As the global COVID-19 pandemic rages on, many people have questioned their financial habits. Risk management is important if you’re trying to acquire wealth and what better time to rethink your strategies than the global pandemic.
There are many formulas out there that tell you the percentage of your net worth that should be in cash, including one of the simplest ones, which is the amount of money you need to cover all your monthly expenses multiplied by the number of months you’re trying to cover.
Naturally, in the world of finance, there is more to that than it seems at first. In reality, there is no one-fits-all formula that will definitely answer your question.
There is so much that goes into planning your future investments and balancing it with your expenses. Even the most experienced Forex traders and investors have not yet figured out the exact answer to the question.
The reality is that you should assess your needs and act accordingly. Whether you live alone or you have a family to support, you always come across unforeseen expenses that drag you down. So, how should you prepare for such losses?
Managing Your Finances
The most definitive answer to this question can be very simplistic, yet can be missed by many. If you look at some of the most successful people who have begun accruing wealth from scratch, you will notice a pattern – they all have remained open-minded and ready for changes.
Those who have stuck with the old patterns of behavior on the market have had their share of great loss. In the FX trading world, many have fully embraced the MetaTrader 5. Those who were quick to adapt to technological advancement have found themselves to be the luckiest. MT5 Forex brokers have noticed the improvements that were made to the software, leading to their success. The numerous new features have made MT5 the best option yet to any Forex trader.
Therefore, having experience is important, but if you’re not willing to make changes to how you invest, you will most likely lose your money. You might have heard that you’re supposed to invest all your money. But that’s just amateur’s talk. In reality, you always want a decent percentage of your net worth in cash, which will be easily accessible for lifestyle expenses and unforeseen circumstances, such as having to do the whole month’s worth of groceries in a day due to the COVID pandemic lockdowns that are happening around the world.
Additionally, a good investor knows how to plan ahead, including for crisis situations. If you have been trying to acquire wealth for long, you would have already learned that lesson. The global market is very unpredictable and you should always be ready for sudden changes that might affect your wealth.
Making the Best Decision for Yourself
Taking into account the unpredictability of the market, and the world at large, many experienced investors suggest that you should keep at least 30% of your net worth in cash, not only for the unforeseen expenses or lifestyle decisions but for the better investment opportunities that will eventually arise.
All of the above-mentioned factors affect the decision of investors on how much cash they keep. A the end of the day, it is your decision to make, factoring in your individual income and circumstances. Even though there is no one-size-fits-all solution to the problem, there are still best practices and the years of experience that you can study upon to make the decision that would be right for you and your money.
However much money you need to feel financially comfortable, while not jeopardizing your wealth creation, is the amount of money you should have in cash. As the times are trying us all, we have to learn to adapt and change our behavior to match the uncertain future that the global events bring with them.
You should try your best to learn more about the success stories of other investors and how much of their net worth they have decided to keep as cash. As investing is not just about knowing where to put your money, but also about when to keep it safely in your hands.
As many experienced investors will tell you, once you make the decision on how much of your net worth should be kept in cash, you have taken the first steps towards the financial independence and the maximum control of your capital, all while feeling secure enough in your decisions that will surely affect your short and long-term goals.