A portfolio is a categorization of financial assets like stocks, bonds and cash equals, along with their mutual fund, exchange-traded fund, and closed-fund equivalents.
Portfolios are either held by investors or managed by financial experts. Investors must create an investment portfolio as per their risk tolerance and investment goals.
Often, investors are not prepared when a correction happens in the market. They make their entry into the market when the market is doing well and then become vulnerable when the market is not doing well.
They conclude that a correction means that something is not right and that stocks should be avoided. That is a wrong approach towards the market. Corrections always follow a big run, and they must be expected, but an investor cannot write off the market when they occur.
Many investors believe they are supposed to be completely invested at all times. In fact, there are several money managers who think they are supposed to have invested all their money. This is absolutely the wrong strategy from a stock market investment perspective.
According to Jim Cramer (former hedge fund manager), “”Cash is the perfect hedge in an environment when the market hits dangerous highs and could protect from devastating losses.”
Having cash on hand during a market correction is crucial to safeguard a portfolio. At times, the market would not perform well and there is nothing to do, but hold the cash. Money managers with sufficient amount of cash tend to perform well in the business.
Some experts consider cash to be an extremely underrated investment. It would be prudent to increase the cash supply whenever the market rises.
Investors must sell on strength and buy on weakness. Otherwise, they could end up selling their best stocks in order to hold their worst stocks because the best stocks stopped increasing.
Investors must understand that there are many reasons for the stock market to fall. Therefore, they must be prepared for a correction.
Having sufficient amount of cash would possibly mean the difference between good and bad stocks in an investor’s portfolio. Again, maintaining a robust portfolio that would make sure it would be able to recover from a correction.
Hence, it would be appropriate to have cash to fund, instead of selling high-quality stocks to beat the competition in the market.
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