A:

The term "dry powder" originated during the days when military battles were fought with guns and cannons that used gun powder. The gun powder had to be kept dry in order for it to remain effective. Nowadays, the term "dry powder" is used metaphorically in various contexts and circumstances, including the world of finance.

"Dry powder" in the financial world is used in reference to an individual company's cash reserves, particularly during difficult economic times. These cash reserves may be needed by the company to meet its obligations, so the company may seek to build up its "dry powder" in anticipation of tough conditions ahead.

In the world of finance, the term "dry powder" is used in reference to investors, too. In this case, "dry powder" still refers to cash reserves, but it also can include other liquid assets, such as money market funds that an investor may have set aside for investment purposes.

Many financial advisors warn their clients against investing 100% in the stock market and encourage them to be prudent by maintaining plenty of dry powder. Dry powder of this kind comes in handy during periods of steep market decline because cash reserves do not diminish in value, and you can fall back on these savings when needed. Moreover, it can be especially beneficial to the investor who chooses to buy stocks at substantially lower prices during such periods of decline.

To learn how to create your own emergency savings, see Build Yourself An Emergency Fund and Are You Living Too Close To The Edge?

This question was answered by Tony D'Altorio.

RELATED FAQS
  1. How does gun control policy affect the stock price of firearm companies?

    In general, companies that manufacture firearms, ammunition, and firearm accessories will find it easier to sell their products ... Read Answer >>
  2. What does "guns and butter" refer to?

    Guns and butter refers to a famous model explaining the relationship between two goods that are important for a nation's ... Read Answer >>
  3. What should I bring to the Series 63 exam?

    Taking the Series 63 exam doesn't have to be stressful. With our guide, you can know everything you need to be prepared on ... Read Answer >>
Related Articles
  1. Investing

    J&J Loses Second Talcum Powder Cancer Case

    A jury recently ordered Johnson & Johnson to pay $55 million in damages to a woman who claimed that its talcum powder products caused her ovarian cancer. The ruling was made by the same Missouri ...
  2. Personal Finance

    JNJ to Pay $55 Million in Ovarian Cancer Suit (JNJ)

    Health care giant Johnson & Johnson was ordered to pay $55 million in damages to a woman who claimed that the company's talcum powder was responsible for her ovarian cancer.
  3. Investing

    The Risks Of Investing In The Gun Industry

    Investing in the gun industry could be an interesting proposition, but it all depends on timing.
  4. Financial Advisor

    How Hard is It to Dump Gun Stocks?

    Activist group Gays Against Guns is putting pressure on BlackRock to divest gun stocks held by some of its funds.
  5. Insights

    The Baltic Dry Index: Evaluating An Economic Recovery

    This index can provide insight into economic growth and production, but it has its critics.
  6. Investing

    How the Weapons Trade is Killing It in the U.S. (RTN, LMT)

    Find out the reasons why the weapons trade is expanding abroad and in the United States, and what it means for U.S. defense contractors and gun manufacturers.
  7. Insights

    Will Obama's Regulations Shoot Down the Gun Industry?

    Gun stocks and sales surged in response to news of President Barack Obama's executive orders on gun control Monday. The question is, will the President's new executive orders have any noticeable ...
  8. Insights

    Alcoa Expands Into 3D-Printing With Airbus Orders (AA)

    Alcoa unveils its state-of-the-art, 3D printing metal powder production facility in its quest to be the world's leader in light metals.
  9. Investing

    Smith & Wesson Reaches All-Time High On Gun Demand (SWHC)

    Shares of Smith & Wesson shoot up on rising demand for guns in the U.S.
  10. Insights

    Bang for the Buck: Where Gun Buyers' Cash Could Go

    Some anticipate that stricter gun control laws could reduce the revenue of the firearm industry, but funds not spent on guns could flow into other sectors.
RELATED TERMS
  1. Dry Powder

    A slang term referring to marketable securities that are highly ...
  2. Dry Hole

    A business venture that ends up being a loss. The buzz word "dry ...
  3. Dry Loan

    A mortgage where the funds are supplied after all of the required ...
  4. Dry Closing

    A type of real estate closing in which the entire closing requirements ...
  5. Dry Bulk Commodity

    A commodity which is shipped in large, unpackaged amounts. There ...
  6. Beating The Gun

    A slang phrase used when an investor purchases or sells a security ...
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center