Should You Wait for a Crash to Invest? (The Cost of Sitting in Cash)

On this episode of the Personal Finance Podcast, should you wait for a crash to invest? (upbeat music) Oh, what's up everybody and welcome to the Personal Finance Podcast, I'm your host Andrew, founder of mastermoney.co, and today on the Personal Finance Podcast, we're gonna be talking about should you keep your money in cash and wait for a pullback or a crash? And we're gonna talk about today in this episode, the cost of sitting in cash. If you guys have any questions, make sure you join the mastermoney newsletter, we're going to mastermoney.co/newsletter, and you can respond to any of those newsletters every single week and ask your question. And don't forget to follow us on Apple Podcast, Spotify, YouTube, or whatever podcast player, you love listening to this podcast on it. And if you wanna help out the show, consider leaving a five star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Now today, we're gonna be talking about should you keep your money in cash and wait for the market to pull back? This is one of the most common questions I get from investors is they say, hey, should I keep some of my cash on the sidelines or should I keep some money on the side for when the market pulls back? Warren Buffett does it, I see all these other big investors do it. Maybe I should do the same thing. And this is one of the most common reasons why people decide to delay investing, is because they feel as though the market is high. And I'm gonna tell you something right now. When I was young and I was a young investor, I thought every single year the market was at an all time high and there was gonna be some sort of pullback at some given time. I thought this about the real estate market, I thought this about the stock market, but then I realized pretty quickly that I would see all these different people on CNBC and they decided to make these predictions or I would see all these different people trying to make these predictions about the housing market. And the longer that someone waits, the longer that someone was waiting to invest their dollars, the worse their situation could have gotten whether they were waiting on to invest in real estate or they were waiting to invest in the stock market. And what happens a lot of times is you hear that stocks are at all time highs or we're in some sort of a bubble or we need to make sure that we are protecting our money so we need to move it over into cash. And the problem with this is sure. I'm gonna be the first one to tell you right now. There's a crash coming. There's a recession coming, but none of us have any idea when that's going to happen. And if someone tells you they know when that next crash is coming or they know when that next recession is coming, you need to write to that person off. Robert T. Asaki, the guy who is famous for writing Rich Dad Poor Dad, literally tells you there's a recession coming every single month over and over and over again. And then when there is some sort of pullback then he said, I told you so, but he's literally just constantly predicting these recessions over and over again. And if you were to listen to that advice, you would have been way worse off financially than just keeping your dollars invested. You could see Jim Kramer is a great example of this on CNBC. Always stating that a stock is gonna go up or a stock is gonna go down. Now he doesn't have bad intentions typically. A lot of times he is just trying to predict what the market is gonna do or what the stock is gonna do. And that's what he gets paid to do. But what I want you to realize here today in this episode that you cannot control what the market does, nobody understands what direction the market is gonna go. Sure, there are economic indicators that can help us decide some of this stuff. And there's momentum that happens. But the market for the most part is something that in the short run is not rational. Most people are gonna get in and out of stocks for emotional reasons. And if you get in and out of stocks for emotional reasons, that is gonna cause you to not be the best long-term investor. As you'll see in this episode, I am gonna dive deep into a lot of different studies. If you're an investing nerd, I think you're gonna enjoy this one because this is gonna be something that's really, really fun. The central question to all of this is, is waiting for a better entry price worth the potential returns that you miss while you're sitting on the sidelines. A lot of people feel as though they should sit on the sidelines. They feel as though this is something you should be doing because that means that you're actively taking possession of your portfolio. But instead, what I'm gonna show you is a bunch of different studies on both sides. I'm gonna talk about the pros. I'm gonna talk about the cons. So that you can understand simply how all this stuff works. And if you're new to investing, I'm gonna make this as simple as possible. So you understand this. But I'm gonna go through case studies. I have tons of historic examples. I have tons of studies that we're gonna be diving into in this episode. And again, make sure you're referencing the show notes when we go through these episodes if you're not doing so already because I'm gonna include a lot of the links to the studies I'm talking about. I'm gonna include a lot of different links of just different things that we are talking about in this episode. So make sure you're following along in the show notes if you haven't done so already. And so in this episode, I'm gonna be talking through what the historical research says. I'm gonna be talking through what the actual math looks like behind all of these decisions. And when holding cash can be a smart financial, decision. So if you are ready for this, if this is something you're into, let's get into it. All right, let's dive in. So first, why does waiting for a market crash feel like a smart strategy? Because I think for a lot of folks out there, they think the smart move is to move their money into cash and just wait for this to pull back. Well, nobody wants to have a hundred thousand dollar portfolio and watch it fall back to $75,000. Or nobody wants to have a million dollar portfolio and watch it drop down to $750,000. The larger your portfolio gets, the bigger the overall impact actually feel. And people tend to remember dramatic crashes. You may have lived through 2008, 2009. You may have lived through the COVID pullback. You may have lived through other market shifts that have caused you to have this sort of tension when it comes to the market starting to drive higher prices. And here's the thing, financial headlines continually are warning us about recessions. They're