What proportion of your portfolio is cash?

7th Aug by TEIN

26 comments 644 reads

I'm interested in reading what proportion of their portfolio investors target to be cash, and why. It's an open question, I'm simply interested to learn how others view deployment of cash, whether they be 100% cash right now, or fully invested or somewhere in-between. I appreciate factors, for example, risk tolerance and investment style will apply for each investor. No doubt some fellow investors are more in cash now than a week ago!

For myself I always do have cash, the proportion fluctuates and I'm currently a third cash, have in the recent past been half cash, and my lowest proportion in cash, ever, would be about 10% - it's not very sophisticated an allocation however. As background, my investment stocks are typically Value Momentum and Quality Momentum, and in particular I've become very interested in stage analysis and companies undergoing change/ turnaround. I'm investing UK stocks only including dual listings.

I think I carry cash in my portfolio as a (psychological) comfort blanket, just as in life I don't like to go out without cash in the wallet, (yes I still use real money!) More practically I keep cash in the portfolio for deployment, though if I dip into my minimum 10% buffer then I have to restore it; and I also keep cash to protect the portfolio in times of volatility, but I'm conscious cash is otherwise not working so nothing is for free. I'd like to think my cash proportion as a target could be more sophisticated reflecting my view of the state of the market and macro factors that might have impact. I've no justification for my 10% rate, it's a bit arbitrary and could not defend the rate vs any other if challenged.

Any discussion/ comments will be very much appreciated.

Kind regards,

TEIN

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Wolf of Small Street

8th Aug

Tein, you can put cash in Lyxor Smart Overnight Return - IE (LON:CSH2) Thats what I do.

Caper4

I am also about 50/50 but don’t anticipate changing that for the time being and happy to park on short term fixed deposit at 4.5% .

illiswilgig

Cash. Almost none. Just enough to transfer my living expenses out which mainly comes from dividends as they come in. Putting a number on it.

Cash 0.15%

Though that might have doubled in the last few days as a dividend was due. Not looked yet. I'm expecting it to rise to around 1% within a few weeks - and then fall back to below 0.5% as I invest cash surplus to my modest needs.

But then I'm not a trader. Really not a trader. I don't come from a financial background - I'm a scientist and engineer by training and a small company director by experience. I hunt companies that I can likely hold for many years, possibly decades. I have a concentrated portfolio of around a dozen UK small caps mainly AIM listed. No more than 1 or at the most 2 new companies in a year. It's my thing. Everybody is different? Turns out that I sleep better with a more focused and concentrated portfolio than I do a more diverse one where I have less intimate research and knowledge of each company. In most cases over the long term newsflow is more important to the share price of these companies than macro concerns, so trying to sell and rebuy is good in theory, but actually more often counter-productive when I try to do it. That and my timing is always crap.

cheers

Mark

Lefty99

I was fully invested, but started selling a few stocks that I felt had reached a level for the the moment. Avon Technologies (LON:AVON) being a perfect example. My largest holding is Warpaint London (LON:W7L) , so tempted to sell some of those. The finger has been over the button so many times, but I love W7L and they have been so good to me. Aiming for 10-20% cash. Thanks to WOSS I have also become interested in stage analysis.

Cancun

Excellent thread .... many thanks indeed Tein... just out of curiosity ( as I sleep badly when holding more than 0.1% cash ), is the old cliché true ' time in the market is better than timing the market '... or do any of you guys ( and ladies ) track the effect of holding a proportion of cash over the medium/ long term to prove a superior performance than just your stock picking by being 100% invested... obviously appreciate that most people like to hold a proportion of cash, but wondered if anyone is outperforming their own individual stock portfolios by consistently holding cash at the right times...

Long term Surveys of returns ( eg Barclays ) illustrate the outperforming asset class of Equities, but does anyone outperform by market timing as well... not just because their stock selections are superior?

Hope that this makes sense as a question, but I'm better with numbers than words ...

Many thanks indeed to all..

jonny71

Hi, I moved to 50% cash over the last few weeks as some of my portfolio was profitable, Monday was a great day to buy and invested 35% of free cash, will be looking to go back to 50% cash again over the next few weeks, basically take the money and keep agile.

intuitive6191

Some investors on this board run fairly low risk portfolios consisting of short dated gilts, money market funds and etfs as well as holding cash directly - so your question as to who is holding actual cash might not give a full understanding of porfolio risk.

