cash - its place in your portfolio / plan

[wns]

I’d be interested to hear peoples’ thoughts on cash and its place in your portfolio and overall investment plan.

In particular…

* What percentage of your portfolio is cash?
* Where do you park your cash?
* What return do you earn on it?
* What are your investment rules in relation to cash?


Some positives of having cash that I can think of are…

* Gives you the ability to buy when an opportunity arises.
* A safety cushion.
* Peace of mind.

Negatives

* By the time you factor in inflation and tax, your returns are tiny or negative.

[brisand]

I have asked the question: where would you invest if the US economy had severe downturn as many believe it will soon, so I think at the moment holding a reasonable amount of cash over the next few months may be prudent.

[Snoopy]

quote:Originally posted by wns

I’d be interested to hear peoples’ thoughts on cash and its place in your portfolio and overall investment plan.

In particular…

* What percentage of your portfolio is cash?

I tend to invest in companies that generate lots of cash. So the answer is almost always 'too much'.

quote:
* Where do you park your cash?

I use one of those high interest daily balance accounts. I am a Westpac and a Kiwibank customer so I am aware that both have such products. But at the moment I am using the Public Trust Cash Management Fund for this purpose. This is for historical reasons (they had an office just next to where I had a long term work contract at one time).

quote:
* What return do you earn on it?

I don't know because it changes daily. I think the public trust is reasonably competitive in this regard. But my main priority with a cash account is being able to get access to the money when I need it.
Generally cash is a low return asset, so I try not to keep too much.
As a result the return on my cash doesn't really influence the return on my overall investment portfolio. So I don't pay much attention to the 'daily rate'.

quote:
* What are your investment rules in relation to cash?

Keep enough on hand to take advantage of one those unexpected sharemarket opportunities when they arrive.

SNOOPY

[Year of the Tiger]

quote:Originally posted by wns

I’d be interested to hear peoples’ thoughts on cash and its place in your portfolio and overall investment plan.

In particular…

* Where do you park your cash?
* What return do you earn on it?

Some positives of having cash that I can think of are…
* Gives you the ability to buy when an opportunity arises.
* A safety cushion.
* Peace of mind.

Negatives
* By the time you factor in inflation and tax, your returns are tiny or negative.

I'm not sure if this will be of any value to other posters but I'll post it anyway.

I'm reasonably new at sharemarket investing (actively for only about 18 months) so my portfolio is still quite small. I still like to keep some cash tucked away for all the positive reasons listed above. As my employment puts me in the top tax bracket I too had a problem with what to do with that cash so as to minimise the tax take.

I also have a mortgage on my home so the solution for me was to put a portion of the mortgage on a 'floating' interest rate. I've put all my spare cash onto this floating part of my mortgage. The interest on this has been reduced to almost nil so all of my fortnightly mortgage payments are basically paying principal.

The net result is that I'm saving almost all of the interest on this part of my mortgage, I'm not having to pay any tax on the saved interest, and my cash is still available at a minutes notice.

I know this is probably doesn't suit investors with large sums of cash, but it suits me in my situation at this stage.

Cheers YOTT

[kittydashwood]

cash 33%
long 60%
silver 7%

[foodee]

YOTT
A very astute move. Basically your cash is 'on call' at the FMR - 9%plus nett!

Cheers

[wns]

Thank you for the responses so far.

Like you YOTT, I've got money sitting in my 100% mortgage offset account for our home loan. So its available right away if I find a good home for it, but in the mean time its saving me interest.

[Snow Leopard]

Cash in a portfolio?

Depends upon your investment aims and the state of the market.
I run both an income aka long term portfolio and a trading portfolio.
Until recently once I had enough cash to make a buy worthwhile (absolute min $3000) I had something to buy with it.
However and for the first time in years I am reluctant to buy. I feel that the least worst thing to do with most of my cents is to bung it into an instant access account with a good rate of interest.

Whereas I was more or less in the state of working out whether it was worth buying A to hold long term or possibly selling B to buy C, now I have an awful lot of cash which is earning 7% with the bank, but I can with a simple transfer to my trading account then use to buy any opportunity that I notice.

[kittydashwood]

wait till tommorrow it will be cheaper....
feeling risk averse...
the pyschology of deflation PT

[Snow Leopard]

quote:Originally posted by kittydashwood

wait till tommorrow it will be cheaper....
feeling risk averse...
the pyschology of deflation PT

Not quite.

There are rarely any guarantees on the future price of a share.
I am generally risk averse, very few people make serious money taking lots of punts.
I own some 'risky' shares in having some BIO and some NZO/NZOOD. But basically my risk, i.e. buying, criteria have not changed but I find that less companies meet them.
I can patiently wait for the right share to appear.