At the risk of appearing to ride the popularity of Jordan Peterson’s book, 12 Rules for Life: An Antidote to Chaos, I am a huge fan and have been positively affected by Dr. Peterson’s YouTube lectures and online courses. But more importantly, I am reminded how knowing the fundamentals of investing parallel Dr. Peterson’s world view of calming ourselves in a chaotic world with a set of operating instructions.
Although I’m not a CFP and don’t have a Series 65 license (yet!), I feel like I would be telling my clients to stay the course during chaotic times in an up-and-down market. The market was up over 200 in the past few weeks!
Maintaining Cash
Regardless of whether you’ve been dollar cost averaging, I think most analysts still recommend having a cash cushion. We’re back to the emergency fund!
Apart from an emergency fund, another reason for having some extra cash on hand is to be able to take advantage of the dip. Did you keep investing during the October 2020 pre-election dip? This not only includes buying low in your Roth IRA during a dip, but it could mean being able to buy other assets at low prices.
When others are fearful, they may part ways with prized possession for lower prices. If you have extra cash on hand, you could be ready for bargains like this.
Other Considerations
Unfortunately, in the past 12-13 months, many people lost their jobs. Those with an emergency fund (i.e., extra cash) probably weathered the pandemic shutdown a little better. Economic Impact Payments (EIP) may have helped, but Uncle Sam doesn’t always operate at the speed of business.
Some people I know didn’t receive the first round EIP until July or August! Without a strong cash position, they may have had to charge up a credit card.
The world seems to be coming back together after the pandemic. Why not consider planning for the next calamity in our chaotic world with some extra cash? Emergencies are more of a nuisance when you have an emergency fund. And who knows? You might also be in a position to take advantage of other purchase opportunities.
As Always…
Thanks for reading! I hope this information provides food for thought. Remember that I am not a certified financial planner, a certified public accountant, a licensed real estate agent, etc. My content is for educational purposes. I am a math educator who happens to have a finance degree. Like they say, never take financial advice from a math teacher! (Do they really say that?)
But you should spend less than you earn, invest the difference, and stay out of debt!
I would so appreciate your sharing my content with anyone you feel could benefit. And if you would like a free exploratory conversation or just want to shoot the breeze about personal finances, call me and leave a message or send a text to 570-731-0425.