Mark Moss explains that your ideal cash position depends on your growth target, time horizon, and risk tolerance. Too much cash slows growth; too little forces you to sell assets at bad times. The right amount balances your comfort level against your actual goals.
When does your liquidity ratio become too high? Now, I love this question. And what you're thinking about is how much liquidity do I have available? And I want to have liquidity available in case there's opportunities in the market to de-risk my portfolio or to cover emergencies or something like that, because I never want to be a forced seller. And so I want to have that liquidity ratio. But when does it become too high? Well, it can become too high in a couple of instances. So for example, if my goal is to grow my portfolio by this amount by this certain time, then I might need to use all of my available capital to achieve that goal. If I'm going to achieve my target in less time than I need, then I could put more into my liquidity to de-risk my situation. So it's really about timing. Liquidity is sort of an outcome of time that I have and the risk I'm willing to take. If I want to take less risk, I have more liquidity, I have more time, I can have more liquidity. And if I need to get there faster and take more risk, then I would have less liquidity. So it really comes down to a comfort level that you have, it comes down to the other assets you have. But more importantly, it comes down to the amount of risk that you're willing to take to decrease the time it's going to take you to reach your goal. So if you want to learn how to build your own wealth operating system, then comment wealth, and I'm going to send you my free training.
