Large Cash Positions

     Predict the economy's next move. 

     That is difficult.  The economy is unpredictable. Diversification is the safety net.

     Currently, March 2016, the economy is very volatile.  It is smart to keep a strong cash position.

     Cash position- 
     A cash position is the amount of cash that a company, investment fund, or bank has on its books at a specific point in time. The cash position is a sign of financial strength and liquidity. In addition to cash itself, it will often take into consideration highly liquid assets such as certificates of deposit, short-term government debt, and other cash equivalents. (http://www.investopedia.com/terms/c/cash_position.asp)

     The beginning of 2016 has marked 21 times that the Dow gained or lost 200,or more, points through March 1 compared to only nine in 2015. That has prompted investors to maintain large cash positions. A large cash reserve, in our early 2016 economy is found to be a reassuring cushion. The stock market has remained volatile up to this point in the year.

     In 2015, "The total cash held by high net households, or those who have $1 million or more investable assets in North America is cited as $3.8 trillion (Capgemini and RBC Wealth Management)."

     "Out of that total, $3 trillion to 3.5 trillion of those assets are estimated to be in the U.S. (Gary Zimmerman, CEO of MaxMyInterest)."

     All portions of the economy aren't tracked. When we are nervous about the economy, we attempt to find a detour from the current financial route. Consumer  checkings, savings accounts, and CDs are not tracked.

     It is a smart investment move, for the low income and high income sectors, to acquire large sums of their assets in cash.

     The trend is aiming towards nesting against market volatility while others want to have cash available to invest. Investors feel more comfortable holding cash, particularly if they have a near-term need for funds to apply towards an upcoming purchase, capital calls on private equity funds, or tax bills.

     The Millenial generation eyewitnessed the Great Recession, and they're wary. The Great Recession lasted from December 2007 to June 2009.  The 8 trillion dollar housing bubble loss of wealth led to sharp cutbacks in consumer spending. Now, investors are investing large portions of their funds in fixed income investments and cash, rather than stocks.  Investors who entered the market during the trough in March 2009 would have tripled their return by the end of 2015.

     "If we recognized the opportunity that the recessionary price drop created, we could have exploited other people's folly. Instead of losing money by selling, we could have bought Johnson & Johnson and increased our long-term total return on our new purchase to just short of 14% per annum (SeekingAlpha, 6/10/15, Chuck Carnevale)"

     Some investors have sought a more conservative approach.  The cause of this approach is the result of potential interest rate hikes, weak economic growth, and an upcoming presidential vote.

     "One of the most important things you can do to help manage the risk of volatile markets is to diversify. While it won't guarantee you won't have losses, it can help limit them. It was put to the test during the extreme market volatility in 2008 (https://www.fidelity.com/viewpoints/investing-ideas/strategies-for-volatile-markets)."

     There isn't a perfect point in time to make the switch towards this prudent cash holding strategy. Investors often tend to mistakenly calculate cash deployment positions and negatively impact their long term goals.

     The alternatives to a large cash position are other assets such as fixed income or stocks. These alternatives may generate greater returns.

     In general, keep 2% to 4% of investment funds in cash, in order to take advantage of opportunities as they appear.  Be prepared for market rebounds. Moving away from short-term volatility means investors decrease their chances of selling stocks at the wrong time.  You could go into short/intermediate bond funds, or low-volatility growing dividend stock funds.  Volatility,  is minimized, but there is some room for growth.

     Investors are keeping large sums of money in cash positions.  This is a smart plan to deal with the economy.