How much cash, FI should have in hands?

Dear all,

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?

Cheers, RA50

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8 thoughts on “How much cash, FI should have in hands?

  1. Hi RA50,

    I like your way of thinking! I was wondering why you take into account only the dividend and not the general return on a stock, say 6 or 7%? That way it will become a lot more difficult to use market dips for a better result right?

    Take care!

    Like

    • Hi RN,

      Thanks for your comment, can you clarify how do you get the general return 6-7%, do you consider the future growth of the stock?
      As my strategy is a mix between dividend growth and market gain, I am always trying to play with one or the other to maximize our total return.

      You gave me something to reflect on…

      Cheers, RA50

      Like

      • Hi RA50,

        The dividend is just a part of the total return, average stock market returns tend to be at least 6 or 7 %, market gain+div. This is not just for growth stocks, you can take PG, JNJ,KO and see similar results.

        Regards,
        RN

        Like

  2. I would say 3 to 6 months average spending.
    Unexpected expenses happen and we never know.
    In Swiss that’s all banks can give? Very little but, on the other way, you have high incomes.
    Take care!

    Like

    • Hi Nuno,
      obrigado for passing by and commenting.

      Yes, very rich banks, sucking client on bank fees, trading fees etc, but giving nothing in return except safety, which at the end what we need, no?

      How is the situation in Portugal?

      Vou visitar seu blog! Abraço
      RA50

      Like

  3. Well, you should have read about Portugal a lot last 3 years.
    We had many banks with a lot of problems, bankrupcy and other issues.
    Not very safe, for some investors and interest rates are, now, about 1.5%/2.0% a year. Commissions and fees are not very high but, then, so aren’t our wages that have been cut last years.
    I would gladly move to Switzerland if I manage to find a job there. Do you know anyone who needs a math teacher in love with financial markets ? 🙂
    Or you can show me some website to find a job around there… I mean it!
    Cheers!

    Like

  4. My account is small $150k, so I keep 20k in cash, but bought in this past week and yesterday market dip, I’ve been saying that for awhile. This year will mark volitile, so I’ll keep pile cash each month until the next sell off if I find a good company selling at value.

    Like

    • Hi Vivianne,

      I think you are right, this year will be much more volatile and therefore to benefit from the market dip it’s nice to have cash aside.

      We will keep around 100k.

      Cheers, RA50

      Like

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