warning us about overvalued stocks. They're talking about inflation. They're talking about geopolitical risks. They're talking about interest rates and all this stuff feels like it is so heavy on your portfolio. It feels like you need to do something about it because the way that they talk about this stuff. And so investors assume that waiting longer means that a crash is going to allow you to buy some of these stocks at discounts. If you are at the height right now, all of a sudden, you can pull your money out, put it on the sidelines, wait for this little pullback or this crash to happen and you can buy stocks low. The problem is that waiting for a crash and putting your money on the sidelines is a form of market timing. And what we have shown on this podcast, time and time again, is that market timing or trying to figure out what direction the market is going to go over the short run is a fool's errand. And I'm going to show you data that backs this up as we start to think about this. Now to make this work, first you need to get several different decisions correct in order for all of this to work. One, you need to decide when stocks are too expensive. So you need to have an understanding of the market and know when all of these different stocks are actually too expensive and probably should not be purchased at these specific prices. Two, you need to determine how long you should be remaining in cash because what if you put it into cash and then you have to wait a couple of years 'cause the market continues to go up. So you need to get the decision right on how long you should be waiting in cash. Three, you need to recognize when the decline is large enough so you can actually deploy your cash. What if you deploy your cash halfway on the way down? Then all of that cash starts to get reduced when you deploy that capital. Then you actually need to have the emotional wear with all to invest when the market is falling. It is a lot easier said than done when the market goes down 20% to decide that I'm actually going to invest my dollars during this time frame. There's a lot of psychology involved with this. And you need to avoid selling again if prices continue dropping because once you have your dollars in there, then you need to make sure that you were holding firm because you made your choice, you made your decision and now you have your investment plan in place that is moving forward. See, predicting when stocks will decline is a little bit easier than actually staying and knowing when to act. I mean, it's much, much more difficult to know when to act and what to do. And so I want to go into some research because one of the best studies actually came out of Charles Schwab. And Charles Schwab compared five hypothetical investors who each received $2,000 at the beginning of every single year from the years 2005 to 2004. Now here's the thing that I want you to understand, okay? The investor who had perfect timing, meaning they invested at each year's lowest point had an end portfolio of $186,077. And if you're watching this or you're listening to this, we're actually gonna put this on the screen so make sure you're checking this out. If you invested immediately each year, meaning every single year, at the beginning of the year, you just invested immediately in January, you would have $170,555. If you invested monthly throughout each year, meaning dollar cost average throughout the month, you'd have $166,591. If you had terrible timing, meaning you invested at each year's highest point, you would have $151,343. And if you stayed in cash, in treasury bills, you would have $47,357. So each investor, throughout this entire timeframe, had $40,000 in total contributions over the course of that 20 year period. And the study assumed that reinvested income and excluded taxes and fees in this area. study. Now here's the surprising thing about this, okay? Perfect timing, meaning literally having a crystal ball and understanding the perfect time to get in and out of these investments, beats investing immediately by about $15,522. Investing at the worst possible time each year produced more than three times the ending wealth of just staying into cash. So if you were the worst possible investor, you were going to still have three times more during this study. Then someone who just stayed in cash throughout that time frame. This is why cash is trash. We want you to get your dollars invested. You want to have cash to preserve certain areas. We'll talk about when to have cash in a second. But this is going to be one of those things that I think is really, really important for people to note. The person who invested immediately ended up with approximately $123,000 more than the person who never invested in stocks whatsoever. And across 80 rolling 20 year periods and investing immediately never, ever ranked last, meaning getting your dollars moving and getting your dollars invested, never ranked last throughout this entire study. And so here's the key takeaway that I want you to understand. And we'll link that study down below in the show notes. But the penalty for never getting invested is far greater than the penalty for investing at an imperfect time. I want you to understand this again. You don't have to be perfect as an investor. You just have to continue investing in the market. You have to get your dollars working. Why? Because your money can work so much harder than you ever can. If you want to make money while you sleep, if you want to truly have passive income, passive income is that buzz word that people love to talk about. And if you want to truly have that passive income, getting your dollars invested is the first step. This is the thing that we need to think about doing. So this is a great study. And it looked over that 20 year time frame. It looked over a time frame that is really close to a lot of us in terms of a lot of the market that we saw. But let's look even deeper. One of the best decisions I ever made was putting myself out there and starting the personal finance podcast. And looking back, I wish I had started sooner. Because here's the thing, whether you're starting a business, a personal brand, or trying to develop a new income stream, having a website is a game changer. And that's where hosting her comes in. Hosting her makes it incredibly easy to build a website using AI. 