What if the the price of bonds and stocks are down at the same time. Wouldn't be good to have cash in the portfolio so you don't have to sell the funds at a low price? According to an article on Charles Schwab's website you should have cash equal to about one year of living expenses: "...set aside enough cash to cover your expenses for one year... Place this cash in a relatively safe and accessible account, such as a checking or savings account, a money market fund or an extremely liquid cash investment."I think you are interpreting this statement incorrectly. They don't say that this money is in cash so that you can live off it during bad years and avoid selling. Granted, that sounds good in theory but the point they are trying to make is to have an emergency fund. The very last thing you want to do with an emergency fund is to start to spend it during economically troubling times before an emergency occurs. Does your friend have an emergency outside the trust fund? See that last sentence of the paragraph you started to quote (my bold):Ideally, this cash cushion is outside your retirement portfolio, but you may include it within your portfolio as the table Suggestions for structuring a moderately conservative portfolio suggests. While I disargee with your interpretation with the quote, I agree that having cash or at least cash equivalents is a good decision. It's exceedingly rare for government bonds and the stock market to both be down significantly at the same time (Though it can happen, look at Greece). More often when stocks tank, there is a flight to safety into governemnt bonds and they will increase in value temporarily. Take a look at how stable these two short term bond funds have been:https://personal.vanguard.com/us/funds/snapshot?FundId=0041&...https://personal.vanguard.com/us/funds/snapshot?FundId=0032&...
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