The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: Strategy comparison S&P500 vs. IUL||Date: 4/3/2013 6:13 PM|
|Author: Rayvt||Number: 71683 of 78166|
If I may, allow me to offer a small suggestion to the question about what amount of cash or "non-risked reserves" to hold. I believe a reasonable and conservative approach is to hold 5 years worth of cash or cash equivalents .... This would represent "risk free" money that could be used to avoid having to sell securities during a severe market
I used to think this was a reasonable idea. But I've recently read some papers & articles that changed my mind.
Don't have a link handy, but the argument goes like this:
* You want to have an asset allocation of, say, 10% cash and 90% equities (stocks, bonds, etc.)
* You do this because want to avoid having to sell stocks when they are down, so you withdraw from cash instead of selling stocks.
* What you are doing when you spend the cash is shifting your asset allocation to HIGHER equity allocation levels. Instead of 10/90 it becomes 5/95.
* If the bear market lasts longer than your cash cushion, then you are 100% equities. You wanted to have no more than 90%