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Well, let's look at another study because city wealth examined S&P 500 data from 1960 to July of 2025 to evaluate what happens when investors wait for a decline after a market's high. So let's say, for example, you're thinking about right now where the S&P 500, it's an all time high. And you're like, you know what? I know that at some point in time, the S&P 500 is going to have a decline. And it's going to have a 5% decline or a 10% decline. And so I'm going to wait for that decline. And then I'm going to get my cash deployed into this investment. Here's the crazy part about this study. Get ready for this, all right? So if an investor was waiting for a 5% pullback, meaning they were waiting for the market to pull back 5% their average wait time over that time frame was 143 trading days, meaning that's for 143 days, you did not have your money invested. The amount of their money that was invested was about 62.5%. If there was a 10% correction, they'd be waiting 225 trading days on average. And if there was a 20% correction like waiting for a 20% decline, which is a buzzword. I hear a lot of people say, oh, I'm waiting for a 20% decline. Then I'll get my cash deployed. The average wait time is 290 days. And so these figures are actually coming from the historical comparison of waiting strategies over those specific time horizon. Now, what does this tell us? What does this tell us about our investments? And what does this tell us about long term investing that we need to think through and what we need to consider? One is waiting for a small decline, can already mean spending months and months in cash. And if you keep your money in cash on the sidelines for too long, money that was supposed to be deployed for investments, well, all of the sudden we could see reduced overall returns in our total portfolio. In fact, waiting for larger crash can mean missing a substantial portion of the investment period. Listen, losing out on days, which you will see in another study that I show you here today in this episode, losing out on some of the best days overall can reduce your overall return significantly. In fact, some investors never received their target entry point with their plan investment time horizon if you are looking at this. So let's say, for example, because they did this in such a long term timeframe, what if you're waiting for that 20% pullback? Well, if you're waiting for that 20% pullback over the course of the last couple of years, that may never even come. So you're sitting for years into cash because of this. And even when the decline eventually arrives, the market may have risen considerably beforehand. What do I mean by that? Well, let's give a couple of examples of this, all right? First, let me give you a case study, all right? The market falls 20% but you still pay more than today's price. And I want to show you this example. So let's say for example, an investor has a hundred thousand dollars ready to invest in the S&P 500 index fund. And let's say the index right now is at 5,000, all right? And they decide to wait for a 20% crash. They want to wait for this 20% pullback in order to make sure that this all works. But before the crash arrives, the market has risen 40%. So when they started, the S&P 500 was at 5,000. The market rose 40% and so within it rose to 7,000 during that time frame. So they were in cash and it rose to 7,000. But then all of a sudden, yes, the market finally pulls back 20% so they could deploy their capital and stick to their specific plan. But when they deploy their capital, the S&P 500 is at 5,600. So the investor successfully waits for that 20% market decline. But the market is still 12% higher than when they decided to wait. When they originally decided to wait, the market is 12% above that time frame at 5,600. Remember, they started at 5,000. This is one of those things that I think more and more people need to realize when they say they want to wait in cash. You cannot perfectly time this. And this happens all the time. Literally happens all the time. And this is also assuming zero cash interest, dividends, or any fees put into place. So with that original $100,000, they would have missed out on $12,000 worth of gains or that 12% gain over that time frame. And this is really something that is a huge deal because waiting for the 20% pullback costs you $12,000 in this scenario. The larger your portfolio gets, the bigger the implications are. This is why you don't want to play around with your portfolio as it begins to grow. And really, you don't want to play around with your portfolio ever. But as it begins to grow and as you get to the half a million, then you get to the million dollar mark. All of the sudden, you are going to see that the impact is greater and greater every single year. Here's the second case study I want to go through, okay? Well, what happens if you wait three years to invest your $100,000? So let's assume that there's investor A and investor B, all right? And these two investors each have $100,000 available today. Investor A invests their dollars immediately. Investor B, they wait three years for a crash to come into play. And typically, like, think about the last time we had a crash, we didn't have a true crash for a little while. Now, to isolate these opportunity costs, we're going to assume a hypothetical 8% annual market return and no return on the cash that sits idle. So investor B that is waiting for the crash, there's no return on their cash whatsoever, all right? So investor A invests immediately, all right? So the $100,000 gets invested. And in year one, they're going to have $108,000. And year two, they're going to have $116,640. And year three, they're going to have $125,971. While in year three, the one who stays in cash is still going to have $100,000. And after three years, the market has risen approximately 26%. Now let's assume that it falls 20% right after. Even if it fell 20% in this simple, easy example, after the decline, the first investors portfolio investor A would still be $100,777 while investor B who waited in cash will only have $100,000. And so the immediate investor is still out ahead. And I think this is one of those scenarios that in reality, thinking you could time the market really just doesn't make sense. And I'm giving you these scenarios just to drive this thing home for you to understand that if you had a crystal ball, you could time the perfect timing, sure it makes sense, but the difference is minimal even if you try to time the market. It's minimal in terms of what you can do with your money long term. And so let's look at a little more research because I want to drive this home. The research shows that investing in all time highs has historically actually worked out surprisingly well. So a major reason that people sitting cash is the belief that the market is at an all time high and therefore this must be close to falling down. But all time highs are a normal feature of a market that grows over time. In fact, if you are in an economy that's doing well or you're in a stock market that's doing well, you're going to see all