I just read the new post of Rich Neighbour (Scared by All Time Highs?), where I gave my opinion on this critical subject that affect all of us.
I would like to develop a little bit the subject. I mention that my ideal cash position is between 10%-15%, which based on our portfolio value represent between 100k to 150k Swiss Franc. I see already some of you, having big eyes about this value. Yes, it is a significant amount of cash, which are not bringing dividends. But now let’s look at some example:
Cash value invested in stock.
- our average dividend paid is 2.5%, so the 100k will give us: 2’500CHF
Cash kept until next market dip of 4% within current year:
- For the last 10 years, a yearly dip of 4% in the market or a specific share happened more than once, so it will give us: 4’000CHF.
Cash kept for more than one year if no market dip happened:
- Low probability, but let’s take it, your bank will probably gives you a fantastic 😦 0.5% interest, so 500CHF. Enough to pay half of our car insurance.
So based on the 3 above scenarios, the 2nd is most likely to happened, so in the end, you will be able to save more and therefore have higher dividend income the next year.
At the moment (23rd), we have a cash position of 60k, which will increase significantly with the annual bonus that will arrive tomorrow (24th), the vested stock option (PM) and the dividends of our portfolio (that I will detail in my next post), so by end of March, our cash position will turn around 100k-120k. Ready for some big dip 🙂 or re-investment during the ¨ex-dividend date¨. Which is one of my strategy that will comment in a later post.
And you, what is your cash position strategy?