That’s why I’m building cash in my portfolio despite being nowhere close to retirement

Many of my friends started saving for retirement in their 30s or 40s, as soon as they were able to save for a down payment, get rid of their student loans, and get through day care.

I didn’t start saving for retirement when I graduated from college. I also had student debt and other expenses monopolizing my limited income.

But I started saving for retirement in my 20s. First, I enrolled in my old employer’s 401(k) plan. When I became self-employed, I rolled that balance into an IRA and continued to contribute. I eventually switched to a solo 401(k) because of the higher contribution limits these accounts offer.

Also, I’ve been saving for retirement in a tax-free account for years. The reason is that retirement plans like IRAs and 401(k)s impose a 10% early withdrawal penalty on distributions before age 59 1/2.

I don’t know when I’ll retire, and a big part of me doesn’t like the idea of ​​stopping work altogether. But with a taxable brokerage account, I have more options.

A big part of my retirement savings strategy involves putting money into stocks. I have stocks in individual companies as well as various ETFs.

But I also have enough cash in my portfolio despite still being decades away from traditional retirement age. And while some people may tell me I’m selling my returns short, I disagree.

There are two reasons I keep a lot of cash in my long-term portfolio. And before I go any further, I want to make it clear that the money I’m talking about is not my emergency fund. This is separate money to cover a short-term crisis or unemployment situation.

That being said, the number one reason I keep money is because it helps me sleep at night. The goal of investing is to improve our lives. When you invest for retirement, the goal is to help ensure that you can meet future expenses without stress. Ultimately, this is a quality of life issue.

Having cash gives me peace of mind as an investor, and that’s reason enough to keep doing it. Also, having cash helps me feel better about keeping a large portion of my money in the stock market, regardless of the risk. So it’s fair to say that cash contributes to my overall strategy.

The second reason I like to have cash is that it can be a buying opportunity. The stock market will crash at some point – it’s just a matter of when.

Let’s hope for a quick recovery. However, when stocks go down, I like to take advantage and buy stocks at a discount. I need money for this.

I don’t want to be in a situation where I have to sell other stocks at a loss to make way for quality stocks at a discount. So I always try to keep some cash in my wallet.

Some people might look at the amount of cash I have in my portfolio and say it’s too much. I think because I still have most of my portfolio invested in the stock market, it’s not too much.

But you know what? It’s my money so I’m doing what’s best for me. You should also do what is best for you. If that means you have enough money, so be it. As long as you invest a significant amount of money in the stock market, you may find that having a little cash can help you achieve a good balance.

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Here’s Why I’m Hoarding Cash in My Portfolio Despite Being Nowhere Close to Retirement Originally Posted by The Motley Fool