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Cash Cushion

Cash Cushion

| May 03, 2021

To invest in stocks successfully, you need a long time horizon. Whether stocks rise or fall over short periods of time has little to do with a company's fundamental business strength. If you invest with an idea of taking money out next month or even next year, you're mostly just gambling that short-term market movements will be in your favor.

Setting cash aside does two things for investors. First, it gives you a source of cash without having to sell stocks at a potentially bad time. Second, if a big investing opportunity arises, having cash lets you buy stocks at the perfect moment.

The size of your cash cushion depends on your needs. Younger investors should strive to have three to six months' worth of expenses set aside for financial emergencies. For retirees, having cash to cover several years of spending takes away all of the risk of having to sell in a down market.

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.