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When to save cash and when to invest in ASX shares

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Investors are wary of putting their money in the market right now with the S&P/ASX 200 Index (ASX: XJO) down 12.2% in 2020. ASX shares have been volatile and we’ve seen the emergence of a ‘two-speed’ market.

Some shares like Xero Limited (ASX: XRO) or Pointsbet Holdings Ltd (ASX: PBH) have been flying. Others, in sectors like travel and hospitality, have been under extreme pressure.

That means it can be a scary time to invest with so many mixed signals. Here’s a couple of things I try to remember when deciding if its time to save or time to invest in ASX shares.

When to save and when to invest in ASX shares

My view is that market timing is not a great strategy. Market timing is when you wait outside of the market and try to ‘time’ the bottom of the market.

If you’d done this successfully, you probably went all-in during the March bear market. However, the reality is that not that many investors would have done this.

Because the only thing scarier than investing in a volatile market like right now is investing when the market is in freefall like in March.

However, it doesn’t have to always be so black and white. Investing strategies are ultimately very individual and depend on many, many factors.

I usually just try and buy high-quality ASX shares whenever I have the opportunity. If you’re believing in the long-term story then what happens today or tomorrow doesn’t really matter all that much.

Sitting on cash for years and years is probably not an ideal strategy. Interest rates are extremely low and it may just get eaten away by inflation.

But for the more conservative or opportunistic types, it could be worth having a small stash of cash ready to go. That means I could still invest regularly in top ASX shares but be ready to pounce on any tactical buying opportunities.

Foolish takeaway

Investing strategies come down to the individual. Market timing rarely, if ever, works but I think having some spare cash to buy cheap ASX shares could provide some peace of mind in the short-term.

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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 Pointsbet Holdings Ltd and Xero. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. 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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