My Thoughts on Cash Levels

TL;DR - It's very personal.

One of my favorite questions to ask other investors is:
“How much cash are you holding—and is that typical for you?”

It’s a simple question, but the answers are incredibly telling. They reveal not just an investor’s style, but their time horizon, risk tolerance, and how they’re wired emotionally.

To be clear, I’m not judging. If anything, I ask because I want to learn.

A Personal Question with a Personal Answer

I believe cash levels are one of the most personal elements of investing. And ironically, it’s probably one of the last things you should seek advice on. It’s something you have to figure out for yourself—through experience, trial and error, and a fair bit of self-reflection.

Every investor is different—and so are we at different points in our lives.

Being 100% invested when you can add the equivalent of a 5% position every couple of months is very different from being 100% invested when your portfolio pays your bills.

How It Feels to Hold Cash

If you’ve been investing long enough, this probably sounds familiar:

• I have too much cash when the market’s ripping.

• I have too little when it tanks.

• I can liquidate positions easily when I don’t need the proceeds.

• Illiquidity becomes a brick wall when I need to sell in a hurry.

• Every anonymous fin-Twitter account seems to manage cash better than I do.

Now that I’m not adding new capital to my portfolio, I’ve found these emotions get amplified.

The Problem with Too Much Cash

Too much cash makes me think differently. My time horizon shrinks. I start watching macro headlines and rooting for bad news. I read bearish takes and hope for oil shocks, tariffs, recessions—anything that could trigger a selloff.

I start checking futures. I make currency and interest rate predictions. I read politician quotes like tea leaves. I become John Nash in A Beautiful Mind, looking for patterns in newspapers.

It’s unproductive.

Worse, I start looking at companies I normally wouldn’t touch. My analysis gets sloppier. I talk myself into weak ideas just because I’m itching to deploy capital.

The Problem with Too Little Cash

Too little cash cuts just as deep.

A stock hits my buy price. I start building a position. It drops 10%—I buy more. Another 10%—more again.

If you think your pick can’t drop 50% while the market’s down 15%, you’re probably not investing in microcaps.

It’s painful watching something decline for weeks or months after you've gone full-size. You start doubting your analysis. The naysayers get louder—and more convincing. Suddenly, that random anon who’s been investing for 15 minutes sounds like Warren Buffett.

Once I have a position, I should be focused on the business. Not the share price.

Both extremes—too much or too little cash—pull me away from what actually matters.

My Journey with Cash

I remember selling all my mutual funds and picking stocks myself. It felt empowering. That was spring 2007—just in time for the Global Financial Crisis.

I went from the kiddie pool to shark-infested waters. That brutal bear market shaped me more than I realized.

Back then, cash was a lifeline. If your holdings didn’t drop, you were outperforming. Every rally got sold off. Experts were still calling for another recession in 2010–2011. It made me overly cautious for years.

Then came the long bull market.

Outside of a few sharp quarters, you could run lean on cash and not feel it. The market kept marching upward, and holding cash started to feel like underperformance.

When your portfolio does well, you think: I should’ve bought more.

Eventually, the pendulum swung too far. I think some of my underperformance this year comes from not holding enough cash—and the pressure that comes with watching others thrive while I sit on the sidelines.

So, How Much Cash Do I Target?

It ebbs and flows.

Investing in microcaps means liquidity is always an issue. And since I pay my bills from my portfolio, I keep some cash set aside that's not part of my investible capital.

As for the portion that is?
My sweet spot tends to be somewhere between 5% and 15%, maybe 20% at the high end.

That range keeps me focused. Going outside of it requires intentional effort and discipline. It's not a hard rule—but it helps manage the mental clutter. I also think that they way you build positions is something to consider when thinking about cash levels.

For what it's worth, I don’t use options to manage exposure. You might—but for me, this approach works.

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How about you?

How much cash do you like to have on hand—and why? Let me know in the comments.

Thanks for reading.

Dean