What is Dry Powder?
If you have been around investing, you most likely have heard of keeping Dry Powder in your reserves. However, most people don’t actually know what this means.
Essentially, having Dry Powder in the investing world means having access to cash to take advantage of market conditions.
For example, as of writing this article, the Dow is down 15% and the NASDAQ almost 30% since January 2022.
*Not investment advice.
As an investor, now is a great time to start dollar cost averaging over the next couple months. However, if you have all of your money tied up in the market, you would be out of luck. That is why it’s important to keep cash reserves.
How do you keep and generate dry powder for investing?
- Take profits during good times. If your are up on stock, take 5% of your profit to keep for market downturns.
- Allocate a portion of your paycheck to a bank account. Take 4-5% of your paycheck and divert it to a savings account.
- Have a garage sale. I’m not joking. We had a garage sale back in 2017 and sold about $1,200 of junk. I took that $1,200 invested it in Bitcoin back when it was at $3,300. Obviously that is not a normal return, but rather an idea for generating extra cash.
Every 5-10 years, the United States and global economy tends to have a recession. This is a great opportunity to increase your wealth.