“Cash is king” sentiment

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9-5 Suited
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“Cash is king” sentiment

Post by 9-5 Suited »

I’ve seen a few dozen references from forum members to the phrase “cash is king” as part of their investment philosophy. I’m curious about two things from those who feel this way:

1. Are there particular life experiences you feel have contributed to this belief?
2. What specifically does the phrase mean to you, i.e. what portfolio actions do you take as a result of the belief?

I’m a begrudging holder of a very small amount of cash and have a hard time seeing the appeal given the non-existent returns relative to even other low risk assets. So I would like to learn more about how others who see the world differently view this asset class.
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JoMoney
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Re: “Cash is king” sentiment

Post by JoMoney »

I don't fall into the category that believes that's persistently the case, but there are definitely situations when having cash provides opportunities to get things at 'fire sale' prices, because liquidity isn't available elsewhere and those that can provide it are in the catbird seat. I don't think the current environment is such a situation, the Fed has ensured there's more than enough liquidity in the markets.
Investment opportunities with a reasonable return are what's currently scarce, not cash.
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Re: “Cash is king” sentiment

Post by Call_Me_Op »

I don't think I have ever used the term "Cash is King." That said, everyone should hold some because cash - while not offering much return on your money - does have the rather unique characteristic of guaranteeing return OF your money (whenever you want it).
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Re: “Cash is king” sentiment

Post by geerhardusvos »

9-5 Suited wrote: Sat Aug 29, 2020 3:42 pm I’ve seen a few dozen references from forum members to the phrase “cash is king” as part of their investment philosophy. I’m curious about two things from those who feel this way:

1. Are there particular life experiences you feel have contributed to this belief?
2. What specifically does the phrase mean to you, i.e. what portfolio actions do you take as a result of the belief?

I’m a begrudging holder of a very small amount of cash and have a hard time seeing the appeal given the non-existent returns relative to even other low risk assets. So I would like to learn more about how others who see the world differently view this asset class.
*VTSAX* IS KING :twisted:
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000
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Re: “Cash is king” sentiment

Post by 000 »

Nothing else guarantees liquidity and nominal value.

This is relevant if one's upcoming withdrawal needs are unknown and possibly lumpy.
langlands
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Re: “Cash is king” sentiment

Post by langlands »

In addition to liquidity, which I think matters more to large institutional investors than small retail investors who can more or less nimbly move in and out of almost all their positions, cash is a way to take leverage less than 1. If you have a cash position that is earning less interest than the borrow rate on one of your leveraged positions, then you can probably make your portfolio more efficient by using your cash to pay down your debt.
7eight9
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Re: “Cash is king” sentiment

Post by 7eight9 »

It is always nice to have some cash on hand.

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jaqenhghar
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Re: “Cash is king” sentiment

Post by jaqenhghar »

Before this year, I was firmly in the camp of "what's the point of holding so much cash when you could invest it?!"

Now, with the year that has been 2020, I've come to realize that cash plays a crucial role for my peace of mind. With that recent realization, I look at my total position with cash as the numerator and investments held at Fido/VG/Schwab as the denominator.
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willthrill81
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Re: “Cash is king” sentiment

Post by willthrill81 »

My understanding is that the phrase may have originally meant 'cash flow is king', which I believe to be much more accurate. In an investment context, it seems to be used by the 'dry powder' crowd in their effort to wait for a 'great buying opportunity', and that's been shown to be a generally inferior strategy.

If you need a small allocation to cash in order to sleep well at night, then go for it, but be aware of the long-term opportunity costs it represents.

Now if we include short-term Treasuries, CDs, and the like in the category of 'cash', that's a different animal, but that's generally not what people seem to mean when they refer to cash.

I'm periodically blown away at how much cash some hold. A recent poster's investment portfolio was 26% cash. :shock:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: “Cash is king” sentiment

Post by 000 »

willthrill81 wrote: Sat Aug 29, 2020 5:09 pm My understanding is that the phrase may have originally meant 'cash flow is king', which I believe to be much more accurate. In an investment context, it seems to be used by the 'dry powder' crowd in their effort to wait for a 'great buying opportunity', and that's been shown to be a generally inferior strategy.

