Do you keep cash aside to invest after next crash?

jdw2000

A question I asked in a thread today, but wondered if many do this.

I imagine most investors keep the majority of their cash invested and would therefore be unable to invest much after a crash. Are there any keeping money aside for this purpose?

andrewm1981

I keep around 40% of my money in shares, 30% in cash, 30% in P2P. The old saying of "time in the market, not timing the market" rings true so I'll be increasing shares to 50% in April. My p2p earning 10% or so is my back up should the market drop and I'll buy low. I think cash sitting doing nothing or earning 1% is the worst that could happen!

jdw2000

andrewm1981 wrote: »

I keep around 40% of my money in shares, 30% in cash, 30% in P2P. The old saying of "time in the market, not timing the market" rings true so I'll be increasing shares to 50% in April. My p2p earning 10% or so is my back up should the market drop and I'll buy low. I think cash sitting doing nothing or earning 1% is the worst that could happen!

I don't know anything about P2P, but having the money invested elsewhere and ready to be invested in equities when a crash happens sounds like a good plan.

Malthusian

jdw2000 wrote: »

I don't know anything about P2P, but having the money invested elsewhere and ready to be invested in equities when a crash happens sounds like a good plan.

Given the nature of P2P, if we're talking about a 2008-style crash then by the time the stockmarkets have hit bottom, P2P borrowers will already be in big trouble. So if you're looking to encash on the secondary markets you will be taking a really big hit in order to reinvest in something that has taken a smaller hit - not a profitable strategy.

If we're talking about reinvesting capital from maturing loans then - provided the borrower doesn't default - that's different, but needs good timing and careful management to ensure you have money coming out at the right time to reinvest.

talexuser

There is an old adage that time in the market beats timing the market. Therefore there is no point keeping cash at today's meagre rates just waiting for a crash.

That is not the same as not having a cash emergency fund, full pension, full ISA every year etc. I don't really know where you could "invest" money ready for a crash that won't be adversely affected at all by a major crash.

dunstonh

When is that crash going to happen?
Are you going to see a positive return of 30% occur before the crash of 20% comes?
When you are going to invest that money you held back? When it has fallen 5%? 10%, 15% or when it has fallen 20% but recovered half of it so the net group was only 10% but you missed out on say 30% growth beforehand?

Timing the market is futile because you do not know when the events will occur or when it is best to re-enter. Holding money back is usually bad for that reason. However, it is normal for people to invest more when the market has dropped but it tends to be new money rather than money intentionally held back.

Glen_Clark

andrewm1981 wrote: »

I think cash sitting doing nothing or earning 1% is the worst that could happen!

When lots of small investors are saying things like that its usually the prelude to a market crash

dunstonh

Glen_Clark wrote: »

When lots of small investors are saying things like that its usually the prelude to a market crash

I had a potential client two weeks ago who wanted to take out a mortgage to invest the money on the stockmarket as their boss was doing that and was telling his workers to do the same. Starting to see a number of these alarm bells now. (btw, i said potential as I refused do it)

jamei305

dunstonh wrote: »

I had a potential client two weeks ago who wanted to take out a mortgage to invest the money on the stockmarket as their boss was doing that and was telling his workers to do the same. Starting to see a number of these alarm bells now. (btw, i said potential as I refused do it)

I remember a few years ago this forum was full of posts about savings accounts, and there was perhaps one or two threads per page about other investments.

If all this money from individuals is moving into the stock market, I wonder what proportion it represents, probably still very little but might have some effect on the dynamics the market.

StellaN

dunstonh wrote: »

When is that crash going to happen?
Are you going to see a positive return of 30% occur before the crash of 20% comes?
When you are going to invest that money you held back? When it has fallen 5%? 10%, 15% or when it has fallen 20% but recovered half of it so the net group was only 10% but you missed out on say 30% growth beforehand?

Timing the market is futile because you do not know when the events will occur or when it is best to re-enter. Holding money back is usually bad for that reason. However, it is normal for people to invest more when the market has dropped but it tends to be new money rather than money intentionally held back.

I understand that you can't time the market, however, at the moment I'm looking to invest a bit more money into US Equities, but, I think I will hold back just for now because the Dow is at an all time high so the price of the fund will be very high!

That said, I don't think there is any geographical sector of real value at the moment?

jamei305

StellaN wrote: »

I understand that you can't time the market, however, at the moment I'm looking to invest a bit more money into US Equities, but, I think I will hold back just for now because the Dow is at an all time high so the price of the fund will be very high!

That said, I don't think there is any geographical sector of real value at the moment?

I am in the same position. I need to use cash to buy US equities to balance my portfolio, however I am holding off for now.

US stocks do look overvalued according to many commentators. However, perhaps that's because people's idea of a normal value for the US market is too low.