A thought experiment.

Over a decade ago, after moving to North Dakota to work in the oilfield, I lived in a church basement that had been fitted with dorm-style units. One of my “basement mates” was a nice guy in his 50’s from Virginia named “Alan.” We got to talking one day and he told me how he had $50,000 saved up that he was planning on using in the next big stock market correction. This was only a few years after the 2008 Wall Street crash, so it was still fresh on everyone’s minds.

At the time, ND was undergoing a massive oil boom due to technological improvements in the fracking process. Everyone working in the industry was making huge amounts of money, and like a rising tide, that lifted other sectors as well. Cooks at fast food places were starting at $18 an hour and up. Wal-Mart was paying people $25 an hour. Rent skyrocketed, too. I paid $1000 a month for my tiny basement dorm.

Alan was a CDL treater truck driver. Basically, he drove around to well sites with a giant mobile furnace that could heat up oil and water, and flushed chemicals, water, or oil down well heads in order to keep the lines clear and lubicated. He was probably making around $160K a year with all the OT he was pulling in. So, it was no surprise he had piles of cash sitting around.

I remember asking Alan that if the market were to crash, at what point would he jump in with his war chest? When it was down 10%? 15%? 20%? He didn’t have an answer. Back then interest rates were super low. He was probably only getting around 2% max on a savings account. That’s losing out to inflation badly. The real rate of inflation is not 2–3% like the government likes to report. It’s more like 7% when you factor in everything like real estate, college tuition, cars, medical care — everything that goes into living a life.

Since my talk with Alan over a decade ago (around spring, 2013), the S&P has gone up 3.5x from 1680 to over 6,000. That $50,000 would be worth $175,000 today had it been invested in an ETF like SPY. Interest rates have increased modestly, going as high as 5.5% for some savings accounts when they were at their highest. But nowhere close to a 3.5x return like the S&P.

Worth noting: SPY was about $156 back then. The ETF paid out $1.97 per share in its last dividend distribution. Buying $50K worth of SPY then would pay you $630 per quarter now, and nearly $2,500 a year. That’s the same amount you’d get if you just stuck that $50k in the bank with a 5% interest rate. So, the dividends alone are matching savings accounts. To say nothing of the compound growth in dividend reinvestment, or employing other forms of income like selling covered calls.

Bottom line: Owning the S&P is going to likely give you 10%-15% returns every year over the long-term.

Also worth noting: the stock market hasn’t crashed like it did in 2008 since my talk with Alan. Even the brief Covid crash and the 2022 correction weren’t anywhere close to the near -50% drop seen in 2007 through 2009.

Here’s another way to think about it. Let’s say you have a million dollar stock portfolio in the S&P 500, and $100,000 in dry powder on the sidelines waiting to use for the next big crash. If stocks drop 10%, even if you timed the bottom perfectly, you’re only getting a 10% discount. How many years of dividend gains and compound growth did you give up for that “big” discount there? Obviously, you wouldn’t time the bottom perfect, either. No one can. Anything less than a 5% discount is only matching what you’d get in a high-interest savings account. So, it’d be a wash at that point.

But what about investors like Warren Buffett who keeps hundreds of billions in cash sitting around? What about individual stocks and investments outside the S&P?

Big investors like Buffett and others operate at such a high level that it’s hard to know their ultimate motives or aims. Buffett isn’t concerned with grabbing a mere 10% discount on the S&P. He wants to own entire companies or take controlling interests in things, like how he bought BNSF railroad in 2010. Accredited investors like him are also afforded “insider” opportunities on things that average investors are not, such as IPOs and such. An investor like him might keep cash sitting around waiting for an AirBnb to come along.

For the average “buy and hold” diversification-style investor, aka the one looking to retire at 60ish with one mil plus, it doesn’t make sense to keep tons of cash sitting around waiting on some big crash. Especially if you’re largely just buying the S&P 500 or the NASDAQ anyway. For someone like that, you really only need emergency savings PLUS “peace of mind.” Meaning whatever extra you need that helps you sleep at night. Five thousand, ten thousand, whatever.

For more active investors, more cash is going to be strategically optimal depending on their experience and timing. During market drawdowns, individual stocks afford better buy-in opportunities than the S&P, obviously. Buyers of META during Mark Zuckerberg’s Congressional hearings in 2022 could have bought the stock at near $100. It’s since gone up past $600. A fantastic return in only two years.

Last March, Reddit offered users the opportunity to invest in the company’s pre-IPO share price at $34. I bought some myself, as I talk about in this article here. Since the stock’s public listing, it’s gone up to $180, giving over a 5x return. That was a time when having some cash lying around proved a good idea for me. But remember, speculation is still speculation. Plenty of individual stocks that once looked like bargains have continued to crash.

I read articles saying you should keep 10–20% of your portfolio in cash sitting around for big opportunities. I don’t think you need quite that much. Ideally, you would simply take one investment’s profits to switch into another investment. After measuring the tax hit, of course. Then you’re kind of playing with house money. For instance, I sold a bunch of alt coins a few weeks back, some of which I’d made multiple x returns on over the last 18 months. I rolled most of the gains into my River exchange account where I get a 3.8% annual return paid in Bitcoin, while using the money toward my $20 daily DCA 2025 experiment. As Bitcoin hits certain benchmarks, I’ll likely ladder out some of my holdings into the S&P or into other assets. If I were to take, say, $50K out of my Bitcoin profit holdings for use as a down payment on a house, it’d be like I got that $50K for free. I also made that $50K way faster than it would have taken me if I tried saving it.

And that’s another thing to consider. It takes forever to save up cash even if you have a high income. Even if you make $100k a year, after taxes and expenses, it might take you a few years to save up a mere $50K. Meanwhile, the S&P is going up 10–15% a year, and other stocks or cryptos are going up big. Most likely, you’re better off just putting as much of your money to work as possible, and keeping enough on the side for emergencies and a little extra for peace of mind.