It’s tempting to just hold cash when there’s market volatility rather than buying ASX shares.
So, should we all really be holding cash and waiting for the market to fall further?
Time to buy ASX shares or hold more cash?
Let’s start with the good things about holding cash.
For one, it’s safer. Cash is about as safe an investment as they come which can be good if you’re nervous about the share market.
Another benefit of cash is that it provides a buffer while times are tough. Many Aussies are facing the prospect of low or no wages in the short-term which means cash may be king right now.
There’s also the chance to stockpile cash and buy ASX shares cheaply. Most of the big market crashes in recent years have taken 12-18 months to actually reach rock bottom.
Despite falling lower in February and March, the ASX 200 has rebounded strongly. This could mean there are further falls to come as economic data and corporate earnings deteriorate.
However, holding cash isn’t necessarily the ‘safe bet’ you might think.
Firstly, there’s the opportunity cost. If you sit on the sidelines, you might miss out on potential gains.
That’s been obvious from the recent ASX share market rebound. If you sold your holdings in mid-March, you might have had to buy back in at a higher price rather than just riding the wave.
Secondly, there’s plenty going on to support the share market right now. This includes the central banks lowering interest rates as well as continued government stimulus packages pumping money into the economy.
If ASX shares don’t crash as you expect, you could miss out on potential gains. Even if they do crash, you might still have been better off buying and holding for the long-term.
It’s easy to become spooked and consider holding more cash when ASX share prices are volatile .
While cash isn’t itself a bad thing and can be good to have a safety buffer, it may not be wise to go all-in.
It’s important to remember your long-term time horizon and not panic-sell at the first sign of ASX share price falls.
If you’re really that worried about your short-term gains or losses, maybe you’re not ready to invest in shares.
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Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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