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>> Why 5 years? If you look, most market down turns/recessions/crashes/whatevers, take about 5 years or less to return to previous levels. So this amount gives you a comfort level to ride them out. <<

True. Sometimes you hear this sort of thing referred to as a "buckets of money" strategy. The idea is to only keep money in the stock market that will not be withdrawn for at least 5-10 years. That way, you are much less likely to need to "sell low" in your equity bucket. If stocks tank 20% next year (for example), you don't need to sell stocks at the worst time for income because you have your "safe" cash bucket to draw from. Once stocks recover down the road, you could then sell some to replenish your 5-7 years "safe" bucket by moving some into CDs, money markets and short-term investment grade bonds.

Particularly risk-averse investors may want to set aside as much as 10 years' income needs into the "safe" stuff -- assuming they have enough left over to invest for long-term inflation-beating power.

When you know you have several years to weather a downturn without needing to sell stocks while they are down, it's easier emotionally to let the market do what markets occasionally do -- fall, sometimes sharply, and then recover.

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