Wolf has mentioned CSH2 and I know that a some here are holding Royal London Short term money market within ISAs.

At the end of last year it was possible to set up a blended portfolio of the above with some preference shares ( slightly higher risk) and have a realistic expectation of an 7-8% pa total return over the next 2-3 years.

I would think that the most overiding factor is the age of the investor. An 80 old man might not want to buy and hold and ride out the next economic cycle and hence prefer a higher level of cash.

Thank you very much intuitive6191, you're quite right, there's lots I don't understand! In particular I'm not, in investing terms, very familiar with funds and not at all familiar with gilts, hence my question being described 'open', learning for practical reasons but also for learning's sake. What I read on Stockopedia tends to be company stocks related so perhaps distorts my view of the broad spectrum of investors.

Best wishes.

Thanks for the tip Wolf, much appreciated, will investigate.

Hi Lloyd, good point, I wander round in the echo chamber of own head totally focused on my investment objective which is appreciation and from which I don't take income. I have other work and only focus on investments part time. Investors who do this for a living might need a different approach to cash as you've pointed out. Best wishes.

I'm no expert but think Weinstein's thoughts even moved this year vs. last! Adapting to volatility/ speed. I'm on with the video...., thanks again.

Cancun,

my reference to sleeping better was due to a more actively researched and concentrated portfolio - not the low level of cash.

But since you mention it, I guess I'd hold more cash if I thought I was losing sleep over it?

is the old cliché true ' time in the market is better than timing the market '.

I'm sorry I can't help you with that. It kind of misses the point for me. I'm a firm believer in the - in - efficient market hypothesis. Particularly at my end of the market. Since I expect most share price rises (and falls) to occur either slightly before or slightly after news is released - and I don't know when this will occur - then attempting to time the market is a category error for me? Probably I'm just weird?

Thanks Cancun! Do you stay fully invested for income or because you don't like to see cash standing idle?

Hopefully some of the very experienced investors can give you a better response to your question than I can, and I'll be really interested in other replies too. Yes, trying to time using stage analysis makes a lot of sense to me. As Wolf implies here any idiot can grasp the principles, which make it a perfect fit in my case.

Hello Mark, I imagine income investors might be more likely to be fully invested, especially given some of the yields on offer. I see another benefit in your buy and hold, which is that unless you're always scanning and researching, you potentially free up a lot of time for other things in your life! Best wishes and thanks for responding.

Good timing! Thanks jonny71, are you a trader first and foremost or just flexing with the times?

Light bulb moment for me, I was doing okay before but stage analysis has changed much in a short time, despite everything outwith my control! Thanks very much Lefty99.

Many thanks Mark...

I think that the lack of sleep , when holding too much cash , is a result of the thesis that the market rallies 76% of the time ( but the falls are ofter much steeper )...

Frequently I wish that I could hold more cash, as normally nearly every day throws up a new idea, or more likely, a 5% sell off in a holding on no news , allowing a top up opportunity... but the discipline of top slicing to finance the new buy sometimes helps...

Having spent 20+ years as an interest rate trader, I'm sceptical ( like most people ) that anyone can predict the macro economy consistently... but I was particularly curious re the investors on here with very good technical skills... I wondered whether they have increased their returns over time by holding cash , over and above their stock picking abilities.. I.e. timing the market as well ?

Staying fully invested Tein , predominantly because of the 76% theory , but also my scepticism re MY ability to time the market... however, I am wondering whether a) I should allow technicals to point the way and b) now that I'm studying the equity markets on a daily basis, will I recognise signs of over valuation myself....

It would be rude of me not to thank illiswilgig while he's here. It was your excellent knowledgeable posts which nudged me towards MS International (LON:MSI) a while back, so thank you.

Wolf of Small Street - not at all, you're welcome. I'm absolutely delighted that you found them useful. And thank you for all your excellent contributions - please keep them coming!

What proportion of your portfolio is cash?

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TEIN

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