time highs over and over and over again. And a lot of people treat all time highs as something like, oop, it hit the peak, it's coming on back down or oop, it's at the top now it's going to come back down and that's not what happens. That's not what always happens. Sure, we have increases and decreases in the short run, but timing that is just a form of day trading. You're trying to trade into the market and it really does not make a ton of sense. And so dimensional fund advisors examined U.S. stock market returns from 1926 to 2025. And so for folks who invested in an all time high, on average, their one year return was 13.8%. While those who waited for a 10% decline on average, their one year return was 11.7%. And if you annualize this over three years as 10.4% versus 9.7%. Now what stands out with this is that investing at all time highs historically did not produce worse average returns over these time horizons. And waiting for stocks become cheaper is not automatically a better investing strategy because new highs can be followed by more new highs. And I think for most people out there thinking that, oh man, we just hit the wave. It's at an all time high. It's going to come back down any point in time now. It's not like you're throwing a football up in the air and it's going to come on right back down. No, instead this is something that you really got to do your research when you're thinking about this. This is why this is so important. Are you ready? This is one of the most important papers I think we have had over the course of the last few years because JP Morgan examined the performance of a $10,000 investment in the S&P 500 from January 3rd, 2005, all the way up to December 31st, 2024. All right, now here's the fascinating part. If you stayed fully invested, you would have $71,750 during that time frame of $10,000 invested through that time frame, okay? If you missed the 10 best days, your $71,750 investment would drop to $32,871. Just by missing the 10 best days. If you missed the 20 best days, it's $19,724. If you missed the 30 best days, it is $12,948. That's a huge difference. If you missed the 40 best days, it's $8,905. Literally missing the 40 best days means that you are losing money. If you missed the 50 best days, this is $6,386 and then the 60 best days, $4,712. Literally staying out of the market means that you are losing money when it comes to the rate of return. Missing only the 10 best days reduced ending wealth by more than half, 10 days reduced your overall wealth within this portfolio by half. Let's say for example, you and your friend decided to do this and your import portfolio value is a million dollars where your friend who missed out on the 10 best days has $500,000. That is a half a million dollar decision to decide I am gonna wait for a correction. Wow, that is a big heavy weight to put on your shoulders to try to time the market. That is a heavy weight. And I'm telling you right now, most people out there, and I'm saying more than 90% of people out there don't have the emotional wear with all to time the market properly. It's an emotional game first and then you have to have the acumen to understand the financials. And let me just tell you, the financials are a little bit more complicated than most people realize. They think they have a surface level value of understanding what the financials are but it gets harder and harder. Now I'm not saying this to make you say, now I'm not gonna keep anything in cash or idle. I don't want you to think cash is trash 'cause it's not completely trash but it is in situations where you are trying to time the market and we'll link that study up down below as well 'cause I think this is really, really important when it comes to understanding how this works. Six of the seven best days occurred right after the worst days by the way in this study with JP Morgan. So a lot of people will wait for those pullbacks and a lot of those best days occurred immediately after the worst days, which is why staying invested, typically we'll win in a lot of different scenarios. Seven of the 10 best market days occurred two weeks after the 10 worst days. Boy oh boy. If you've been listening to this show for a while, you know it's not just me anymore. It takes a great team behind the scenes to make everything happen. 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Just go to Indeed.com/podcast right now and support our show by saying you heard about Indeed on this podcast, Indeed.com/podcast. Terms and conditions apply. Need to hire? This is a job for Indeed Sponsored Jobs. I've spent a lot of time trying to improve my sleep. I've tried sleep trackers, cooling my bedroom, changing my nighttime routine, all kinds of things. And recently, Lisa sent me their legend chill hybrid mattress. And I have to tell you, it is genuinely one of the most comfortable mattresses I have ever slept on. I've stayed at tons of hotels and other places. This mattress is absolutely amazing. I cannot wait to get into bed every single night. And Lisa makes mattresses for different sleep preferences. And they even offer free consultations with sleep specialists to help you find the right one. Plus, their mattresses are designed and assembled in the USA, with free shipping, easy returns, and a 365 night sleep trial. So go to Lisa.com for 25% off, select mattresses plus. Get an extra $50 off with promo code PFP exclusively for my listeners. That's leesay.com promo code PFP for 25% off select mattresses plus an extra $50 off. Let them know we sent you in the survey after checkout. leesay.com promo code PFP. But then you may be asking yourself, okay, well, what if I get inheritance? Or what if I get a big lump sum of money? Should I kind of dollar cost average, meaning putting, you know, let's say you get $10,000? Should I put $1,000 a month into the market over the course of 10 months to spread out that risk? Or should I invest it all at once and get those dollars moving? Well, never fear my friends because keeping your money in sidelines and cash, we're gonna figure out exactly what happened. So Vanguard published a research in 2023, and they compared investing a lump sum immediately with spreading out your investments over time. Now, I wanna be clear about this. This does not mean investing a portion of your paycheck that you could pay it every single month. Obviously, we're gonna dollar cost average that way. What I'm talking about is if you get a big lump sum like a bonus, or if you get a big lump sum like an inheritance, or you win the lottery, or whatever else you can do to get a big lump sum, if you invested all of it at once, versus spreading out what you're investing at, what would happen here, all right? Well, the research examined historical and