If you need a small allocation to cash in order to sleep well at night, then go for it, but be aware of the long-term opportunity costs it represents.

Now if we include short-term Treasuries, CDs, and the like in the category of 'cash', that's a different animal, but that's generally not what people seem to mean when they refer to cash.

I'm periodically blown away at how much cash some hold. A recent poster's investment portfolio was 26% cash. :shock:
I am not seeing much opportunity cost versus bonds, especially the Treasury heavy bond allocations recommended here.
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Re: “Cash is king” sentiment

Post by willthrill81 »

000 wrote: Sat Aug 29, 2020 5:12 pm
willthrill81 wrote: Sat Aug 29, 2020 5:09 pm My understanding is that the phrase may have originally meant 'cash flow is king', which I believe to be much more accurate. In an investment context, it seems to be used by the 'dry powder' crowd in their effort to wait for a 'great buying opportunity', and that's been shown to be a generally inferior strategy.

If you need a small allocation to cash in order to sleep well at night, then go for it, but be aware of the long-term opportunity costs it represents.

Now if we include short-term Treasuries, CDs, and the like in the category of 'cash', that's a different animal, but that's generally not what people seem to mean when they refer to cash.

I'm periodically blown away at how much cash some hold. A recent poster's investment portfolio was 26% cash. :shock:
I am not seeing much opportunity cost versus bonds, especially the Treasury heavy bond allocations recommended here.
If you're talking about CDs and high-yield savings accounts as including 'cash', I agree. That's not always the case though.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
000
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Re: “Cash is king” sentiment

Post by 000 »

willthrill81 wrote: Sat Aug 29, 2020 5:14 pm If you're talking about CDs and high-yield savings accounts as including 'cash', I agree. That's not always the case though.
I consider cash to include (1) physical currency and (2) government guaranteed demand accounts. So I include HYSA, but not penalty CDs.
UpperNwGuy
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Re: “Cash is king” sentiment

Post by UpperNwGuy »

I see no point to holding cash except for an emergency fund and for known near-term expenses.
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Re: “Cash is king” sentiment

Post by runner540 »

I’ve seen this in reference to transactions (in a close bidding war, Having your own cash makes you more likely to win). I hold a large cash emergency fund, and invest aggressively for retirement. Times it’s helped:
- moving abroad and carried 000s with me to exchange and be able to put down a deposit for an apartment, etc before all my local banking was set up.
- cash cushion made me mentally comfortable investing heavily in 2008-2009 into retirement even when job was uncertain. Same thing in 2020.
- house buying: won a bidding contest because other side had contingencies (selling old house) instead of cash in hand.
delamer
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Re: “Cash is king” sentiment

Post by delamer »

Context is everything.

If you’ve just loss your job and only source of income, then you need to conserve cash.

If you are 25 years old and investing for retirement in 35 years, then you don’t need any cash at all.

I prefer to take investing risk in stocks rather than bonds, so I have a relatively high stock allocation, some cash equivalents, and very little in bonds.
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Re: “Cash is king” sentiment

Post by Robot Monster »

Cash is as much of a king as Viserys was a king in Game of Thrones. What kind of king is at the mercy of the Fed, downtrodden by its easy monetary policy? What kind of asset worth its salt allows itself to be slowly dissolved away in a puddle of inflation while it sits there blinking, with a befuddled look on its face? I give cash a slap in the face with my mitten!
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Re: “Cash is king” sentiment

Post by AerialWombat »

willthrill81 wrote: Sat Aug 29, 2020 5:09 pm I'm periodically blown away at how much cash some hold. A recent poster's investment portfolio was 26% cash. :shock:
At any given time, between 30 and 35 per cent of my liquid assets are in cash. 30% stock, 40% bond, 30% cash.

To answer OP's question, I'm one of the "cash is king" people.

