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Why are people still holding cash?
Old 06-05-2005, 12:52 PM   #1
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Why are people still holding cash?

Besides having enough cash for 6 months living, are there any other reasons to hold cash? Is it the worry of an imminent bear market? Is it to wait for the opportunity to buy when stocks become cheap? Is it for a major purchase on the horizon?
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Re: Why are people still holding cash?
Old 06-05-2005, 01:04 PM   #2
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Re: Why are people still holding cash?

Quote:
Originally Posted by Spanky
Besides having enough cash for 6 months living, are there any other reasons to hold cash? Is it the worry of an imminent* bear market? Is it to wait for the opportunity to buy when stocks become cheap? Is it for a major purchase on the horizon?
Well, it's quite possible that I don't know what I am doing, but I think we will see a major bear in the next 2 - 5 years. I do have some IRA money in a MM and I am using new money to pay off the mortgage. I have all my 401k in short term securities. I also have some old money in stocks and the Total Stock Market Index fund in a taxable account. A lot of my money is not in the stock market at this point.

I am not sure what I will do with the new money once my mortgage is paid off. I just don't see any good place to park the money right now. It feels like there is too much money chasing too few places to park it.

I think we will see a decrease in consumer spending when people stop pulling money out of the equity in their homes. I think that will happen when the mortgage rates go up.

The worse case for me is that I miss some percentage gains in the market if I'm wrong. I can afford to do that. Time will tell I guess.

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Re: Why are people still holding cash?
Old 06-05-2005, 01:42 PM   #3
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Re: Why are people still holding cash?

Having made enough to retire prior to the last bear market, and keeping it through the last bear market (if it is over) makes me cautious enough to not to risk it right now.* *The upside risk is missed opportunity, the downside risk is being forced out of retirement.* *You can guess which way the scale tips for me.* I'm hoping that I can recognize a better opportunity, when it presents itself, than the current environment.* Maybe I'm too cautious, but the majority of my cow-orkers weren't and they now have 201K's.* They may end up catching up, (and they deserve to . . . after all they still are punching the timeclock),* but so far most of their catching up has been through contributions and lots of them even fail to recognize that.* *

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Re: Why are people still holding cash?
Old 06-05-2005, 02:06 PM   #4
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Re: Why are people still holding cash?

Same reason why warren buffett is holding a lot of cash.

Cant find anything I want to buy thats a reasonable price. That leaves you either paying an unreasonable price for an asset or keepting the cash until you see something reasonable to buy. Warren does the latter. So do I.
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Re: Why are people still holding cash?
Old 06-05-2005, 02:10 PM   #5
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Re: Why are people still holding cash?

Quote:
Originally Posted by Spanky
Besides having enough cash for 6 months living, are there any other reasons to hold cash? Is it the worry of an imminent* bear market? Is it to wait for the opportunity to buy when stocks become cheap? Is it for a major purchase on the horizon?
Holding cash can be pretty painful if you are hoarding it in a 2-3% savings account or similar.* Remember the other "sort of cash" vehicles you can use.* Short term bond fund, a conservative high yield fund (like Vanguards) or something a bit more exciting like Fidelity capital and income.* For ultra safe a nice pile of I savings bonds are decent as well.

As far as why hold cash,,,you mentioned some pretty good ones in your post, except, I see no signs of a major bear market any time soon.* A good size dip may be on the way soon, but it is not the start of anything serious on the downside.* Just my 2 cents.
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Re: Why are people still holding cash?
Old 06-05-2005, 03:33 PM   #6
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Re: Why are people still holding cash?

FWIW, I have extraordinarily little cash. My paycheck contributions are going mostly into various equity funds with a small portion into bond funds. I struggle between set-it-and-forget-it and listening to some of the people around here. So far passive ignorant investing is winning.

However I don't have any cash cushion at all at the moment and I'm hoping to move out of state soon, so I cut back my 401(k) contributions and may put $5k -$10k from my IRA in a MM fund in case I have to tap it if I start the move and something happens with the new job. I have under $100k in my accounts so this is not a trivial amount for me.

Then again I don't expect to retire for 20 years unless I'm lucky so I can ride a bear for quite a long time and keep feeding it a portion of my income. At this point I'd rather do that than to forecast the future even if everything is overvalued by most measures.
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Re: Why are people still holding cash?
Old 06-05-2005, 04:17 PM   #7
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Re: Why are people still holding cash?

riskaverse,
your typo (cow-orkers) caused me to laugh so hard I blew milk out my nose and I wasn't even drinking milk at the time. Thanks for that!
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Re: Why are people still holding cash?
Old 06-05-2005, 04:24 PM   #8
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Re: Why are people still holding cash?

