Why I Call the S&P 500 a Parking Lot

I’m not sure where the term originated or where I picked it up from, but today, it is very common to hear investors complain about not having anywhere to park their money other than stocks. 

Back in the good ole days when interest rates were high, I generally chose to keep my uninvested cash in a money market account or a high-interest savings account. This would keep my uninvested cash “working for me” by stashing it away in a low-risk banking product or debt security.  Compared to keeping my money in the stock market, these accounts produced a worry-free, predictably safe return. 

The reason why everybody is looking for a safe place to put their money is that bonds, treasury securities, and banking instruments were once traditionally safe places to keep uninvested cash.

Today banks are not paying a decent interest rate, so after subtracting a hypothetical -3% annually to account for yearly inflation, money in the bank actually loses value.  Historically low-interest rates have actually created an environment where there is no alternative TINA to keeping your money in the stock market. 

Simply put, if you make money on a stock transaction and don’t reinvest the money, you almost always lose buying power due to low-interest rates and inflation, this is one theory for why the stock market is so high. It’s a common belief among some investors and economists that the stock market is being kept artificially high because investors are rolling over their gains into new stocks because there is no alternative place to put their money.

As for the parking lot analogy, it just means that you’re looking for a safe place to put your uninvested cash where it won’t lose value, just like you would park your car for a few hours/days in a parking lot. 

When paying for parking, it’s all about managing your losses. You may lose a couple of dollars from transaction costs (parking fees or market fluctuation) but for the most part, your principle is safe and ready to be used whenever you need it. 

When I make a profit on stock, I personally lock in my gains by selling the stock. Now that I have cash from the sale of a stock and I don’t know where to put it while I wait for my next stock purchasing opportunity, I have begun to use S&P 500 ETF‘s as my personal bank account. 

In normal market conditions, this would be dangerous, but since the entire stock market seems to mostly be moving sideways with brief 2 to 4% drops and pops, I’m using it as a parking lot. My car (cash) that I parked in the S&P 500 ETF is relatively safe and ready whenever I need it, besides the daily +2% or -2% parking fee. It beats transferring money to my checking account which can take two days and then transfer it back into the Public app, which thank God, is an instant transaction for me.

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