This is a very prevalent question at the moment, with everything going on – should we be holding more cash?

Economies are shrinking and companies are being bailed out by extravagant spending programs. Data suggests that we are already amidst a recession, but due to the insane amount of money printing by the central banks around the world – the Federal Reserve, ECB, Bank of England – the stock market is being propped up and continuing to rise.

The stock market is near all time highs. Property prices are high. Bonds don’t seem to be doing much. Gold has got more expensive. Bitcoin is still in its infancy. Is cash now king?

If you haven’t got time read on – we believe it’s important to stay invested and continue to dollar-cost average each month. But, we also believe now is a good time to save any extra cash each month as opposed to investing it.. Read on to find out why!

Quantitative Easing

We alluded to Quantitative Easing (or QE) above. Essentially, it is where governments print more money to help bring stability to the economy, and has been used to ultimately prevent recessions.

The problem is, this printed money flows into government bonds and financial assets. It doesn’t flow into our pockets. This is the reason why the ‘rich have gotten richer’ over the last decade and the wealth gap has increased and continues to do so. This ‘fake money’ from quantitative easing props up the market, increasing market valuations, and so wealthy people with insane net worths are now worth even more.

Now, that probably sounds like we’re bashing QE. Not at all. It was necessary in order to restore stability after the 2008 financial crisis. But, it is important to understand what it is and the effects that it has.

The main problem is that governments over the last decade have continued to rely on QE to stabilise the economy because it’s the easiest option! 

This is a very prevalent question at the moment, with everything going on – should we be holding more cash?

Economies are shrinking and companies are being bailed out by extravagant spending programs. Data suggests that we are already amidst a recession, but due to the insane amount of money printing by the central banks around the world – the Federal Reserve, ECB, Bank of England – the stock market is being propped up and continuing to rise.

The stock market is near all time highs. Property prices are high. Bonds don’t seem to be doing much. Gold has got more expensive. Bitcoin is still in its infancy. Is cash now king?

If you haven’t got time read on – we believe it’s important to stay invested and continue to dollar-cost average each month. But, we also believe now is a good time to save any extra cash each month as opposed to investing it.. Read on to find out why!

Quantitative Easing

We alluded to Quantitative Easing (or QE) above. Essentially, it is where governments print more money to help bring stability to the economy, and has been used to ultimately prevent recessions.

The problem is, this printed money flows into government bonds and financial assets. It doesn’t flow into our pockets. This is the reason why the ‘rich have gotten richer’ over the last decade and the wealth gap has increased and continues to do so. This ‘fake money’ from quantitative easing props up the market, increasing market valuations, and so wealthy people with insane net worths are now worth even more.

Now, that probably sounds like we’re bashing QE. Not at all. It was necessary in order to restore stability after the 2008 financial crisis. But, it is important to understand what it is and the effects that it has.

The main problem is that governments over the last decade have continued to rely on QE to stabilise the economy because it’s the easiest option! 

hold cash
hold cash
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Time In The Market

Now the scene is set, let’s talk about the stock market.

Time in the market > timing the market. If you miss just a handful of the best days in the stock market in any given decade your return can fall from double digits to negative – crazy!

In fact, if you missed the best 40 days over the last couple of decades your returns would have been -2%. If you stayed invested the whole time it would’ve been over 8%!

Time in the market is why we buy and hold, as opposed to trying to move in and out of the market and hence ‘timing the market’. This is why it’s important to invest early and often, dollar-cost averaging into the market each month.

So, as you may have realised, by purposely holding more cash we are inadvertently ‘timing the market’. Which we can see is a big red flag. Our approach is that we’re continuing to stay invested and dollar-cost average into an index fund each month. This ensures we are still in the market.

But, the main difference is, instead of investing that extra £100 you have this month, we’ll save it instead. We are about 30% in cash. Hence, if the market goes up then we are still participating in the gains. But, if it ‘goes on sale’, we have some cash ready to deploy!

Warren Buffett’s Cash Pile

A little known man by the name of Warren Buffett is currently sitting on a cash pile of $127 billion at Berkshire Hathaway.

Actions speak louder than words.

If Buffett is hoarding cash, should we be?

It’s a different story for Buffett and Berkshire Hathaway. Due to their sheer size, and the billions of dollars they have, they can’t easily buy and sell stocks in general as it affects the market and stock prices in massive ways. But, it is important to point out that this is the most cash Buffett has ever sat on!

Imagine having access to all of the resources, CEOs and governments that he does. This begs the question, does he know something we don’t?

In all honesty, most likely not! Buffett knows valuations are high, and no ‘wonderful businesses’ are currently ‘on sale’, so he’s choosing to hold cash instead. I’m sure he would still advise people to buy and hold an index fund as he’s a big believer in the US economy.

Nevertheless, if Buffett is holding records amount of cash it is definitely something to think about.

Time In The Market

Now the scene is set, let’s talk about the stock market.

Time in the market > timing the market. If you miss just a handful of the best days in the stock market in any given decade your return can fall from double digits to negative – crazy!