simulated investment returns across different markets. Lump sum investing, meaning investing all of it at once, outperformed dollar cost averaging approximately 68% of the time, and it's global equity historical comparison. Lump sum investing, outperformed remaining in cash, approximately 70% of the time, and cost averaging outperformed remaining in cash, approximately 69% of the time. So the tier here is dollar cost averaging that lump sum has been better than sitting in cash. So when we look at this, you could think of the difference over this time frame. In fact, Vanguard actually examined this with $100,000 invested. They looked at the historical distribution of outcomes for $100,000 investment over a one year period. If you invest immediately, you'd have $139,453, or over the course of three months, you'd have $131,12. The median was a hard one. at $11,000, and then within the fifth percentile is when investing immediately actually loses to investing out over three months. So investing immediately generally just produces better results historically, and spreading out investments over time sometimes protected investors from severe short-term declines. But again, just getting those dollars invested is one of the most important things that you can think about. So let's do a case study here, and let's think about an investor who waited for the 2020 crash. So if you think about this, there was the COVID-19 market crash, and this provides an interesting real-world example because the market declined rapidly, but then it recovered really quickly. It was one of his rare times that if you think back on it, and if you don't remember it, it is something that is very, very interesting to go back and study, but the market declined rapidly because people freaked out when we were shutting everything down, and they were like, "Okay, well, I don't know what's going to be happening going forward," and so the market had this big old pullback. But then all of a sudden, the market came roaring back within the same year, and in fact, according to JP Morgan, US stocks fell approximately 34% in a little over a month, and so a lot of people were freaking out. I remember that time frame, and I just smiled because I watched this happen, and I had been training myself for over a decade to understand that when the market goes down, I can buy more stocks on sale. I didn't flinch for a single second. I'm telling you, like a lot of people were freaking out, and I'm telling you, I was mastering my money psychology for so many years in a row, telling myself for years and years and years when the market goes down, you buy more. When the market goes down, you buy more. When the market goes down, this is a good thing. You can get stocks on sale, whether it's stocks or stocks, I like to buy things on sale. I would say this stuff all the time for decades and decades and decades. And then finally, in 2020, this is when this podcast started, by the way, this is when we really started to see a big, big difference in my money psychology specifically. So if you struggle with this stuff, working on your money psychology is really, really important. But here's the crazy thing. So it dipped 34% in a little over a month. The market recovered to its previous highs in roughly four months after the low and stocks ultimately finished 2020 higher, more than 16% higher than they did the year before. It's a craziest case that if you go back and look at it, and I highly recommend a lot of people listening and watching this right now. Go back and study 2008-2009 so you can see how bad it can get. Go back and study 2020 so that you can see how some sort of pandemic event or potentially a war or whatever else, how those can impact markets and what can happen if it does come roaring back. So let's think about three hypothetical investors in the COVID scenario. Investor A invested before the crash. So they invested $100,000 before the market declined. They experienced the full drawdown, but they stayed invested throughout the recovery. Investor B bought near the bottom and they held cash before it did COVID crash, successfully invested near the market low and benefited with the recovery and investors C waited for confirmation. They held cash during the initial decline, saw the market fall 20%, then 30%, decided to wait because the news continued getting worse and missed much of the rebound before feeling comfortable investing. Investor B would have performed the best in this scenario obviously, but you don't have a crystal ball to understand when that's going to happen, and in reality, how many people who have the personality to move their money into cash before the market is going to decline actually will invest their dollars when the market is declining, when the market is going down because that's what you have to do. If you are going to take that strategy, you got to get your dollars redeployed and re-invested. So these are just some of the scenarios that I want you to think about and some of the ways that I want you to think about deploying your capital when it comes to being an investor. Now, if you're saying to yourself, "Okay, Andrew, this is great, but what do you do? How do you think about this and how do you deploy your cash?" Well for me specifically, I want to get as many dollars working as I possibly can. So every single time I have cash on hand, I deploy that capital to where I want it to go. So typically, I do this with automation. This is why we have money on autopilot. This is why we talk about this, so that you can automate your money as soon as you possibly can into your different investment vehicles. I don't wait for pullbacks, I don't wait for crashes, instead I get my dollars invested as soon as I possibly can. Why? Because I understand the data. I've given into the historical data to see exactly what's happening, which is why I wanted to do this episode so that you all can understand this as well. Now, you may be saying to yourself, "Well, Warren Buffett sits in cash. Why would I not just copy what Warren Buffett does?" Warren Buffett has a very different strategy when it comes to his company's investment strategy. Then it would have been if he was an individual investor. In fact, he recently just even talked about this. Someone asked him, "If you had much less money and you were an individual investor, would your strategy be the same?" And he said, "No. My strategy would be completely different than what we do here at Berkshire Hathaway. We have so much capital that we need to deploy that we have to do it in a very different way and an institutional way than what somebody else would do if they were an individual investor. And I want you to understand how important this is to note. Because Warren Buffett is