Holding cash reserves in your portfolio during market downturns is important because it provides liquidity, safety, and opportunities to buy good assets at lower prices. Cash acts as a buffer against losses and helps you avoid selling investments at a loss during panic. It also gives you flexibility to invest when market prices fall sharply, improving your long-term returns.
Why should I keep cash in my portfolio during market drops?
Keeping cash during market drops gives you safety from further losses. It prevents forced selling of your investments at low prices due to lack of money. Cash also lets you quickly buy shares or assets at discounted prices to grow your wealth when markets recover.
How does cash reserve improve flexibility during downturns?
Cash reserves give you the freedom to act quickly without waiting for loans or selling other assets. You can invest in strong companies when their prices fall, which is hard if your money is tied up. This flexibility can lead to better returns over time as you buy at lower prices.
What percentage of my portfolio should be in cash?
Experts usually recommend keeping 5-20% of your portfolio in cash depending on your risk tolerance and market conditions. More conservative investors might hold higher cash during uncertain times. This balance helps maintain safety while allowing growth through investments.
Can cash reserves protect me from panic selling?
Yes, cash reserves help avoid panic selling because you don’t have to sell investments at a loss to meet urgent cash needs. This mental comfort reduces stress and helps you stick to your long-term plan even in volatile markets.
How do Indian investors use cash reserves during market crashes?
Indian investors often keep cash to take advantage of falling stock prices during market crashes. Many use this cash to buy quality shares at cheaper rates, which helps grow their wealth when the market recovers. This disciplined approach helps Indian investors reduce losses and build a stronger portfolio.
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