investors should marshal their cash smartly. For a decade or more, Wall Street’s financial-planning machinery has claimed to have optimized the investing equation and boiled it down to simple calculations encouraging investors to abide by asset-allocation models heavy reliant on stocks, bonds and alternative assets. Cash was generally limited to a small fraction of an overall portfolio.
Yet cash serves a useful purpose, even if it earns paltry yields. It’s emotional ballast.
In moments of unexpected market convulsions, low-cash portfolios are more painful both financially and psychologically. During Thursday’s meltdown, for example, Christopher Schons, an aviation-policy analyst in Arlington, Va., watched nearly 10% of his family’s wealth vanish on paper in just minutes. “I felt like I was in a Dali painting,” he says.
Mutual-fund firm Invesco takes a “barbell” approach in its Charter Fund that is easily applicable to individual investor portfolios: 80% to 85% of its assets in investments on one side and 15% to 20% in cash on the other.
How to Play the Plunge – Opdyke, Kim, Laise & Saunders, Wall Street Journal
“Cash doesn’t have market risk,” says Ron Sloan, chief investment officer of Invesco’s U.S. core equities group. “Don’t be afraid to leave money on the table for your own sleeping comfort.”
