Buy the DIP? Learn how much cash to keep on hand! - YouTube

BUY THE DIP of course! But do you have the cash  on hand to actually buy the dip!? How much cash do  

you want in your reserves?? And how much of your  cash should be invested? It's a balancing act  

that every millennial investor goes through. I’m  Skyler James, welcome back. How to decide the  

balance between cash and investments is a very  personal question. My opinion? There are three  

things that need to be balanced. Survival. The  stock market. And real estate. This video is my  

strategy on balancing these three, with insight  from Wall Street bigwigs sprinkled throughout.  

There’s also a secret sauce to this balancing act,  see if you can figure out before the end.  

We hear it all the time from the pundits.  They tell us to keep some dry powder for  

when there is a sale on stocks. But  they also tell us that we should stay  

invested and NOT try to time the market. So let's look at these three factors and put each  

into perspective. Survival is first. Most  financial advisors tell people to have six months  

of emergency money ready to go at all times. This  could cushion the loss of a job or a sickness  

or an unexpected repair on your car or your house.  The bottom line is you probably shouldn't be  

investing in the market if you don't have  six months set aside for survival. Look,  

it's all about priorities and managing risk.  Don't get yourself in a position where you  

have to sell off assets at a lower premium  to cover emergency costs, or sell off assets  

that generate a taxable event because of  emergency costs. Have the cushion and be  

ready to pony up if a situation does come up. The second consideration is the stock market. If  

you're watching a finance Channel on YouTube, you  know that the market has not had a negative return  

over any 20 year period in the last 100 years.  Downturns are blips on the macro timeline. You  

saw in March of 2020 that even during a major  35% sell-off, the market can surprise you with  

its resilience. I was lucky enough to push more  money into my strongest conviction names during  

that time. How? Because I kept a rainy day fund.  I was buying ETFs and sectors that I knew would  

rebound quickly. Frankly hindsight is 20/20  and I wish I’d put in more. But at the time,  

I didn’t know if we were about the “retest  of the low.” It’s a chart phenomena that we  

often see during bear markets or corrections.  2008 2009 is an in your face example of a market  

retesting the lows, happened in 87 too. Ultimately there are two different situations  

in which you have cash on hand for the market.  The first is because you are already in the habit  

of dollar cost averaging. Every month you push  in a set amount that fits your budget. Let's  

say the 15th of every month is the day that  you purchase stocks or ETFs. But on the 13th,  

your favorite ETF drops 5%. Because you're  smart and you have cash on hand ready to go,  

you buy that ETF on the 13th on sale instead  of waiting till the 15th. That's one way  

of using the cash that you have on hand. The other way, the more drastic way, goes back  

to that covid crash. During a dramatic downturn,  the smartest people, the bigwigs on Wall Street,  

they have cash ready to go on those super  once-in-a-generation buying events. Not a  

little cash - MILLIONS. In hindsight wasn’t the  covid crash maybe a once-in-a-generation buying  

event? I mean, the S&P has doubled off of those  covid lows. The FASTEST doubling in history.  

So what are some changes going forward that  we can do to be ready for the next one? Well,  

In addition to having my 6-month emergency supply,  in addition to setting aside a certain amount each  

month to dollar cost average into my holdings,  I’m now keeping a rainy day fund equal to 10%  

of my total market investments. So if YOU were  to do this, and let's say that you had $50,000  

in stocks and ETFs. You would set aside 5 grand  and only deploy it during a 15% or more pull back.  

When you see the market fall 15%, you push in that  five grand in your rainy day fund. If you have 500  

thousand dollars in stocks, you push in 50 grand  during that big correction. A million? You set  

aside a hundred large. But be disciplined! In the interim, that money sits in a money  

market paying about 1-2% and the funds  are accessible with 24 hours notice.  

Now there is an argument to be made where  this cash could be allocated to a bond  

portfolio instead. That’s a deeper analysis,  but my short take on that, since we are at  

historically low interest rates, bond portfolio  allocations will struggle as interest rates rise.  

So parking the 10% there doesn’t give  me the capital protection I want.  

The hardest part of this strategy is convincing  yourself that you don’t have fomo! It's tough  

watching stocks go UP day after day, and instead  of investing, you hold cash that DEPRECIATES day  

after day. But that's what the bigwigs do.  Remember back in 2019 that Berkshire Hathaway  

had over a hundred billion in cash? And Buffett  said, I don't see anything that I want to buy.  

He’s not “buying just to buy:” he's waiting for  the right moment and that's what the pros do,  

that's what the bigwigs do, that's what the  super successful people do, and it's hard!  

Think back to those headlines from March of  2020, professionals telling us that it's a  

once-in-a-lifetime buying opportunity. If  you don't have that money set aside though,  

it becomes a once-in-a-lifetime regret. In fact a  report on world wealth from pre-covid found that  

28% of millionaires' assets had shifted  to cash. How much of your Investments  

are in cash? Probably not that much! I like to think of this like fishing. Using  

dollar cost averaging and staying invested  constantly, constantly expanding your portfolio,  

that's like fishing everyday and being well  fed. You're never going to go hungry.  

But these bigwigs who can stay disciplined and  hoard cash don't go fishing every day. They used  

to but they’re so well-off now they don't need  to anymore. But these bigwigs they’re waiting  

for the big one - not with a fishing rod,  not with a bucket of worms - but with a giant  

commercial fishing vessel, and giant nets, and  they scoop that multi-bagger. They don’t want  

a few grouper fish, they want that marlin. They’re looking for that mega buying opportunity  

and we should too. To do that,  we need enough cash on hand.  

Reset for a second. We talked about cash on hand  for emergencies. We talked about cash on hand for  

buying the stock market dip. The final leg is  Real Estate. Leg three is that many successful  

people have bought real estate during dramatic  downturns. I've done it myself. I know other  

people who have. Whether they're buying a property  as their primary home, or a vacation home,  

or buying income property, or hey maybe they’re  buying REITs instead of physical property - the  

key is having what other people don't during that  real estate fire-sale. And what other people don’t  

often have is cash. Liquidity. Good credit for  the situation at hand. And - here’s the secret  

sauce - the FORTITUDE to push into a market when  all the news surrounding the market is bad. Think  

back to 2008. Real Estate was just like March of  2020 was for stocks. If you were able to tune out  

all that noise and push your chips into the  center of the table, you ended up in a much  

better situation looking back than if you had sat  on the sideline and waited. I personally purchased  

4 houses for cash during that market crash. Are you catching the theme of this? Half of  

winning during a downturn is having cash on  hand, the doing the research and willing to  

take on the risk of moving against the broader  sentiment. It's that contrarian investment  

attitude. That willingness to go against  the grain because you trust your system,  

your analytics and you know that over  time asset appreciation will happen.  

Waiting until there's blood in the  streets - including your own - to buy,  

as Buffett tells us. It's being greedy when  others are fearful, another Buffettism. Savers,  

people who are just hoarding money, they're  losing. Decade-by-decade. They're losing in bonds,  

they're losing in cash, they're losing  in Money Market funds, and they're losing  

in gold and silver. Asset owners have been winning  for 25 years in this country. Nothing about that  

is going to change. I’m Skyler James, thanks  for watching, and I’ll see you on the next one!