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Dear David (and other Fools),

You had a very interesting reply Monday night when asked about what to do if the stock market suddenly tanked next week. True to the Foolish credo of buy and hold, you said to "hold onto what you have".. and then added ... "and maybe buy some more..." The problem that arises, of course, is -- what do you do if you are already fully invested?????

I was wondering whether you subscribe to the idea of "nibbling", a concept which has been mentioned time and time again on these message boards. That is, if a stock (and/or the stock market) is near its all time highs, buy 1/3, then another 1/3 in the event that the market crashes within a couple of months. That way, some of your hard earned money is kept in reserve in the event of a market crash. This money can be kept in a money market fund in the meantime. It is disheartening, especially with volatile stocks that can fall (and have fallen!) 70-80% over the past few months, to have no recourse other than a LTB&H. Even if you were LTB&H, you would much prefer to have a cost basis of $20 for AOL, for instance, rather than $90. The compounded growth that you would be enjoying would be even greater for the long term if you had a low cost basis.

I guess my overall point is as follows: is it advisable to keep at least 20-30% of your holdings in cash or money market funds? think of it was insurance or extra ammo in the case of a market crash. This is in addition to money set aside to take care of your daily expenses, etc... of course!

Comments, anyone?

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