I was talking last week in my blog about when to take cash from investments, or swap out of equities into cash. There’s something about having money in the bank that’s almost comforting compared to having it fully invested in equities, which sometimes feels like you’re chained to a madman. Okay, with money in the bank you know you’re probably losing out with the pathetic interest rates on offer, but inflation is low at the moment so perhaps now is the least-worst time to have some cash to hand.
Last year I was forced to cash in equities in order to live, and it wasn’t all that nice to do it. On the other hand, it forced me to think about where my money sat, and why. After all, I’d invested for years partly in anticipation of taking the money when I wanted it, or needed it, to fund life after work. It was just that this had come a bit earlier than I’d expected. Maybe I wasn’t ready for it, mentally or financially, but I found that cashing in your savings to fund the monthly expenses that your wages used to cover was quite a painful experience.
When I returned to the workplace I resolved that I’d try not to be such a tightwad with my investments going forward and would start to unwind them in order to enjoy some of the psychological freedom it might give me. I sold out of a few odds and ends investments that still sat in my portfolio and placed the cash released into a savings account, where it currently sits waiting patiently for me to dip into as and when I choose. And, as I say, I like the security of having it there. It’s a bit like the “emergency fund” that quite a few financial bloggers and gurus would recommend that everyone has to hand – you know, a fund of money that would cover your monthly expenses for maybe three to six months? The advice goes that only when you have that sum readily available in cash should you then think about serious investing.
I never used to bother with that concept as this “emergency fund” seemed like dead money to me. I wanted my cash to be working and was prepared to accept the risk that in the short term it might be working for me and sometimes against me. In the long run, however, I was betting heavily that it would pay dividends versus any standard savings account which, I felt, was akin to stuffing money into a mattress.
I have to admit that I haven’t completely shaken that notion and thus I haven’t sold any investments recently to place any more into cash. But that changed this weekend when I read one of my favourite financial columnists, Hunter Davies, going on about Premium Bonds in the Sunday Times Money section. “Now there’s a thing”, I thought as I read. “It’s like having money in the bank that’s not doing much day to day, but is having the odd flutter on your behalf once a month.” I liked the idea, it’s almost even better than Matched Betting.
Suddenly, although I’ve known about them for decades, the idea of Premium Bonds appealed to me and, pretty much within half an hour of reading about them, I’d bought a substantial amount with the cash that was sitting in my savings account. As yet, I haven’t decided if I’ll sell an equivalent amount of equities to replace that cash, but I’m thinking about it with the markets being where they currently are. As I said last week, I swore that when the FTSE hit 7,000 I’d cash in my UK Index funds. The trouble was, if I did, what would I do with the money released? Well, I think I’ve found part of the answer through ERNIE. I don’t know yet how much actual comfort he’ll give me, but he won’t rob me blind and he’s not a madman. In an uncertain world, he’s not too bad a bet.