Most Investors’ Level of Cash Determined by Living Expenses Needed or Market Volatility Expected

Last month’s Asset Allocation Survey special question asked AAII members which factors primarily determine how much cash they maintain. Slightly more than a third of all respondents (34%) say that short-term living expenses are the primary factor when determining how much cash they want to hold. Nearly 30% of respondents describe market volatility as their primary influencer. Personal age is named as the primary factor for 10% of respondents. Additionally, about 8% of respondents say that they hold enough cash to take advantage of any potential investment opportunities. Finally, 5% of members say that interest rates are the biggest influence on their cash allocation strategy.

Here is a sampling of the responses:

• “At age 75, my primary consideration is to allocate enough cash for 10 years of retirement withdrawals, so I don’t need to sell anything in a down market.”
• “I keep enough in cash to cover at least two years of expenses not covered by pensions, social security or dividends. I also try to keep some cash available for periodic new investments.”
• “Hold enough cash to make it through a year, with unexpected needs figured in.”
• “Cash needs for the next two to three years plus judgment as to the current valuation of stocks. If stocks are overvalued, then I increase my cash allocation.”
• “Depends on pending or future home projects.”

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