Sunday 26 September 2021

Is it better to stay fully invested or have a war chest build up on the side? | Why I always have no cash to buy the dip

"Buy the dip!" is what everyone says but every time when a dip happens, I do find myself not having enough spare cash on the side to make a purchase. This is because I maximise my salary every month into investment and also because my salary is not that much (which is mainly the reason haha).

But I prefer to stay invested and hold on to just sufficient cash on the side eg. emergency fund plus some spending money and bill payment money so when the dips happen, I tend not to have available cash on hand to double down on investing.

I have been trying to stash aside some amount of money monthly to build up my war chest but I find myself still depleting it after a while of building up. I do see people with huge war chest on the side waiting for the right time and I do wonder if I am doing things right.

Why I prefer to just invest whatever side cash I have

My investments so far into US stocks and cryptocurrencies have been profitable considering the US stock market upward trend as well as the crypto market hence to me, I view it as pushing my cash into the market earlier will grow my money rather than leaving them outside first before timing and getting in. I haven't experienced any huge crash where the crash sustain for a period of time for example in 2008 where the stock market took some time to recover.

Not experiencing that partly explains why I prefer to just dump my money in and maximise the buying potential of my cash. I usually buy and hold for the long term, I have a problem with selling, I don't sell stocks even if they suck because I always feel that there is a chance for them to rebound. So my investing strategy is to buy and hold for as long. So far, it has proven right but it's obviously because the markets are on an uptrend.

Another point is that I currently do not have any debt in terms of mortgage or study loans also, I do not have dependents like children and my parents do have their own savings where i provide them a very small allowance per month. Being in this situation means I don't have to hold as much cash and there are minimal payments on my side making me able to put all my cash into the market.

Holding too much cash can be detrimental?

Cash is king! when there is a stock market crash but you don't want to be holding onto too much cash when the market is on an uptrend. You want it to be growing as a war chest that has swelled up too much can sometimes be viewed as an inefficient way of deploying capital. Companies can also be holding onto too much cash for example, Apple as they currently have a huge cash buffer on hand which is not being deployed and of course Berkshire Hathaway. The companies face different problems from us, retail investors as their cash is accountable and hence making it more complicated when investing.

It's definitely not like I have a huge cash flow like Apple or Berkshire Hathaway but investing any available cash is something I have been doing. But along the way I miss out on opportunities to buy the dip especially on companies that I have always wanted. I have a friend who does lump sum investing while I mainly do DCA-ing, if I were to compare his results with mine, I would say he is doing much better.

Moving onto accumulating a war chest

Moving forward, I do think building up a war chest to have some cash ready to be deployed is important as it can help when there is a dip and if for a long period, if there is no dip, I can deploy a portion of it slowly. The main thing is to control myself while I am building up this fund to not go on a shopping spree just because it has been accumulating. Of course, income matters on how much spare cash you can put aside, the building up is always the slow part. It is just sometimes, seeing so many actions in the markets, I tend to get rash and also FOMO which really isn't the right way as I am investing for the long term and not for the short term. I am still tweaking and adjusting my investment methods and plans so let's see how it goes. Excited for Q3 portfolio review soon.


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