“Now you know why we always want a certain allocation to cash in your portfolio.”
This is the phrase advisors wish to say to clients whenever the markets sag.
We like cash because it provides clients with their cash needs during periods of market volatility, without having to sell equities into a declining market.
We like cash because it dampens overall portfolio volatility.
We like cash because it can supplement other sources of income.
But how much cash should you allocate? The answer to this question is more an art than a science.
You need to consider your time horizon – how soon will you need the cash?
You should consider your short-term and long-term personal goals. For example, do you plan to buy a house in the near future, or anticipate another large expense?
Learn how having an allocation to cash will impact your investment performance, and how to determine how much cash in your portfolio is right for your financial plan.