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What is the difference between Cash Reserves and Lazy Equity?

Discussion in 'Investing Strategies' started by Tulip, 13th Jul, 2008.

  1. Tulip

    Tulip Member

    Joined:
    13th Jun, 2006
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    Location:
    WA
    Just wondered what how others define these in terms of their assets? It seems that a figure of 10 to 20% of ones portfolio should be in cash depending on your risk levels and the economic conditions of the time (lets ignore we are in the cash part of the investment cycle right now).

    So cash is clearly cash sitting in an account, an undrawn LOC or offset account. I have seen people also say that they have shares that could be cashed in if needed, would you also class this as your cash buffer?

    Given the recent turbulence of the markets, have you in general maintained your cash buffer? Do you leave it in reserve for if you suddenly loose your job and are waiting for IP insurance to kick in? Or was your 10% what you intended to use should you get a margin call and you have now used up so you are building it up again?

    I guess in the past not having enough cash reserves in IPs has caused us problems that didn't need to be there. We now have about 15% cash in LOC, taking our property LVR to 80% total, which is working well for us for property. Planning ahead, I am interested in how this translates to the share market and how cash buffers are used in a practical sense.
     
  2. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
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    Location:
    Sydney, NSW
    Hi Tulip,

    "IP insurance", if your referring to Income Protection these insurances policies won't usually start paying if you lose your job. They usually start paying after a waiting period if your are sick or an accident happened.

    Cheers,

    Dan

     
  3. Tulip

    Tulip Member

    Joined:
    13th Jun, 2006
    Posts:
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    Location:
    WA
    Dan,

    Yes, I meant Income Protection, and our main reason for having this is for an accident or sickness, not job loose. Poorly worded previous post on that issue, but thanks for making sure I was on the right track.
     
  4. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
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    Location:
    Sydney, NSW
    No worries Tulip,

    It's good to realise how important insurances are,
    Think of how many years you have until you retire, then multiply that number by your salary. That's a massive number! If someone has insured their car but not their salary they are living on the edge!

    Cheers,

    Dan

    PS Before making an insurance decision speak to an FPA registered financial planner or insurance broker.