How much Cash do you need in your Portfolio?
Is it a good idea to hold cash right now or not? Ray Dalio says that cash is trash. Warren Buffett $BRK.B is holding $145 billion in cash and cash equivalents. JPMorgan Chase $JPM CEO Jamie Dimon says that he's holding cash so that he can buy when there is a crash. How much cash do you need to hold?
The use of cash in an investment portfolio is to provide liquidity to buy other things. That's why gold $GOLD or even Bitcoin $BTC cannot be called cash (Even though they are by many people) since they are used as investments (or speculation) rather than for transactions. Cash equivalents are everything that can be converted into cash in less than 3 months, for example, short-term government bonds.
Ray Dalio is right to say that Cash is Trash. With inflation and low-interest rates, you're going to lose money holding cash. For a macroinvestor like Ray Dalio, holding cash is a bad idea.
Then why I'm holding cash? I had a large cash inflow in my portfolio after taking a 3300% profit on GameStop $GME earlier this year. I'm not going to rush to buy stocks even if they are expensive just for the sake of not holding cash. It is better to be in cash than to be in a bad deal. But I still bought shares of the companies I already owned so that new copiers could have enough exposure to them. On my second portfolio, there's no cash at all. So how much cash you hold really depends on you.
Your cashflow is also important to figure out how much cash you need to hold. If you have a large cash flow, too much cash may not be important. Your age, investment objectives, your risk tolerance,.. are other important factors to consider.