Cash is a liquid asset, meaning an asset that you own that can easily be converted to cash. When a person holds cash, they can either purchase other assets, invest or hold.
For me personally, I would choose to either purchase other assets that can become income producing assets or invest to build up extra cash. However, a hard lesson that I recently learned is the opportunity cost that cash holds when being idle, or hold.
I currently hold some stocks that provide monthly and quarterly dividends. With dividends, I am able to still own the stock while incurring additional income, such as rent. After a couple of months, I realized that I had saved enough money up, that I could reinvest my dividends to purchase additional stock.
In an open conversation, I was discussing my strategy of dividend reinvestment. Someone had commented on the fact that sometimes cash is worth more being idle. At the time I really did not understand what their thought process was. However, with today's market I believe my light bulb has finally turned on.
I saw the market decreasing, a signal for me to purchase/repurchase stocks at a lower cost. However, I did not account for the fact that the stocks in certain industries to continue to decrease. Resulting in me purchasing the stocks early.
Lesson learned: You might think that investing all of your idle cash as soon as possible, to begin earning profits, is a good strategy. When in reality, the benefits of saving your pot of gold for a rainy day has a higher rate of return. Although it is a risk to wait in hopes of the stock price to decrease more, that risk could be more beneficial. PATIENCE!
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