Opportune cash on hand

General TSP Discussion.

Moderator: Aitrus

Post Reply
tyler3535
Posts: 109
Joined: Thu Jan 12, 2017 2:50 am

Opportune cash on hand

Post by tyler3535 »

Not too long ago, I read an interesting interview on Mark Cuban. He was talking about people's misconceptions of always having to have their money invested, having it work for them. He said cash on hand can be a smart move, readily available in the case of a market pullback. Now I realize this isn't a groundbreaking theory here, I get it. Buy low sell high. I guess I was flawed in that way of thinking, extra cash on hand being a bad thing.

While, I'm maxed out in the TSP, waiting for a dip for future investments. Waiting is a bad way of saying it lol. Keep the rally going!!!

Any thoughts on how long the train will keep chugging along? Thanks.

User avatar
mjedlin66
Site Admin
Posts: 1569
Joined: Wed Oct 02, 2013 7:51 pm

Re: Opportune cash on hand

Post by mjedlin66 »

But what if the market climbs 20% before crashing 15%, and then you decide to buy?
Owner/creator of TSPcalc.com - "Know your numbers"

bad70nova
Posts: 245
Joined: Thu Oct 17, 2013 10:18 am

Re: Opportune cash on hand

Post by bad70nova »

I agree about cash on hand, CASH is king you can get some great deals if you have cash on hand. I buy and sell two or 3 cars a year older cars that is. I always get good deals because I can offer cash on the spot. Lets call this my mad money, but before I kept cash on hand I made sure I was maxing out everything else.

Scorpio70
Posts: 432
Joined: Thu Dec 24, 2015 11:49 am

Re: Opportune cash on hand

Post by Scorpio70 »

Of course sitting around waiting for a trough can have it's own opportunity cost.

Cpayne09
Posts: 46
Joined: Mon May 05, 2014 1:51 pm

Re: Opportune cash on hand

Post by Cpayne09 »

Why wait for the fish to bite when you can jump in and grab one? I hate fishing, but a man has to eat!

User avatar
Aitrus
Moderator
Posts: 2391
Joined: Mon Aug 06, 2012 5:03 pm

Re: Opportune cash on hand

Post by Aitrus »

This question comes up now and then. Here's my response to the last time somebody asked about it:

Doc-Rush,

I did a short study a couple of years ago on the plusses and minuses of contributing under different scenarios. In short, here's what I found out: mathematically, you end up paying less per share if you build up a stockpile of money in the G Fund and buy in when prices fall a lot. You end up paying a lot less per share, but it only works with small accounts.

The problem with this scenario is that it can be quite a long time before you get a fall in prices deep enough to justify buying in with your saved up funds, and the stockpile needs to be big. In the meantime, that money has been sitting in the G Fund, earning next to nothing. And while your money has been sitting, the market likely has risen so far that even a significant pullback of 10% or more simply takes the prices back to the point where you first started putting money into the G Fund. So while you pay less per share, you also end up missing out on earnings during bull markets.

Then there's the size of the account. The larger the account, the less the saved cash makes a difference in the numbers. In the end, the math says that the difference to a large account is so small as to be a wash. Mathematically, the strategy of saving money for a large purchase of stocks during a pullback works only when the amount of cash to buy more stocks at a discount is around 5% of the total value of the account and the stock pullback is at least 12%. If either figure is smaller, the math says it's not worth your time and emotion of saving the money and deciding when to buy in.

My advice for a seasonal investor: just match your contributions to the seasonal pattern. It's the best balance of dollar-cost-averaging and time management.
Seasonal Musings 2022: viewtopic.php?f=14&t=19005
Recommended Reading: http://tspcenter.com/forums/viewtopic.php?f=14&t=13474
"It's not what happens to you, but how you react to it that matters" Epictetus

wisepierre
Posts: 93
Joined: Thu Feb 18, 2016 11:55 pm

Re: Opportune cash on hand

Post by wisepierre »

That is partially why many advisors and general investing advice is to have 5-10% invested in bonds. When the market takes, you rebalance, and use parts of your bond money to buy (cheaper) stocks. Other benefits include making your overall portfolio much less volatile, even with just 5% in bonds.

mindofmush
Posts: 353
Joined: Mon Jul 02, 2012 1:38 pm

Re: Opportune cash on hand

Post by mindofmush »

Use cash to support margin in non-IRA brokerage account to earn 5% annually selling OTM puts on blue chips while waiting for the next market correction to buy those depressed blue chips for resale after the market recovers. No margin fees unless stock is assigned; no risk until you own stock; no reduction of margin limit as stock (purchased with cash) appreciates during market recovery, better than bonds.
mo meng, mo ching (which loosely means: no money, no life)

Scorpio70
Posts: 432
Joined: Thu Dec 24, 2015 11:49 am

Re: Opportune cash on hand

Post by Scorpio70 »

I am a fan of the index funds that have a huge spread. Less volatility, as we know black swan market events are not predictable.

Carmen909
Posts: 109
Joined: Sun Dec 04, 2016 12:16 am

Re: Opportune cash on hand

Post by Carmen909 »

I think it sounds like a good idea to have some cash and liquidity in your strategy. Depends on what your goals and risk tolerance are, I suppose. I like the idea of being able to spend a little cash when others can't or at my discretion. I wish I could go back to before 2008 with cash sitting around so I could have picked up good deals on real estate (no offense to those who suffered from the mortgage crisis, it was awful for so many people). I try to think like that now and prepare myself for a time when cash/very liquid assets will be needed. It's more like insurance than an investment.

Post Reply

Fund Prices2024-03-27

FundPriceDayYTD
G $18.14 0.01% 1.00%
F $19.09 0.26% -0.68%
C $82.11 0.87% 10.42%
S $82.19 1.48% 6.61%
I $42.68 0.56% 6.21%
L2065 $16.38 0.84% 8.36%
L2060 $16.38 0.84% 8.36%
L2055 $16.39 0.84% 8.36%
L2050 $32.73 0.71% 6.94%
L2045 $14.91 0.67% 6.56%
L2040 $54.37 0.63% 6.20%
L2035 $14.34 0.58% 5.77%
L2030 $47.66 0.53% 5.35%
L2025 $13.14 0.31% 3.40%
Linc $25.60 0.24% 2.79%

Live Charts

Pending Allocations

Under development. For now, you may view Pending Allocations by going to "fantasy TSP" and selecting "Leaderboard sort" of "Pending Allocations".