The Amount Of Cash In Portfolio Debate
Which came first the chicken or the egg? Some debates will go on and on with no winner. A similar long standing debate has been how much cash you have in your investing/trading portfolio.
Some investors believe you should keep up to 5% of your portfolio in cash, while others think it is acceptable to keep up to 30%. I’m in the camp of the up to 30% in the portfolio simple because every day I’m lurking on the charts trying to find the footprints of the Smart Money.
Smart money is capital placed in the market by institutional investors, market mavens, central banks, funds, and other financial professionals. And simple put, they do the opposite of retail investors. For the most part, retail investors buy high and sell low, it’s usually the Smart Money on the other side of the trade who are selling high and buying low. But how are you going to buy low if you don’t have enough cash in your account.
Investors are moving more and more money to cash in a sign of mounting skepticism about the ability of financial markets and the economy to deliver more growth.
According to DataTrek, there was $3.4 trillion in U.S. money market funds as of October 2. That’s about 14% higher than at the end of 2018, and has risen nearly every week since May. So what does this mean, lets go down the rat hole a bit.
The Vanguard S&P 500 ETF, ticker VOO, saw $2.9 billion worth of outflows at the start of the week, data compiled by Bloomberg show. That was the biggest withdrawal of 2019, and the second-largest in the fund’s 9-year lifespan.
“Outflows from VOO are as rare as a four-leaf clover since it is a preferred fund of long-term sticky money,” said Bloomberg Intelligence analyst Eric Balchunas. “When it does happen it’s more likely connected to a rebalance of some sort by a large advisor or model portfolio.”
The market is coming off a week of very weak US economic data, some of the worst in years, suggesting a slowdown in U.S. economic growth could worsen. When you combine that with the ongoing drama between the US and China and Trump Impeachment talk, with the US equity markets only a couple percentage points from all-time highs, the rewards aren’t worth the risks for investors at this point.
Regarding the Vanguard S&P 500 ETF, VOO, it too is near all-time highs but the chart suggest to only start getting worried if the monthly chart closes below $260.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
