How Much Cash to Keep in a Portfolio




Every investor has a different threshold for how much cash to keep on hand in a brokerage or retirement account.

Retaining enough of this asset in an investment portfolio is important, since many major brokerages require up to three days for money to settle into a trading account from a bank.

When you take a profit and sell a stock, the Securities and Exchange Commission dictates that funds take two business days to settle into an account before the proceeds can be used to buy other stocks. Keeping some cash on hand can help an investor buy more shares of a stock or exchange-traded fund, known as an ETF. This is especially true when dollar-cost averaging is part of an investing strategy.

Here are a few considerations that investors should weigh when determining their asset allocations.

-- Include some cash in your investment portfolio.

-- Figure out your asset allocation strategy.

[See 7 Best Places To Hold Short-Term Cash.]

Include Some Cash in Your Investment Portfolio

While expert recommendations vary on the amount of cash that should be kept in an account, some robo advisors like Charles Schwab's Intelligent Portfolios may allocate 6 to 10 percent in cash based on an investor's risk; this is done using an algorithm-based that builds and rebalances portfolios automatically.

Mike Loewengart, chief investment officer at E-Trade Financial, says, "A good benchmark to follow is to hold between 2 and 10 percent in cash in a portfolio, depending on your goal."

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