To The Moon

Another common investing conundrum that I encounter as an investor is the classical Cash or Asset? In a potential inflationary environment, you might hear articles shouting, "cash is useless! Buy stock, property and assets!". On the flip side, there's the age old saying that "cash is king!" Here are some my thoughts.

Cash is Useless. Buy assets.

The argument for this is that in an inflationaryenvironment, cash is useless. Can your bank give you an interest rate that exceeds 2.2~8% inflation? Highly unlikely. Your bank will likely bust doing that and even if it does give super high inflation rates, like in Zimbabwe, that would mean that inflation has set in big time.

The other argument against cash is that your purchasing power gets dramatically reduced. How much has the hawker increased his or her price? My hawker went up from $4 to $4.50 and that's a whopping 12.5%. Automatically my cash becomes more worthless.

Finally, can your company that you work with or own, give you an increment that exceeds inflation? I surely haven't seen that when inflation hits. Then it means I am working harder for lesser cash. Ridiculous isn't it?

Cash is King

The counter argument is equally compelling attimes. When inflation sets in, asset prices can plunge and multiples shrink. Who would want to invest when all you think about is your next meal right? Why would you spend more cash on luxuaries or assets that drop further in value? Think about all the red numbers recently.

Another point is that you cannot buy food withassets. Try going to the nearest hawker to buyfood with stock, property or crypto. It just isn'tpossible. Cash is still the widely accepted means of transaction.

Finally, there is the risk of assets and the opportunity cost associated with a lack of cash. I once had a customer that suffered a massive heart attack and passed on during the Lehman brothers crisis where he saw his >90% stock portfolio plunge before his eyes. Can you take that? Also, when there's a lack of cash, youmight miss out on potential opportunities to buy when there's a growth or value stock on a massive discount.

So how?

There is no ideal solution. My suggestion would be to reflect on your own unique situation. Here are some tips that you can consider.

Firstly, have an adequate buffer for your necessities. Financial advisors recommend 6 months of your salary in cash stored and untouched. Make sure should the worst happen, you can ride out the wave.

Secondly, size up your nett worth and find outhow much liquid assets that you can have at the snap of your fingers. Property doesn't count since you won't be selling it and getting cashin a day.

If your liquid assets cannot meet the 6 month criteria, my recommendation would be to stock up on your cash. Personally, I prefer 1 yearsworth of expenses locked up in cash.

If you can meet that, find out what percent investable are you comfortable with. E.g. 20% assets, 80% cash; 50:50 asset cash ratio; 80:20 asset cash ratio. Imagine if that 50~80% crash happens, can you still sleep?

Another method that I encountered, is to keepa fixed large amount aside. The example that Iread was $100,000, while the rest of the cash was fully invested in multiple assets. This is only possible if you are there.

Finally, the more sophisticated you are as an investor, with more experience wisdom and courage, the more you can place in assets and less in cash.

My personal thoughts is to aim for a 50:50 ~ 30:70 allocation into assets:cash now. What about you?

Share with me your thoughts as I would like tolearn from you. Thanks 

@TigerStars