Why?
  • I grew up poor (by US standards). This impacted my views on money, no matter how much older I get.
  • In the 2008 crash, I lost everything. Wound up in chapter 7 BK and homeless. Why? Didn't have cash reserves.
  • Today, half my net worth is locked up in private equity (tech startup I co-founded). Another quarter is locked up in rental properties.
  • Because I have extreme levels of risk in 75% of my net worth, my liquid investments need to be low risk. My goal is to keep pace with inflation, so I'm 30/70 for life in my securities portfolio, which includes a large cash cushion.
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Re: “Cash is king” sentiment

Post by regularguy455 »

Robot Monster wrote: Sat Aug 29, 2020 5:39 pm Cash is as much of a king as Viserys was a king in Game of Thrones. What kind of king is at the mercy of the Fed, downtrodden by its easy monetary policy? What kind of asset worth its salt allows itself to be slowly dissolved away in a puddle of inflation while it sits there blinking, with a befuddled look on its face? I give cash a slap in the face with my mitten!
LOL
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Re: “Cash is king” sentiment

Post by illumination »

The people I've seen use this term are usually referring to the concept of "dry powder" where you will have outsized returns by having the ability to scoop up bargains that nobody else can. In my experience, these people almost always think it can go cheaper and are tepid when things do fall apart. They would have FAR more wealth "staying the course" than waiting around for once in a generation-type buying opportunities.

Even people like Warren Buffett were stockpiling cash at Berkshire for several years while the market zoomed past him. Everyone was saying he was being wise and this was a signal the market was vastly over valued. I thought for sure he would pounce during Covid with all his resources, instead he sold many of his holdings at what now look like the bottom out of fear and largely just kept his dry powder.
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Re: “Cash is king” sentiment

Post by Ferdinand2014 »

My view on cash is that it is a terrible investment, but great insurance policy.

"We never want to be dependent, not only on the kindness of strangers, but the kindness of friends." Warren Buffett's response regarding his cash hoard.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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Re: “Cash is king” sentiment

Post by Toons »

Cash loses to inflation sticks more in my mind



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Re: “Cash is king” sentiment

Post by 9-5 Suited »

AerialWombat wrote: Sat Aug 29, 2020 5:53 pm
willthrill81 wrote: Sat Aug 29, 2020 5:09 pm I'm periodically blown away at how much cash some hold. A recent poster's investment portfolio was 26% cash. :shock:
At any given time, between 30 and 35 per cent of my liquid assets are in cash. 30% stock, 40% bond, 30% cash.

To answer OP's question, I'm one of the "cash is king" people.

Why?
  • I grew up poor (by US standards). This impacted my views on money, no matter how much older I get.
  • In the 2008 crash, I lost everything. Wound up in chapter 7 BK and homeless. Why? Didn't have cash reserves.
  • Today, half my net worth is locked up in private equity (tech startup I co-founded). Another quarter is locked up in rental properties.
  • Because I have extreme levels of risk in 75% of my net worth, my liquid investments need to be low risk. My goal is to keep pace with inflation, so I'm 30/70 for life in my securities portfolio, which includes a large cash cushion.
Thanks for all responses, and especially this one. I’m glad you found so much success after seeing the bottom, and that experience along with your portfolio composition makes the large cash position very understandable.
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Re: “Cash is king” sentiment

Post by willthrill81 »

AerialWombat wrote: Sat Aug 29, 2020 5:53 pm
willthrill81 wrote: Sat Aug 29, 2020 5:09 pm I'm periodically blown away at how much cash some hold. A recent poster's investment portfolio was 26% cash. :shock:
At any given time, between 30 and 35 per cent of my liquid assets are in cash. 30% stock, 40% bond, 30% cash.

To answer OP's question, I'm one of the "cash is king" people.

