The downside of keeping money in cash is that you don't get a chance to earn the same return on it as you would by investing it. In fact, given today's savings accounts rates, the money I have in the bank is earning such minimal interest it's almost not worth counting.
But I don't just have cash sitting in my savings for emergencies. I also have cash at the ready to invest with. And here's why I think now's a good time to hoard extra.
There's lots of uncertainty
Like many people I know, the current COVID-19 outbreak is wreaking havoc on my world. In the past three weeks alone, I've had to take my children for four separate PCR tests, and we've already had to set up a remote classroom in our basement while awaiting results.
But I'm certainly not unique in this regard. The current omicron outbreak is affecting a lot of households. But more than that, it has the potential to affect the economy. And frankly, I'm not sure what that means for the stock market.
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If the omicron wave continues at its current pace, it could disrupt everything from schools to healthcare systems to supply chains. And the results could be devastating.
If things take a notable turn for the worse, we could see unemployment levels rise. And some cities or states may have no choice but to impose lockdown measures, even if they aren't as extreme as the restrictions we saw in the spring of 2020.
All this uncertainty could send stock values plummeting. Or the stock market may not react at all. But if stock values do tank, having extra cash on hand will be crucial for a couple of reasons.
First, there's loss protection. You only lose money in the stock market when you actually sell off investments for less than what you paid for them. But that's something I don't want to have to do, which is why I'm stockpiling some cash in case emergency expenses arise, or in case my income takes a hit when I'm forced to juggle my job and remote school (a scenario I might easily land in several times this winter).
Second, having more cash on hand could make it possible to scoop up stocks on the cheap if the market does indeed tank in the near term. I already have a watchlist of stocks whose price is a little too high for my appetite. But if stock values come down, I'll want the option to pounce immediately -- and having cash at the ready will make it possible to do that.
Protect yourself and open up options
Without a crystal ball, there's no telling how the stock market or economy will fare over the next few months. And while health experts hope that the omicron surge will be relatively short-lived, that's also not a guarantee.
At times like these, having extra cash on hand gives me extra peace of mind. And as an investor, it positions me to capitalize on solid buying opportunities. So if you have the option to hoard additional cash right now, it may not be a bad idea.