Freudian slip brought on by recent topic?
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Re: Why are people still holding cash?
Old 06-05-2005, 07:29 PM   #9
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Re: Why are people still holding cash?

It wasn't a typo -- I wish I could say it was original though. I used to read a system programmer's usenet group where it was the standard reference to our fellow employees. I still get a chuckle reading the word coworker in anybody's post, but I do put the hyphen in to help spread my amusement.
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Re: Why are people still holding cash?
Old 06-05-2005, 07:51 PM   #10
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Re: Why are people still holding cash?

Risk,
thanks. I just couldn't get a mental image of "orking" a cow! Still makes me chuckle.

I just retired and although I had one of the 6 offices, I could see hundreds of workers sitting in cubicles. So happy to be free.
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Re: Why are people still holding cash?
Old 06-05-2005, 07:59 PM   #11
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Re: Why are people still holding cash?

Risk,
thanks. I just couldn't get a mental image of "orking" a cow!

Could that be how we get our fat-free milk?
Any dairy farmers on the net?
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Re: Why are people still holding cash?
Old 06-06-2005, 08:42 AM   #12
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Re: Why are people still holding cash?

Thanks for all the responses. It appears that the main motivation of holding cash is there is nothing cheap to buy.
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Re: Why are people still holding cash?
Old 06-06-2005, 10:14 AM   #13
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Re: Why are people still holding cash?

Quote:
Originally Posted by Spanky
Thanks for all the responses. It appears that the main motivation of holding cash is there is nothing cheap to buy.
To paraphrase from 'The Graduate', one word......."Realestate"

JG
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Re: Why are people still holding cash?
Old 06-06-2005, 10:16 AM   #14
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Re: Why are people still holding cash?

I thought it was, "plastics!".
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Re: Why are people still holding cash?
Old 06-06-2005, 10:28 AM   #15
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Re: Why are people still holding cash?

Quote:
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I thought it was, "plastics!".
Yep, well I changed it. Poetic license

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Re: Why are people still holding cash?
Old 06-06-2005, 11:35 AM   #16
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Re: Why are people still holding cash?

Quote:
Originally Posted by OldAgePensioner
riskaverse,
your typo (cow-orkers) caused me to laugh so hard I blew milk out my nose and I wasn't even drinking milk at the time. Thanks for that!
Theres that spontaneous milk out the nose thing again...
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Re: Why are people still holding cash?
Old 06-06-2005, 12:14 PM   #17
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Re: Why are people still holding cash?

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Originally Posted by th
Theres that spontaneous milk out the nose thing again...
God, I really hope it was milk.* All that talk of cows reminds me of the bull semen thread and is making me think really sick thoughts.* Can we talk about SWR again?* Nah, got the same pukey feeling.* How about baseball, ya baseball!!!
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Re: Why are people still holding cash?
Old 06-06-2005, 12:16 PM   #18
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Re: Why are people still holding cash?

Aw jeez, I feel sick now, what a visual! :P
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Re: Why are people still holding cash?
Old 06-06-2005, 01:18 PM   #19
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Re: Why are people still holding cash?

The common wisdom that one needs to hold 6 months of living expenses in cash does not make sense for some people. We paid cash for our present home (let's not reopen that discussion) so we have a whole lot of equity there. Rather than tie up 6 months worth of cash in a low paying savings account or MM fund, I set up a no-cost home equity line of credit (HELOC). It's there to be drawn down if the stock market takes a plunge and I don't want to sell shares at reduced prices to fund living expenses. The only cash I hold is what would be needed to make the payments on the HELOC draw necessary to cover 6 months of living expenses. This lets me invest a larger amount for growth. Opinions?

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Re: Why are people still holding cash?
Old 06-06-2005, 01:42 PM   #20
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Re: Why are people still holding cash?

As with any rule of thumb, the six month rule is a good starting point. But as you get more sophisticated, options open up. You have a pile of money in the house, that's your six months savings. Obviously there is a small increase in risk with your scenario, but you are sophisticated enough to comprehend and adjust for it. Seems like a no brainer to me. I have one set up, too.
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