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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.

But:
* 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%