In fact, if you missed the best 40 days over the last couple of decades your returns would have been -2%. If you stayed invested the whole time it would’ve been over 8%!

Time in the market is why we buy and hold, as opposed to trying to move in and out of the market and hence ‘timing the market’. This is why it’s important to invest early and often, dollar-cost averaging into the market each month.

So, as you may have realised, by purposely holding more cash we are inadvertently ‘timing the market’. Which we can see is a big red flag. Our approach is that we’re continuing to stay invested and dollar-cost average into an index fund each month. This ensures we are still in the market.

But, the main difference is, instead of investing that extra £100 you have this month, we’ll save it instead. We are about 30% in cash. Hence, if the market goes up then we are still participating in the gains. But, if it ‘goes on sale’, we have some cash ready to deploy!

Warren Buffett’s Cash Pile

A little known man by the name of Warren Buffett is currently sitting on a cash pile of $127 billion at Berkshire Hathaway.

Actions speak louder than words.

If Buffett is hoarding cash, should we be?

It’s a different story for Buffett and Berkshire Hathaway. Due to their sheer size, and the billions of dollars they have, they can’t easily buy and sell stocks in general as it affects the market and stock prices in massive ways. But, it is important to point out that this is the most cash Buffett has ever sat on!

Imagine having access to all of the resources, CEOs and governments that he does. This begs the question, does he know something we don’t?

In all honesty, most likely not! Buffett knows valuations are high, and no ‘wonderful businesses’ are currently ‘on sale’, so he’s choosing to hold cash instead. I’m sure he would still advise people to buy and hold an index fund as he’s a big believer in the US economy.

Nevertheless, if Buffett is holding records amount of cash it is definitely something to think about.

warren buffett cash pile
warren buffett cash pile

Further Evidence To Hold Cash

Not just Buffett, but Carl Icahn and Ray Dalio have spoken.

Icahn, who has a better annualised return than Buffett over the last few decades, has said he is ‘hoarding cash’ and shorting commercial real estate. The former shows another finance billionaire titan is choosing to hold cash.

Dalio is anticipating the long term debt cycle coming to an end. This happens every 50 – 75 years, and in short just means that the economy, and potentially currencies, will have to be restructured to start providing for the many and not the few.  

Hence, this is further fuel to the fire that holding cash now may be wise. Even if you do miss out on some gains in the market, cash can provide a hedge against uncertainty.

What’s The Solution?

The answer will depend on your personal circumstances, risk tolerance and goals.

It is important not to time the market. I know this answer may be a bit wishy-washy, but to us it makes the most sense, so this is what we are doing:

  • Continuing to hold our index funds / investments
  • Continuing to DCA into a diversified index fund each month
  • BUT, any extra cash is being saved rather than invested

This makes sense to us from a risk-reward standpoint as well. Essentially, we are still participating in the market and not ‘timing the market’, by continuing to dollar-cost average each month, but at the time are making the active decision to save rather than invest any excess or spare cash.

Let’s say the economy marches onwards and upwards, by holding that cash, then we are missing out on some gains. But, if there is a crash and stocks go on sale, then we are ready to use our cash wisely!

Based on the economic situation right now, as well as the part of the debt cycle and business cycle we are currently at, it seems likely that holding more cash is wise.

So, should you hold more cash? On balance, we would say yes! In times of turmoil – such as recessions, job losses and emergencies – cash is often king as we can make the most money in the long term when the market goes on sale,

Further Evidence To Hold Cash

Not just Buffett, but Carl Icahn and Ray Dalio have spoken.

Icahn, who has a better annualised return than Buffett over the last few decades, has said he is ‘hoarding cash’ and shorting commercial real estate. The former shows another finance billionaire titan is choosing to hold cash.

Dalio is anticipating the long term debt cycle coming to an end. This happens every 50 – 75 years, and in short just means that the economy, and potentially currencies, will have to be restructured to start providing for the many and not the few.  

Hence, this is further fuel to the fire that holding cash now may be wise. Even if you do miss out on some gains in the market, cash can provide a hedge against uncertainty.

What’s The Solution?

The answer will depend on your personal circumstances, risk tolerance and goals.

It is important not to time the market. I know this answer may be a bit wishy-washy, but to us it makes the most sense, so this is what we are doing: 

  • Continuing to hold our index funds / investments
  • Continuing to DCA into a diversified index fund each month
  • BUT, any extra cash is being saved rather than invested

This makes sense to us from a risk-reward standpoint as well. Essentially, we are still participating in the market and not ‘timing the market’, by continuing to dollar-cost average each month, but at the same time are making the active decision to save rather than invest any excess or spare cash.

Let’s say the economy marches onwards and upwards, by holding that cash, then we are missing out on some gains. But, if there is a crash and stocks go on sale, then we are ready to use our cash wisely!

Based on the economic situation right now, as well as the part of the debt cycle and business cycle we are currently at, it seems likely that holding more cash is wise.

So, should you hold more cash? On balance, we would say yes! In times of turmoil – such as recessions, job losses and emergencies – cash is often king as we can make the most money in the long term when the market goes on sale,

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