Why?
  • I grew up poor (by US standards). This impacted my views on money, no matter how much older I get.
  • In the 2008 crash, I lost everything. Wound up in chapter 7 BK and homeless. Why? Didn't have cash reserves.
  • Today, half my net worth is locked up in private equity (tech startup I co-founded). Another quarter is locked up in rental properties.
  • Because I have extreme levels of risk in 75% of my net worth, my liquid investments need to be low risk. My goal is to keep pace with inflation, so I'm 30/70 for life in my securities portfolio, which includes a large cash cushion.
Thanks for sharing. Yours is a very aberrant situation from most posters on this forum, especially having half your net worth in private equity.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: “Cash is king” sentiment

Post by willthrill81 »

illumination wrote: Sat Aug 29, 2020 7:13 pm Even people like Warren Buffett were stockpiling cash at Berkshire for several years while the market zoomed past him. Everyone was saying he was being wise and this was a signal the market was vastly over valued. I thought for sure he would pounce during Covid with all his resources, instead he sold many of his holdings at what now look like the bottom out of fear and largely just kept his dry powder.
Berkshire Hathaway has returned -4.4% YTD, whereas VTSAX has returned +7.7% YTD.

From 2003 through July, 2020, Berkshire had annualized returns of 8.26% vs. 10.29% for VTSAX. Even the frequently lauded as 'unperforming' SCV fund VISVX returned 8.73% over the same period.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: “Cash is king” sentiment

Post by phxjcc »

I second wombat’s comments.

If you grew up poor, have NO backstop, and have been faced with market corrections AND unemployment AND relocation AND a family crisis AND health issues simultaneously—then you will understand that cash—as in dollars in the bank—is king.

Not the OMG! moment most on this board consider “normal”.

Seen it twice in my family.
That is enough.
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Re: “Cash is king” sentiment

Post by Ferdinand2014 »

willthrill81 wrote: Sat Aug 29, 2020 9:34 pm
illumination wrote: Sat Aug 29, 2020 7:13 pm Even people like Warren Buffett were stockpiling cash at Berkshire for several years while the market zoomed past him. Everyone was saying he was being wise and this was a signal the market was vastly over valued. I thought for sure he would pounce during Covid with all his resources, instead he sold many of his holdings at what now look like the bottom out of fear and largely just kept his dry powder.
Berkshire Hathaway has returned -4.4% YTD, whereas VTSAX has returned +7.7% YTD.

From 2003 through July, 2020, Berkshire had annualized returns of 8.26% vs. 10.29% for VTSAX. Even the frequently lauded as 'unperforming' SCV fund VISVX returned 8.73% over the same period.
True, however, as has been pointed out by Warren Buffett - not an excuse way, but factual in his shareholder letters, is his return is with taxes, the S&P 500 return which he uses as his bogey is without taxes or fees. His earlier gains when Berkshire was smaller still give BRK a huge return advantage over the S&P 500 from 1964 (When Warren Buffett took over) due to compounding. However, he points out in many recent shareholder letters that it will be increasingly difficult to grow faster than the S&P 500 given the acquisitions required to move the needle with such a large company. Headlines today about investing in several large Japanese holdings, yet the 6 billion still represents a drop in the bucket. He also needs to stockpile cash for insurance reasons as much as dry powder. The cash pile needs to grow along with the underwriting liability.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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Re: “Cash is king” sentiment

Post by Dottie57 »

Ferdinand2014 wrote: Sat Aug 29, 2020 7:16 pm My view on cash is that it is a terrible investment, but great insurance policy.
Great statement. Pretty much how Ifeel.
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Re: “Cash is king” sentiment

Post by Nate79 »

Cash is king from wikipedia:
https://en.wikipedia.org/wiki/Cash_is_king
The origin of "cash is king" is not clear. It was used in 1988, after the global stock market crash in 1987, by Pehr G. Gyllenhammar, who at the time was Chief Executive Officer of Swedish car group Volvo.
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Re: “Cash is king” sentiment

Post by tibbitts »

9-5 Suited wrote: Sat Aug 29, 2020 3:42 pm I’ve seen a few dozen references from forum members to the phrase “cash is king” as part of their investment philosophy. I’m curious about two things from those who feel this way:

1. Are there particular life experiences you feel have contributed to this belief?
2. What specifically does the phrase mean to you, i.e. what portfolio actions do you take as a result of the belief?

