What does it mean to ‘keep your powder dry’?

‘Keep your powder dry’ is a saying that you may be familiar with. But have you ever wondered what it means or where it comes from? We take a look.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A person holding onto a fan of twenty pound notes

Image source: Getty Images.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

‘Keep your powder dry’ is a saying that you may be familiar with. But have you ever wondered what it means or where it comes from? This colloquial expression from the 1800s once worked as an alternative to ‘take care’ or ‘be ready’.

Over time, the phrase has found its way into the financial world, where it now means to always be ready for opportunities.

Basic meaning

The Cambridge Dictionary says that ‘keep your powder dry’ means ‘remain cautious and ready for a possible emergency’. This refers more to always being prepared so you can take action if necessary rather than a warning about danger. It’s a suggestion to avoid missing out on a great opportunity because you didn’t consider all possibilities.

Origin of the expression

English general and statesman Oliver Cromwell is credited with creating the expression. The story goes that Cromwell was talking to his army during his campaign in Ireland. He warned them about keeping their gunpowder dry as they were about to cross a river before a battle. So, as a mix of warning and inspiration, he told his soldiers to ‘Trust in God and keep your powder dry’.

About two hundred years later, British Army officer William Blacker used the entire phrase in his poem Oliver’s Advice and made it famous. Over the years, the second half of the sentence has become commonplace on its own. It was even used as a movie title for a 1945 American drama film starring Lana Turner.

Financial applications

The concept of dry powder has made it into the financial world in the past few decades. It is mostly used to mean ‘hold cash or liquid securities’ in case a big opportunity opens up. When a company has cash reserves, it becomes easier to invest in a sudden opportunity, buy stocks or participate in a now-or-never deal.

Investopedia refers to ‘dry powder’ as cash reserves kept on hand for potential acquisitions, purchase of assets or payment of obligations (like tax). Highly liquid securities are also cash-like. These include short-term investments, money market accounts and instruments that you can sell quickly for emergency funding.

While cash reserves are especially important for venture capitalists and corporate environments, they also have a role in personal finance.

Holding some of your personal net worth in cash means you will have money available for both opportunities and emergencies. A three- to six-month emergency fund is an example of this.

Examples of liquid assets 

Thinking about keeping your own powder dry? There are different ways to keep money easily accessible. Keeping money in a savings account is the easiest way to have liquid assets available. While interest rates are low, you can still find a savings account that offers a decent return on your deposit. 

Stocks and shares are also good examples of liquid assets. You can buy and sell in the stock market at any time and access the funds within a few days.

If you have a business, your accounts receivable (money your customers owe you) is also a liquid asset. Of course, how soon you have access to it depends on how quickly your customers pay you.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »