Cash Is King During Pullback

One thing I've come to regret during this pullback is not having enough cash on hand to buy.
Stocks went on sale, and my wallet was thin.
This was the first time I've experienced that.
I started buying stocks in 2008, and I waded in slowly through the next year as I researched and found companies I wanted to own.
Every time I funded my account, I already had something I wanted to buy.
With a bull market running through the next two years, I never saw the need to keep a lot of cash in my account. It seemed to always be better off invested.
Now, I'm paying the price.

I managed to sneak a question about cash reserves to the Motley Fool staff during one of the website's live chats this week.
MF writer Morgan Housel said he had the same dilemma when the market crashed in 2008. Stocks were cheap, and he didn't have enough money on hand to do much buying.
Since then, he's shot to build up a cash reserve he can employ when plunges happen.
He said he tries to keep somewhere in the area of 15 % of his overall portfolio in cash for times like these.

When I looked back at what I'd had on hand when the big hits started coming this summer, it was just shy of 5 %.
That went quickly. Too quick. Now, I'm like a kid at a candy counter with no change in his pockets. I've dug down, and pulled out lint and white pocket liners.
Sure, I can scare up a little more by pilfering my savings account. But I don't like to take much out of there. And frankly, it's a bad habit to run your savings too low in order to fund investments that can lose money this quickly.

Where did I go wrong on this one?
My big problem is that I'm always like a kid in the candy store with stocks. Give me a $1 and I'll buy a Mounds and an Almond Joy.
Give me two, and I'll buy both and a buck's worth of Swedish Fish.
I've basically bought stocks pronto every time I've set aside money to do so.
That leaves me with little cash in my brokerage account. It never occurred to me that there may be a better way because it never seemed to be a problem.
While I'm not entirely convinced there is, this plunge has me thinking about it.
Keeping cash on hand for price dips allows you to buy more at those lower levels.
I could have doubled down on a handful of stocks at at least 20 percent off my first buy.
But sometimes, you miss out on opportunities by not buying as you go along, too. Apple, for instance, was selling for $315 in June. Even after the recent price slaughter, it's pulled back to only $364.

Still, I'm willing to try this as an experiment over the coming years.
For now, I plan to funnel my money into stocks while I believe they are underpriced. But once the bull's gotten up and is off with a good head of steam, I'm going to look to build up that cash balance to at least 10 percent.

See my portfolio here.