The effects of having more cash on hand

For a very long time: the cash in my bank account did not go beyond 15% of my net worth.

From another angle, as I get older (and worked more years), although my salary and savings did increase, the absolute amount of savings did not rise much in my bank account. I never have much liquid cash.

Even in my wallet, I seldom have more than $100 bucks in cash (the amount was more recently, as I need to use cash for cab fares for work-related travel). I try to use cash to pay for things and would try to limit (and take note of) the amount I withdraw from the ATM each time.

Typically, I would invest most of the money shortly after receiving my monthly salary. I always felt that money left in the bank would lose its value over time due to inflation – hence the need to invest. I seldom give myself the ‘chance’ to spend the money I earned.

So in a way, I never felt rich (and I am still not rich)… my net worth is always fluctuating (due mainly to my stock holdings).

However, recently I have divested some of my shares (most are delisted) eg. converted from shares to cash (savings in the bank).

In percentage wise, currently, the liquid cash (savings in the bank) I have, stands at around 31% of my overall net worth (excluding the value of the property I am staying in).

However most importantly, in absolute amount, it is literally the largest sum I have in my bank account so far. Cash which I know, would not ‘fluctuate’ much, unlike the value of my stock portfolio.

I remember when I first started working, to me – $10K is a large sum of money. Once when I queued up behind a guy at the ATM machine and when it was my turn at the machine, I noticed that he has forgotten to take the receipt. I saw that he has more than $10K in his saving account – and I was like, “Wow….I wonder when I can have $10K in my bank account”. Well, back then I was a fresh graduate with a student loan.

 

I think having more cash on ‘hand’ have certain ‘psychological effects’ on me.

 

1) Firstly, I do not worry that much about my stock portfolio. Yes, I still have a significant amount tied up in shares, but in percentage wise, it is manageable and much lesser than I normally have.

I tend not to worry too much about a market correction or crash. And I see it as an opportunity. Bad news could be good news to me :p.

I do plan to purchase big when opportunities come knocking. The only downside is.. it can get really boring waiting (for the right price).

Nevertheless, I do intend to sell more shares in the near future to pump up my cash holdings.

 

2) I think there is always a certain amount of stress holding stocks. It is never really ever that ‘passive’ mentally.

You worry about the company fundamentals, their prospects, the management competency, new rivals / competitors, disruptions in the industry, erosion of their economic moats, cutting of their dividends, reduction in ROE / ROIC / ROA, deterioration of the balance sheets, private placement or shares (dilution), if management is overpaying themselves (or overpaying for share buybacks), etc….

That is partly why I read the news.

Now the stress level is lowered. It is not gone totally though.

 

3) I still look for stocks to buy and read news about other companies. However, I am in no hurry to buy. There is no urgency so to speak. I can slowly put these company names in a list (together with my target price)… and wait…

I guess the other reason could be because the market valuations (in the US) are still high.

All of sudden, I can ‘afford’ to wait. 

 

4) I am more easy with my money (not necessarily a good thing).

I do indulge in the occasional tea or cafe latte, and spend a bit more on my lunch. I do not consider too much when I spend for my family needs. I do enjoy buying things that my kids need.

However, overall I am still pretty much tight fist about my spending (but less so). Yeah, still cheap stake. And with the tax season around the corner, I am still apprehensive about the amount of tax payable… haiz…

I think mentally it is worse when I have more in stocks and only like less than 5% in cash…. and my stock portfolio value kept dropping. During that time, I would try all means to cut down on my expenses — esp. pertaining to my meals.

Put it in another way, to spend $50 is a big deal when you only have $100 in your bank account. But proportionally, it is not that much a big deal, if the amount in the bank account is $100,000.

‘$3.17 is a bacon, egg and cheese biscuit. The market’s down this morning, so I think I’ll pass up the $3.17 and go for the $2.95.’ Warren Buffett

 

5) I spend more time with my family, watching shows (and more youtube video clips), tidy and clean the house, trying my hand on some online ventures (still not successful)…. or just sleeping more :p

6) I start to wonder if bank representatives will call me and try to sell me some unit trusts or investment linked products….

In the past, when the cash value in my bank account crosses a certain threshold, the bank representatives will occasionally call up and ask me to sign up for some of their investment products…..

Thankfully, I have signed up for the “Do not call registry“… I guess it helps.