Why is it necessary to keep part of your capital in cash?
Most beginning investors perceive the process as very simple: you have some spare money and buy stocks, bonds, or gold.
After all, it is generally accepted that money should work, and if it just sits in a bank account, it is lost profit.
But then the question arises, why do large investment funds keep part of their funds in cash rather than investing all of their funds to generate profit?
For example, Berkshire Hathaway currently holds about 50% of its capital in cash in anticipation of an imminent recession, while BlackRock holds about 7% of its capital in highly liquid assets.
| Fund | Stocks / ETFs | Bonds | Real Estate / Alternatives | Cash |
|---|---|---|---|---|
| Berkshire Hathaway | ~40% | — | ~10% | 50% |
| BlackRock | ~60% | ~25% | ~7–8% | 7–8% |
| Vanguard | ~55% | ~35% | ~5% | ~5% |
| Fidelity Investments | ~50% | ~30% | ~10% | ~10% |
| State Street Global Advisors | ~52% | ~28% | ~10% | ~10% |
The secret is that investing is not about investing money urgently, but about investing it at the most advantageous moment in the stock market.
for example Warren Buffett, , tried to make most of his major purchases during recessions, when everyone was panic-selling stocks. This approach allowed him to earn additional tens of percent profits, rather than buying securities at their peaks.
This approach allows you to buy securities at 20-30% below the regular price, and in a year or two, when the markets recover, turn the discount into a profit.
Maintaining a significant portion of funds in cash allows an investor or fund to remain flexible and prepared for opportunities that arise unexpectedly in the market. When most market participants panic and sell off assets, those holding liquidity can quickly take advantage of the situation and acquire high-quality assets at a discount.
Furthermore, a cash reserve serves as a kind of insurance against volatility. Even if the market declines, a fund with cash can support current liabilities without selling assets at a loss. This is especially important for large funds with obligations to investors or pension plans.
Holding some cash also allows for tactical opportunities for short-term trading or arbitrage. For example, buying shares during short-term price fluctuations or participating in initial public offerings (IPOs) requires cash liquidity to close trades immediately.
At the same time, these reserve funds can also generate profit; there are many options for fixed-term accounts with a profitability of 3-5%, from which funds can be withdrawn at any time and used for successful investments.
Keeping a portion of your capital in cash isn't a sign of caution for the sake of caution, but a strategic tool for managing risk and opportunity. Even the most successful investors, like Warren Buffett, use cash reserves to purchase assets during moments of panic or market instability.
