have a home loan, investment loan and my fortnightly pay is pretty much gone servicing these as well as bills groceries and the odd night out The problems i see with it in practical terms are:

There are many in your position.Not everyone can trade by the "Book". Not that trading by the book represents the best opportunity in investment in my "Book."

1) I want my money working its hardest at all times. Even though i can put this cash into my redra home loan account and save 7.5% on it that option still isnt that appealing to me.

This is my view.
The capital I have set aside for trading/investing I want to be fully invested in Bullish Times. In times like now I want to be in a position of cash for opportunity IF it raises its head.
For me I get/have gotten around it this way. I sold all long term positions back in July. I now trade short term opportunities with a great deal left in cash reserve.

I think for me at least this is the answer rather than adding to funds which (If I continued to hold in a prolonged Bear market) are decreasing in value.

2) Suppose you did have 20% of your capital as cash and then a buying opportunity did present. Once you purchase stocks your cash reserve is effectively gone and without cash flow how do you get it back?

True. But as the above suggests "IF" you can reasonably time your exit from long term portfolios the funds necessary become available.This may not mean completely selling out of ALL positions or ALL of a position or 3.

Seems to me to be difficult on an average wage to view keeping cash reserves as feasible however it really hurt not having funds available over the last couple of weeks to snap up some bargains.

Any thoughts?

Perhaps the above can help you see how you can release some/all of your funds.(Dont forget sales of long term profitable trades are Taxable,so look at hold time---over 12 mths 25% dont get caught like I did a few years ago!).

 

[PennyHopeful]

Re: Keeping cash reserves. How does it work?

Thanks heaps for taking the time to reply tech/a. I appreciate it.