Is keeping extra cash on the side smarter than being fully invested?

General
1

I already have $50,000 in an emergency fund. I’m thinking about keeping an extra $50,000 in a high-yield savings account (HYSA), making it a total of $100,000 cash reserves.

The idea is to use this extra cash for things like market dips, real estate deals, or other opportunities. For example, if the market drops 10%, I could invest $10,000 and still have $90,000 cash left. If it drops 20%, I’d invest another $10,000, and so on, down to a 50% crash. Even after that, I’d still have my $50,000 emergency fund untouched.

Is this a good plan, or should I just stick with the $50,000 emergency fund and invest the rest right away?

2

The saying goes: time in the market is better than trying to time the market.

3

Harper said:
The saying goes: time in the market is better than trying to time the market.

Totally agree. I used to hold onto cash waiting for the ‘perfect time’ to invest. Missed a lot of gains back in 2020. Now I just stick to automatic monthly investments. Much less stressful and more effective.

4

@Skyler
Same here. I’ve got one last CD maturing in February, and then I’m putting it all in.

5

Depends on your job situation. If you’re in a field where layoffs are common, like tech, it might take over a year to find a new role. Having extra cash can be a lifesaver.

6

Using extra cash to ‘buy the dip’ doesn’t really work as a strategy. Studies show that market timing rarely beats consistent investing over the long run.

7

Uma said:
Using extra cash to ‘buy the dip’ doesn’t really work as a strategy. Studies show that market timing rarely beats consistent investing over the long run.

But even Warren Buffett is holding a ton of cash right now.

8

@Zane
Buffett’s situation is different. He runs a conglomerate and owns insurance companies. Regular people with jobs are better off staying fully invested. Holding out for a dip might mean missing out on big gains, and predicting the bottom is nearly impossible.

9

@Laurel
Exactly. If you’re running a business like real estate, keeping cash on hand makes sense. For stock market investing, not so much.

10

@Zane
Buffett also has to deal with deploying massive amounts of cash, which makes it harder to find good opportunities. Plus, he’s preparing for his eventual exit. It’s a completely different game than what most of us are playing.

11

@Spence
Yeah, for Buffett, holding T-bills is fine. Different scale entirely.

12

With interest rates where they are, holding cash isn’t a terrible idea. If rates drop, though, you might want to rethink it.

13

Luca said:
With interest rates where they are, holding cash isn’t a terrible idea. If rates drop, though, you might want to rethink it.

Yeah, I’m thinking about reducing my cash reserves in 6-8 months if rates go down.

14

@Jade
Same here. For now, I’m enjoying the 5% returns on my savings. Once rates drop, I’ll start shifting more into the market.

15

Ren said:
@Jade
Same here. For now, I’m enjoying the 5% returns on my savings. Once rates drop, I’ll start shifting more into the market.

Do you think savings rates will drop below 3% by June?

16

@Jade
They’re dropping fast. I wouldn’t be surprised if we hit 3% or lower by then. It’s tough to predict exactly, though.

17

Even in a major crash, the market typically recovers within a couple of years. Keeping an emergency fund is key to avoiding selling at the bottom.

18

If you’ve been waiting for a 50% drop, you’ve likely missed out on massive gains over the past decade. Trying to time the market rarely works out.

19

Always stay fully invested. Cash just drags down your returns.

20

Val said:
Always stay fully invested. Cash just drags down your returns.

Unless the market is dragging everything down. Even Buffett agrees cash can be useful.