sitting in cash does not mean you should be sitting in cash. And for some reason, I see people on X or on Twitter or I see people on social media talking about Warren Buffett is in cash. This is why you should be in cash, wait on the sidelines, the market's going to crash. And over and over and over again, I read this stuff and I am amazed and I am frustrated at how terrible of advice that is. You need to understand how the markets move and you need to understand history. Now, history may not repeat itself moving forward. I want to make sure we have that caveat clear. There are times and there are time frames where history is not repeated when it comes to the market. But all we have is the last hundred years to go off of and this is a big, big deal where in a lot of different scenarios, I think a lot of you just need to study some of the market history if you feel as though you're going to get in and out of the market. If you feel as though you're going to keep cash on the sidelines, then do a little extra due diligence to make sure that's the right choice because this could be a six to seven figure decision by keeping your cash on the sidelines. Now let's dive into when you should keep cash because there are scenarios when you should have cash on hand and it's very important to note when now there's a difference between keeping cash and waiting for a crash because holding cash is not inherently a mistake. In fact, holding cash is reducing your overall risk and I like to think of cash as an insurance policy essentially. You're ensuring your own personal financial situation and so when you have cash on hand, there's a lot of different legitimate reasons to make sure that you have cash but waiting for the market pullback is not one of the highest ones on my priority list. One of the biggest things I tell people is when you pay off debt, you need a plan because when you actually see the finish line, everything changes. That's one of the reasons I love Monarch. Your debt-free simulator lets you see when you'll be debt-free based on your balances and your payments. You can even test different scenarios to see how much faster you could eliminate your debt by paying a little extra every single month. And one habit I personally use is my five-minute money drill. Every morning, I check Monarch and I check my spending, I check my accounts, I check my investments and make sure everything is on track. That's what I love about Monarch. It helps you stop guessing and start making progress towards your financial goals. Write your own money story with Monarch. Use code PFP at Monarch.com to get your first year of Monarch core half off at just $50. That's 50% off your first year at Monarch.com with code PFP. It's kind of amazing how much can change in just a single year. Every summer, the kids are a little bigger, a little more independent, and life looks a little different than it did the year before. It reminds me that while we can't predict the future, we can prepare for it. That's one of the reasons I like policy genius. See, policy genius isn't an insurance company. They're an online marketplace that lets you compare life insurance quotes from some of America's top insurers side by side for free. And their license team helps you compare coverage, prices, and terms, answers your questions and even handles the paperwork so you can get the right policy without the hassle. For me, having life insurance isn't about expecting something to happen, it's about knowing my family is protected so I can actually enjoy these moments together instead of worrying about what comes next. And with policy genius, you can find 20-year life insurance policies, starting at just $276 a year for $1 million of coverage. Head to policygenius.com to compare life insurance quotes from top companies and see how much you can save. That's policygenius.com. One of the best reasons obviously for anybody who's listening to this podcast for a long period of time is an emergency fund. If you are not familiar with our system on emergency funds and how to manage that cash flow, check out our episode called the 136 method. I dive deep into emergency funds and how to manage your cash within your personal financial situation. Secondly, is money needed for a home purchase? Like if you're saving for a down payment or you're saving for a down payment on something like a vehicle replacement, those are reasons to keep and maintain money in cash. You can keep that in a high yield savings account, you can keep it in a T-bill ladder if you want to, but keeping that cash on hand and making sure you have it in place is super, super important. And by the way, if you're looking for a place to hold your cash for your high yield savings account, we'll have it linked up down below in the show notes as my favorite places. If you have upcoming taxes, that's a reason to keep stuff in cash. If you have business expenses that are planned, keeping money in cash is for that. Short term spending needs. Like if you feel as though, you know, you know in a couple of months you're going to be going on a vacation or you know in a couple of months, you're going to have to spend extra money on a new air conditioner for your home or you know in a couple of months, you're going to have to get some new tires on your truck. Well, those are reasons to make sure that you keep cash on hand and you're going to deploy that capital. That's just saving to spend, because at some point in time, like Jesse Meacham has said on this podcast, at some point in time, you're always going to be spending money, whether you're putting in a retirement account, you're planning on spending that in the future, whether you're putting in your high yield savings account, you're planning on spending that money when an emergency arises or when you are going to have a home down payment. So because of this, we want to think of this as cash allocations are really just allocations that are going to allow us to spend in the future. The amount of cash that you keep on hand is going to depend on a number of different situations, but there's problematic reasons to hold cash. Problematic reason number one is that you're convinced the market is about to crash. Well, as we just showed you, nobody knows when the market is going to crash, nobody has a crystal ball, and that is not a reason to hold cash in the sidelines. The second reason is if you refuse to invest because stocks are at all time highs. Well stocks can continue their bull run, they can move further to all time highs, and many times waiting on the sidelines can cost you a lot, and I mean a lot of money. Three is you're waiting for a recession before you're going to buy anything. You could be waiting a very long period of time. If I would