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No. of Recommendations: 2
Hi OhHomer,

"When MF says to keep a certain amount of cash on the side for risk management/dry powder (eg. 30% cash depending on your personal investing goals/risk tolerance), are they saying that 30% of your stock portfolio should be cash, or 30% of all your liquid assets in cash (including checking, savings, CD accounts?)"

30% ????????

Where are you reading this?

Having 30% in cash is where we were in Dec 2008. After Christmas, I moved some cash from annuities to our broker accounts, IRA's, to invest in stock. Beyond that, we have never been 30% cash since we started investing.

Right now I have more cash than normal because we are building a house.

In our portfolio, we have 8.76% cash with a target of 8%. I am holding some extra, about 5%, for possible use for the house. The remaining 3.76% is where our cash position should be based on investing in the recent down-turn.

Our cash position is an integral part of our portfolio and is included in all portfolio statistics and performance.

We also have about 3 years of our cash needs (living expenses - SSA) in a passbook savings account plus the remaining cash that I budgeted for the house.

Note the cash in savings is completely separate from our portfolio. It will never be invested, just spent. The sole purpose of this cash is to allow us to live without being required to sell stock during a down market to pay bills.

If you are working, you should have an emergency fund. It should be anywhere from 3 months to 1 year of your full living expenses. This is based on your situation with family, etc.

When retired, having a 3 to 5 year expense cash cushion will prevent you from selling securities when they are depressed in value. The dollar amount is based on what your portfolio needs to provide to you for your expenses plus some for inflation. It can be cash in passbook savings, a money market account or CD's. It should not be invested. I keep ours completely separate from our portfolio.

Does that help you?

All holdings and some statistics on my Fool profile page
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