I’m a begrudging holder of a very small amount of cash and have a hard time seeing the appeal given the non-existent returns relative to even other low risk assets. So I would like to learn more about how others who see the world differently view this asset class.
You can't make a post like this without defining "cash." I'd say most people consider investments like savings accounts, CDs,very short-term treasuries, and in some cases unrestricted stable value funds as "cash." What other "low-risk" assets are these that you claim provide better returns? I'd prefer to say "similar risk" since cash and similar investments have their own risks (such as frequently losing to inflation, especially after taxes.)
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Re: “Cash is king” sentiment

Post by Lee_WSP »

Cash is king in the pawn or estate sale (second hand goods). It is also king in real estate transactions. For investors not buying/selling physical items, cash is probably trash. Other than the liquidity needed for planned and unplanned expenses.
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Re: “Cash is king” sentiment

Post by willthrill81 »

Ferdinand2014 wrote: Mon Aug 31, 2020 8:00 am
willthrill81 wrote: Sat Aug 29, 2020 9:34 pm
illumination wrote: Sat Aug 29, 2020 7:13 pm Even people like Warren Buffett were stockpiling cash at Berkshire for several years while the market zoomed past him. Everyone was saying he was being wise and this was a signal the market was vastly over valued. I thought for sure he would pounce during Covid with all his resources, instead he sold many of his holdings at what now look like the bottom out of fear and largely just kept his dry powder.
Berkshire Hathaway has returned -4.4% YTD, whereas VTSAX has returned +7.7% YTD.

From 2003 through July, 2020, Berkshire had annualized returns of 8.26% vs. 10.29% for VTSAX. Even the frequently lauded as 'unperforming' SCV fund VISVX returned 8.73% over the same period.
True, however, as has been pointed out by Warren Buffett - not an excuse way, but factual in his shareholder letters, is his return is with taxes, the S&P 500 return which he uses as his bogey is without taxes or fees. His earlier gains when Berkshire was smaller still give BRK a huge return advantage over the S&P 500 from 1964 (When Warren Buffett took over) due to compounding. However, he points out in many recent shareholder letters that it will be increasingly difficult to grow faster than the S&P 500 given the acquisitions required to move the needle with such a large company. Headlines today about investing in several large Japanese holdings, yet the 6 billion still represents a drop in the bucket. He also needs to stockpile cash for insurance reasons as much as dry powder. The cash pile needs to grow along with the underwriting liability.
Then it may be time for those still holding BRK to move on to greener, indexed pastures.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: “Cash is king” sentiment

Post by Bobby206 »

Cash is king when buying real estate in a hot market (like now). Those that can offer quick close without delays and uncertainty of financing have a much better chance of getting the house in a competitive bidding situation.
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Re: “Cash is king” sentiment

Post by sandan »

9-5 Suited wrote: Sat Aug 29, 2020 3:42 pm I’ve seen a few dozen references from forum members to the phrase “cash is king” as part of their investment philosophy. I’m curious about two things from those who feel this way:

1. Are there particular life experiences you feel have contributed to this belief?
2. What specifically does the phrase mean to you, i.e. what portfolio actions do you take as a result of the belief?

I’m a begrudging holder of a very small amount of cash and have a hard time seeing the appeal given the non-existent returns relative to even other low risk assets. So I would like to learn more about how others who see the world differently view this asset class.
I think it is primarily a business practice. When the credit market seizes, products and services are only provided to firms or people with cash. If people need emergency home repair, medical expenses, or to deal with unemployment (which is likely to occur when the credit market seizes), they should probably have cash.
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Re: “Cash is king” sentiment

Post by hudson »

