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Showing posts from October, 2015

Cash to Stock Ratio

Markets seem to be stabilising.

I have been in stocks for quite some time. I always wonder how much cash (or bond) I should hold relative to stocks.

A few books like "Random Walk the Wall Street" may recommend 40% bonds to 60% stocks ratio or 50-50, and rebalance every year.

I believe that the 60-40 or 50-50 ratio should be for older people. When you are young, you have cashflows from income and should take higher risk. Hence, when I start investing in stocks, my cash to stock ratio was like 10% cash (including emergency cash) to 90% stock.

Bloggers, who have been in the market for sometime, advocate having a warchest i.e. cash on standby. Some prefer a large warchest, so that you can take advantage of stock crash. A few think otherwise; they prefer a smaller warchest, as having a large warchest means losing out on the potential dividends.

I am thinking that when you are young, your warchest should be small given that you have income flows from work. When you are older or re…