have started waiting when I was thinking our recession was coming, I would still be sitting in cash from the year 2012. I mean, you cannot predict what's going to happen here. Four is you want the market to fall a certain percentage. Waiting for the market to fall a certain percentage is just gambling, to be honest. And then five is you have no clear plan for when you'll actually invest. If you don't have a plan in place or an investment plan in place, it is super important to have that. We teach people how to do that in master money academy. I think it's really important to make sure that you have that investment plan in place. It is one of the most powerful things that you can do. So what should you do if you have a hundred thousand dollars sitting in cash right now? For most people, you have three options, option one is you can invest it immediately. So if you invest your dollars immediately, this is going to maximize the amount of time that you have your dollars invested in the market. And as we have seen, this is one of the most powerful things that you can do. Time in the market beats timing the market. And that is one of those areas that if you say that time and time again, I would put that at the top of your investment plan. Now historically, this outperforms gradual investing more often than not. So if you have a hundred thousand dollars, getting those dollars working, historically the best route to go. This exposes the entire amount to immediate market volatility. So the risks involved are is if you invest that hundred thousand dollars in the market has a pullback, well then all of a sudden your hundred thousand dollars just turned into eighty thousand dollars. And so we want to make sure that we understand that and it's best suited for investors with long-term time horizons and sufficient tolerance to losses. So if you're okay, like I told you during the COVID era, when the market pulled back 34%, I just had a little smile on my face because I was excited to buy more when stocks were on sale. And eventually again, recovered where the market was up on the year, about 16% and it was just one of those wild swings to again go look back on. And so for investors who have really long time horizons, I'm talking 10, 20, 30 years, this is a great thing to do is get those dollars invested so that they can begin working for you over time. Now option two is the dollar cost average over a pre-determined period. So you can go through the next six months and invest 16,667 dollars every single month for the next six months. And the advantages there are is if it makes you feel better or you feel more comfortable and it reduces the risk of investing everything immediately before decline, then sure that's great. So if you help investors who feel anxious about having this large sum of money, like money is there to reduce your stress and anxiety and if you invest at all and you feel as though you're going to have this weight of stress, then sure, you can go ahead and dollar cost average over the course of the next six months and it establishes a defined plan. Like that's your defined plan, that's what you're going to do. That is so much better than just, you know, not having any plan whatsoever. So Ryan Sterling, who is the CEO of Nerdwall at Wealth Partners, he's the co-host on the other show I do with Nerdwall at Wealth Partners, he talks about this. And they have clients come in and they bring them a large lump sum of cash. Even if they want a dollar cost average it, they will deploy that capital in a very short period of time, meaning during a very short period of time, they will take it and they will say, "Okay, well, dollar cost averaged this, but we want to do this over the course of two weeks. We don't want to do this over the course of six months because the longer that we weight to dollar cost averages out, the worse the returns potentially could be and this is looking at some of the historical averages." So the advantage is, again, it's going to be, it could lower the expected annual returns coming with investing immediately and leaves money temporarily outside of the intended portfolio, meaning it's just sitting in cash there and it doesn't eliminate investment risk. The other side of the coin to this is if you do keep it in cash and it does not outpace inflation, then we're looking at an inflation risk as well. So there are other risks involved there. Now, your third option here with $100,000 to wait indefinitely for a market crash, alright? When you wait, you have no pre-determined investment date. So you can be waiting for one year, you can be waiting for 10 years for all you know. You have no idea when you're going to be deploying this money. You have no certainty about how far stocks must fall and for you to even get those dollars working, you have risk of moving the target and you have risk of remaining in cash during some sustained market rally. Some big market rallies could be going on and you are still sitting in cash waiting for the markets to pull back. And then you risk being too fearful to invest when the market does drop. So for long term money, having the fine investment plan and sticking to that investment plan is going to be really, really important, okay? This is something I think is really, really powerful. So let's talk about the cost of waiting. If you cost of waiting over this time frame, let me give you a case study or an example of this. So consider someone who has another $100,000 to invest. And the annual stock returns are at 8%. Now, cash in this scenario is going to earn 0%, and we're not going to factor in taxes, fees, or additional contributions, all right? If you invest the money immediately, the value after 20 years is $466,096. The value after 30 years is $1,626, but here's the crazy part. If you wait one year then invest, like you're like, I'm going to stay on the sidelines to see what the market is doing. And then you wait one year to invest, the value drops to $431,570. If the value over 30 years drops to $931,728, if you wait three years, the value after 20 years drops to $370,000, whereas the value after 30 years drops to $798,000. So you literally cost yourself $206,000 by waiting for three years. It's literally hundreds of thousands of dollars. And then ready for this one, if you just wait five years then invest. And your value after 20 years goes from $466,000, it drops down to $317,000, and your value after 30 years goes from $1,626,000 to $684,000. So here's the cost of waiting, ready? The cost of waiting after five years is approximately $149,000 over the course of 20 years, and approximately $321,000 over the course of 30 years. Guys, this is a six-figure decision to decide to wait and cash. And if you wait too long or you miss out