The Problem with Being Overly Conservative or Aggressive with Cash

Opportunities walk past you each and every day, whether you like it or not. You are unable to take advantage of most them never mind every one that passes along your way. However, there are some which you should really aim to capitalize on if you’re able to do so. If you can practice patient investing and determine an opportune time to seize opportunities amidst market turmoil you need to be ready to strike. Investing with determination can help you achieve this level of patience and can make you an adept market participant and investor. When opportunities arise, it pays to deploy capital at those opportune times. This is a great way to set yourself up for future success but it’s more often than not, easier said than done.

Cash-Rich but Too Risk Averse

Many consumers are either too risk-averse or too quick to deploy capital for their own good. Those in the middle are commonly described as patient investors but everyone has their faults and weaknesses as well, even patient investors. It can really hurt to be too cash-rich and too risk averse since you will miss out on opportunities that others wish they could have and you’ll also lose out on purchasing power to inflation as time passes. Consumers that miss out on opportunities are much more likely to make more emotional decisions and could potentially make bad investments later down the line. This is relevant for all markets, whether that be real estate markets, equity markets, etc. Be considerate of your own limitations as an investor and your own strengths and weaknesses. Each consumer has their own strengths and weaknesses and if you cater to your strengths you’ll be better off in the long term for it.

Corrections are Rare

The stock market is in a bull market 90% of the time. However, the times it’s not can have a detrimental effect on your stock market returns and cause a great deal of fear for many seasoned investors. Being overly aggressive can lead to financial woes. Something everyone wants to avoid. However, those times of correction often provide a tremendous opportunity to investors with cash at hand for those that are able to seize the opportunity.

The Problem with Being an Overly Aggressive Investor

One of the main issues associated with being an overly aggressive and impatient investor is that you’ll have a high likelihood of remaining cash-poor and missing big buy the dip opportunities that come your way. If you invest all your money as soon as you get it you’re very likely to miss future opportunities. However, on the plus side you’ll along for the ride during the 90% upside moves.

Buy the Fear

In times of panic and mania you want to buy the fear and sell the greed. Those who can successfully do so are great investors in the long term. Capitulation is often times hard to define at times of market turbulence but if you can catch you it’s like catching lightning in a bottle and can help set you up for future success.

Dollar Cost Averaging

Those consumers who practice dollar cost averaging might not have to worry too much about buying the fear if they have investing on autopilot. However, these two strategies are not mutually exclusive with one another and just because you dollar cost average doesn’t mean you can’t buy the big dips or buy during market turmoil.

Golden Medium

On the one hand you don’t always want to be overly conservative with cash when opportunities do arise for you to make investments. There’s a golden medium and although it’s hard to achieve, it is possible when consumers practice patient investing. For those who are able to practice patient investing and do have the willpower to remain constant in their investment thesis and in their patience, they can achieve this golden medium. It’s easier said than done but something that all investors and consumers should strive to achieve.