In this segment of Backstage Pass, recorded on Nov. 17, Fool contributors Rachel Warren, Travis Hoium, and Connor Allen discuss their approaches to building cash positions while consistently buying stocks.
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Rachel Warren: We had a question from ProShopGuy following up on our discussion of being a 100% invested in stocks. He says, "When you say you are a 100% in stocks, does that mean you do not have any cash position in your portfolio so you're investing immediately as you get new capital or no concern for high-market valuations."
Well, I'll say for me personally, when I say that, I mean that my investment portfolio consists 100% of stocks.
I also work on, separately from that, on building my cash position both for a rainy day as well as to reinvest. I also habitually reinvest my dividends, which is easy to do. I invest on the Robinhood platform. That's what I meant by that. What about you guys?
Connor Allen: Personally, I take the old David Gardner approach. I stay a 100% invested all the time in any new money that comes in. I might build up some cash if I'm a little bit concerned about some different valuations, but I stay a 100% invested unless new cash is coming into my account. I sometimes build up a cash position, but I never sell anything to just hold cash.
Rachel Warren: Absolutely.
Travis Hoium: Yeah. I generally do the same. As I'm building portfolios for my kids we are just adding to that on a monthly basis. Then it's like once you get enough to buy a position in something or something piques my interest.
I don't intentionally keep a lot of cash, I guess is what I'm trying to say. But as it builds over time, I look at adding in that way. Try to stay as little cash as possible, but not opposed to it either.
Rachel Warren: No, for me, I think that it depends for every investor, but for sure, continuously staying invested in the stock market is very important. I think that's been particularly evidenced in recent weeks.
In terms of concerns for high-market evaluations. For me, I focus more on the business. I am willing to pay a premium for a business that I believe in that I think is an excellent company. And I also think that's where fractional investing, I've talked about that before, could be a great thing if there is a company that's just in same price, like Shopify for [laughs] example, that can be a great area where fractional investing can come in.