on some of these market increases, then you could be in a scenario where you're losing out on hundreds of thousands of dollars. Now if you have some reason that you're waiting, that you know that I don't know, then great. Do what you need to do because your investment decisions are ultimately yours, and you should take this information and do your own research when you think about this stuff. But I want you to understand what the risks are because there are risks to staying in cash. There are risks to not getting your dollars invested when you have capital on hand that was intended to be invested for long-term wealth building. And so I want you to understand those risks. So let's talk about the big takeaways that I have from today's episode. Number one, waiting for a market crash sounds logical, but successfully timing the market requires multiple difficult decisions, which we talked about to all those difficult decisions. And you have to get all of them right for this actually to work properly. Two, is the research from Schwab shows that even investors with terrible timing historically didn't much better than investors who never got into stocks. So even if you have the worst timing possible, you still did perform better than investors who never invested their money. A 20% market crash doesn't necessarily mean stocks are cheaper than they are today, meaning if there is a 20% market crash, it could be after the market went up 40% when you started waiting. Four, investing at all time highs has historically produced competitive long-term returns, meaning investing at all time highs and the stuff that we looked at showed that you actually still came out ahead from someone who was waiting for some of those pullbacks. Five, missing just a handful of the strong market days can dramatically reduce your overall returns. So six is Vanguard's research shows that investing available money immediately has historically outperformed spreading it out over time, roughly two thirds of the time. Seven, dollar cost averaging can be a reasonable compromise for someone who would otherwise remain entirely in cash. Eight, cash is appropriate for emergencies, short-term goals and planned expenses. That's when you want to use cash. The problem is when you delay long-term investments while trying to predict a crash. You can't predict that crash. Nine, the right asset allocation matters more than finding the perfect entry point. Like pick your asset allocation, pick your investment plan, don't try to pick the perfect entry point. And ten, a long-term investor doesn't need to predict the next crash in order to build wealth. Here's the takeaway, the stock market is going to crash again. One day there's going to be a recession. going to be a reduction. It could be tomorrow. tomorrow. It could be next week. It could be next month. It could be next year. It could be in the next 10 years. We don't know when it's going to happen. At least I don't know what it's going to happen. I don't have a crystal ball. And it shouldn't be something that you feel as though you know when it's going to happen. There's going to be a lot of people who make it look like they're the smartest investors in the world. They'll bring out their whiteboards on YouTube or social media and talk about derivatives and they'll talk about option contracts. They'll talk about the different ways that the bonds are moving and the interest rates are affecting these bonds and all the sudden you're going to feel as though all these people know what they're talking about. They're going to be able to predict the market for me. But in reality, what you need to understand is what history shows us and what history tells us. Sure. We could have a decade long run where the market goes in one direction or the other or we could have a couple of years where you're going to see some of these pullbacks. And if you waited in cash, you're going to feel like you're right. But over the course of the long term, long term investors know that staying in the market is the key to building wealth. Listen, if you want to learn how to build your portfolio, if you want to learn how to do this stuff, exactly what I'm talking about here, consider joining MasterMoney Academy. We have all of our investing courses there. We have our personal finance courses there. And every single week I get online coaching calls and you can ask me all the questions that you have on hand. This is a place for you to learn how to build wealth, how to grow your portfolio and how to transform your financial life. It is simply one of the best things that you can do for your finances long term if you want to get help directly from me. Also, if you want to get one on one coaching from me and you make over $100,000 per year, shoot me an email, and you're at mastermoney.co. And let me know. And I can send you an application to see if you are a good fit for our one on one coaching programs. We are also launching some really cool one on one coaching systems. We're going to be putting in place around investing for folks and those are coming soon as well, so get ready for that. And thank you guys so much for being here. I truly appreciate it. My goal with these episodes is to bring you as much value as possible. We jump on one of these one on one coaching calls. A lot of times one of the coolest things that happens for me is they tell me all the progress they have made just from listening to this podcast, listening to this free content. And that's my entire goal. I want you to be able to listen to this free content and have the ability to be able to build generational wealth for you and your family. And so I'm so excited that you're here. I'm so excited that you're getting your finances right and get ready because I've got some cool episode planned just like this one. And I hope you enjoyed these deep dives because I really enjoy making these. I really enjoy doing the research for these. I really enjoy diving deep into the history of the market. So it helps you make better financial decisions moving forward. And so again, make sure you're doing your own research. Make sure you're diving deeper into this stuff, be prudent when it comes to your investment plan so that you can build the best possible life for you and your family. Because that's ultimately what we're trying to achieve here is financial freedom for each and every single one of you out there. I cannot thank you guys enough for being here. I'm so glad that you're listening to this podcast and that you're here with me. If you're getting value, share this with a family member or friend. Leave a five star rating and review. And don't forget to make sure you subscribe to the show. Thank you again for being here. And I will see you on the next episode.