How to Calculate when to Invest Your Cash

Step-by-Step Guide

1. 1

   Step 1: Write the following numbers down: The interest rate that your broker is paying you on your cash balance.

   The total expected return on the proposed investment, which would include price appreciation, dividends and capital gains (or losses).
   
   Express this as a percentage of the total investment.
   
   The commission charged by your broker when you make an investment.
2. 2

   Step 2: Find the break-even point when the return from the cash account equals the return from your proposed investment.

   With a cash balance more than the break even point, your higher yielding investment becomes feasible. , Multiply that amount by the total return (as an interest rate) of the investment you're considering.
   
   We'll call this "Amount A." Compare that with the following amount:
   Multiply your cash balance by the interest rate your broker is paying you for keeping your money in a holding account.
   
   We'll call this "Amount B."
   
   If B is larger than A, keep your money in cash for now.
3. 3

   Step 3: Use this formula to calculate the break-even point: Take your cash balance and subtract the broker's commission on the proposed investment.

4. 4

   Step 4: If Amount A above is larger than Amount B

5. 5

   Step 5: it is to your advantage to invest your cash in the investment you're considering.

Detailed Guide

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