I have just been asked a question from one of my readers that I thought was very interesting. It may be especially relevant now, following the stock market’s tough week. I will paraphrase it:

How much cash should I keep in my portfolio? I have a hard time balancing wanting to buy stocks when they offer a good price vs. staying fully invested, keeping each dollar earning dividends and growing.

Let me take a stab at this one.

First of all, I must make it very clear that I do not provide advice to individual investors, as each unique situation calls for a customized approach to managing one’s money. But I can speak in general terms, assuming a long-term investment horizon and no liquidity requirements in the short-term (i.e. no need to use the funds any time soon).

The question above speaks of fear of not having enough cash around to make timely “bets” into certain stocks that one might find an attractive buy at a certain price. My view, however, is that long-term investors with high risk tolerance should be fully invested at all times to capture as much value as possible from owning risky assets.

Lately, the stock market has experienced very little volatility. But, traditionally, equities move up in spurts, not steadily. Keep in mind that most of the market’s gains have historically been produced by only a few very strong days each year (take a look at the graphs below). If an investor lets a chunk of his or her portfolio sit out, awaiting the right timing or opportunity while stocks jolt up, the portfolio is most likely to suffer over time.

One more thing: at the heart of the question above is the assumption that investors will know what stocks to buy and when to buy them in the future. A handful of people are gifted and consistently good at that game, while the vast majority of us are not. In most cases, being invested is more important than timing investments.

Finally, don’t forget that, even if investors don’t have cash sitting in their trading account to buy that enticing Apple (AAPL) price dip, they can always sell shares of other names that they already own to fund the new stock purchase — ideally not often, to avoid excessive trading fees or to prevent turning a long-term investor into a short-term trader.