Out of Cash and into the Market
Sitting in cash is not a strategy. While keeping some cash in your portfolio can be a good thing, it’s all too easy to make the mistake of keeping too much cash for too long. Personal biases, behaviors and fears can keep us from making logical decisions about our investments, and each misstep can be costly. So what’s an investor to do? I encourage you to ask yourself, what is your relationship with cash? How much are you holding, just waiting for the “right moment” to invest? In the past 12 months, the market has returned more than 20%, and I am personally experiencing an intense fear of missing out (a.k.a. ‘FOMO’) on any future gains; the fear may be just enough to push me back into the market.
If you’re looking to put your cash to work, you don’t have to spend hours developing a perfect strategy. Instead, I suggest two potential paths:
- Find an investment that gives you exposure to multiple assets. This delivers the diversification you won’t find with cash.
- Go broad based, using an index fund or low-cost ETF. This gives you full market exposure, another advantage over cash. ETFs can also have some tax advantages, which help you keep more of what you earn.
Test how well you know yourself as an investor: how much cash are you currently holding? What are some of your reasons for staying on the sidelines? Share your stories here.
Heather Pelant is Head of Personal Investing for BlackRock. She is a regular contributor to The Blog and you can find more of her posts here.