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NEW YORK ( TheStreet) -- At the ripe old age of 36, I scoff at the notion of "sitting in cash." You hear so many people say that in all different types of market environments.
The market rallies. And the worriers "sit in cash" because they expect a pullback, crash or correction.
The market moves wildly. Uncertainty breeds anxiety. Anxiety hates uncertainty. Time to sit in cash.
The market crashes. It's just too much to stomach. I'm in cash.
These erratic movements treat investing like an uncertain exercise based on intuition, rather than the long-term systematic plan of attack it should be. It's difficult to achieve goals if you're not anywhere near sure what you'll be doing tomorrow. You cannot let the stock market's gyrations dictate how you invest, particularly if you have a long-term time horizon.
In many ways, I run my portfolio like a business. Like a start-up. Head down. Tunnel vision. Pound a beer or two upon incremental victories and immediately get back to work. Ignore the haters. Dismiss the noise. Don't hang with the fearful.
Sitting in cash equates to trying to time the market. Long-term investors should probably never time the market. It's a fool's game. In fact, it's typically far more dangerous than a day trader timing the market. At least a day trader, if they're credible, employs a system based on objective markers such as technical indicators. When long-term investors go to cash, it tends to be an emotional reaction to something temporary. Reentry into the market takes place when you "think" it's about to go up. That's timing the market.
I don't understand why investors, unless they require access to their cash soon, don't just simplify the process by doing two things:
Creating a monthly budget; and
dollar cost averaging.
Each month, on a Post-It note, I estimate how much money I expect to take in. It takes 10 minutes or less to determine how much cash I will put out for expenses. I put a little extra in the "whatever" category, which includes random, unexpected and entertainment. I pay the freaking IRS. I put around the same amount into a regular savings account. Every remaining dollar goes toward my investments, ranging from speculative plays to long-term buy-and-hold to several Dividend Reinvestment Plans.