Why I Keep a One-Year Cash Buffer (Especially After This Week's Market Whiplash)
What you will learn
- What major event influenced the stock market's volatility on April 9, 2025?
- On April 9, 2025, President Trump paused most tariffs for 90 days, reducing them across the board except for China. This news led to a massive rally in the Nasdaq, its biggest one-day gain since 2001, and the S&P 500 surged 9.5%, a rally not seen since the 2008 financial crisis.
- Why is having a one-year cash buffer beneficial during market volatility?
- A one-year cash buffer allows investors to cover their living expenses without having to sell investments at a loss during market downturns, which can help maintain long-term investment strategies and avoid emotional decision-making.
- What should investors avoid during significant market drops to protect their investments?
- Investors should avoid panic selling during market drops, as the biggest price recoveries often occur shortly after significant declines. Staying calm enables them to ride out volatility and capitalize on future gains.
- How can having cash on hand provide flexibility in a volatile market?
- Having cash on hand allows investors to take advantage of buying opportunities during market downturns, as they won't feel pressured to sell off investments or react hastily to negative headlines.
- What steps should individuals take when facing market volatility?
- Individuals should remain calm, assess their financial plans, ensure they have a cash safety net, and maintain perspective on their long-term goals, recognizing that short-term market changes may not impact their overall financial strategy.
If you watched the stock market this week, you might’ve felt like you were on a rollercoaster. One day everything crashes. The next, markets post their best gains in years.
These are the moments that test your financial plan.
I want to walk you through what happened in the markets this week, what it taught me (again), and why I always keep a one-year cash buffer—and why you might want to do the same.
What Happened in the Stock Market This Week?
On April 8, 2025, markets were in chaos. After a promising morning rally, news broke that the U.S. government was imposing a 104% tariff on Chinese imports. By the end of the day, the Dow dropped over 300 points, and tech stocks took a beating.
Then, on April 9, everything flipped.
President Trump paused most tariffs for 90 days, reducing them across the board except for China. Wall Street went wild. The Nasdaq jumped over 12%, its biggest one-day gain since 2001. The S&P 500 surged 9.5%, a rally not seen since the 2008 financial crisis.
In 24 hours, we went from panic to euphoria.
If you made a decision out of fear on April 8—like selling your stocks—you probably missed one of the best single days of market performance in two decades.
Should I Sell My Stocks When the Market Drops?
This is the number one question people ask when the market dips. And it’s a hard one—emotionally.
But here’s the truth: the biggest up days often come right after the worst down days. If you try to time the market, you’re almost guaranteed to miss those key rebounds.
That’s why I don’t sell.
I don’t panic.
Because I don’t have to.
How I Avoid Emotional Investing Decisions: A One-Year Cash Buffer
Here’s my safety net: I keep at least 12 months of living expenses in cash—in a high-yield savings account, completely separate from my investments.
This isn’t about optimizing returns. It’s about protecting myself from my own worst instincts.
Here’s what that cash buffer does:
1. I never have to sell investments when they’re down.
If the market drops 30%, I’m not touching my portfolio. I’ve got my basic needs covered with cash. That means my long-term investments can keep compounding, uninterrupted.
2. I can wait out volatility without stress.
When the headlines are screaming “crash,” I don’t feel pressure. I’ve got breathing room. I don’t need to act. I can observe. I can stay calm.
3. I have the flexibility to buy when others are panicking.
If a real opportunity comes up—like a once-in-a-decade dip—I’ve got the dry powder to act on it. Most people don’t.
How Much Cash Should You Keep on Hand?
There’s no one-size-fits-all answer. But here are some things to consider:
- Are you self-employed or have variable income? A larger buffer (6–12 months) can give you more security.
- Are you early in your investing journey? A smaller buffer (3–6 months) might be okay if your job is stable and expenses are low.
- Do market swings keep you up at night? More cash can buy peace of mind.
Personally, one year works for me. I’ve modeled my expenses, I know what I need monthly, and I make sure I’ve got 12x that number parked in cash—accessible, boring, and essential.
What Should You Do When the Market Is Volatile?
Let’s simplify it:
- Don’t panic. Emotional decisions almost always lead to worse long-term outcomes.
- Check your plan. Do you have a safety net? Can you ride out a few months without touching your investments?
- Zoom out. Look at your long-term goals. This week’s headlines won’t matter 10 years from now—but your behavior will.
The Real ROI of a Cash Buffer
We’re conditioned to chase yield, to hate the idea of “idle” cash. But not everything has to earn 5% to be worth it.
A cash buffer gives you time, space, and confidence.
That’s a return most people underestimate.
It keeps your investment strategy intact. It helps you avoid big mistakes. And in times like this week—when markets go from despair to record highs overnight—it reminds you that staying calm is often the most powerful move you can make.
Final Thought: Control What You Can
You can’t control the stock market. You can’t control interest rates, trade wars, or political announcements that send indexes swinging.
But you can control your financial foundation.
For me, that means staying invested through chaos—and keeping one year of expenses in cash so I never have to make a short-term decision that could hurt my long-term future.
If you’re tired of riding the emotional rollercoaster of the market, maybe it’s time to ask: what’s your cash buffer?