I told a gentleman at work that I had two antique items that I wanted to sell, but I hadn't priced them yet.
I wasn't sure where to get the items priced, so a year or more passed. Periodically, he asked me if I'd set a price. I hadn't.
One day, he walked in and held up ten 100 dollar bills. I said, "sold!" After work, we sealed the deal. In that case, cash was king.
All of a sudden, I had a serious buyer for my old stuff that I wanted to get rid of.
Last edited by hudson on Mon Aug 31, 2020 7:05 pm, edited 1 time in total.
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Re: “Cash is king” sentiment

Post by bligh »

9-5 Suited wrote: Sat Aug 29, 2020 3:42 pm I’ve seen a few dozen references from forum members to the phrase “cash is king” as part of their investment philosophy. I’m curious about two things from those who feel this way:

1. Are there particular life experiences you feel have contributed to this belief?
2. What specifically does the phrase mean to you, i.e. what portfolio actions do you take as a result of the belief?

I’m a begrudging holder of a very small amount of cash and have a hard time seeing the appeal given the non-existent returns relative to even other low risk assets. So I would like to learn more about how others who see the world differently view this asset class.
1. Just earlier this year, I had to cough up an unexpected/surprise $15K to help out a family member. Had I been 100% VTSAX it would have been a terrible time to sell. Technically I do hold enough in bonds that I could have sold the bonds instead, but I also had enough in cash to cover the expense in this case.

2. To me cash exists to provide liquidity and safety. This means that if I need the money tomorrow, I have it. There is no humming or hawing about it being a bad time to sell, or tax implications of the sale, or what to sell or hold on to. It means I sleep well at night even when the market has tanked by 30% like it did earlier this year, and is likely to do so again multiple times during my lifetime. It allows me to stay the course when it seems like the storm clouds are gathering and the going is about to get really rough.

Think of it as the life boat strapped to your deck. If the unthinkable happens and disaster strikes hopefully the life boat keeps you afloat long enough to survive the storm. Sure, it will slow you down a bit, and you hope you never need it. Is having a lifeboat a guarantee of safety? Of course not... but it is still a good idea to have one.
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Re: “Cash is king” sentiment

Post by MikeG62 »

To me, cash is a liquid financial asset that I can get my hands on on relatively short notice. I consider MMF's, online savings, no-penalty CD's (and even traditional CD's) all as forms of cash. It sure felt like king in March of 2020 when stocks and bonds were both declining in value pretty much every single day (with no end in sight). Sure helped me to sleep well at night and not worry about our financial situation at that time. I think it is the latter aspect that makes cash king IMHO.
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Re: “Cash is king” sentiment

Post by jason2459 »

Nate79 wrote: Mon Aug 31, 2020 8:26 am Cash is king from wikipedia:
https://en.wikipedia.org/wiki/Cash_is_king
The origin of "cash is king" is not clear. It was used in 1988, after the global stock market crash in 1987, by Pehr G. Gyllenhammar, who at the time was Chief Executive Officer of Swedish car group Volvo.
Cash is king sentiment and phrase could go back much further.

From The Great Depression: A Diary
by Benjamin Roth

February 12 1936
There are times, however, in a depression when cash money is king and many good investments can be purchased at a big discount.
Benjamin made note that no one had money to purchase these discounts. So at the time cash was king in relation to being able to keep investing it.
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Re: “Cash is king” sentiment

Post by Portfolio7 »

We've long been highly leveraged, between mortgage and heloc. This has enabled us to save aggressively and build the value of our retirement savings and other priorities. Not unusual.

However, there are opportunities that require investment, and you may miss out if you can't scrape together enough to manage. This is especially true when credit fails.

We've been lucky in that with respect to two opportunities - a scholarship (that meant DW worked only part time, reducing cash flow) and a business investment - were funded with our Heloc. If we had not had that resource, two big opportunities might have passed us by. The only way to ensure access to such opportunities is cash on hand. In our case we were lucky enough to have access to credit - but that's a privilege that can disappear in a very short time. Commensurate with this understanding, our focus this decade is to pay off as much debt as we possibly can.
"An investment in knowledge pays the best interest" - Benjamin Franklin
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