Untitled Thread

My opinion is the cash cushion should already be considered part of your safe allocation (with bonds). So stick to your IPS. I personally only keep 6 months cash and even I think that's probably too much.

If you have after-tax brokerage consider your stocks extra-extra emergency funds beyond your 3-12 months cash.

I don't hold much in cash. I do have different asset classes though so if the market is down, I can take from whatever is doing the best. I have created a spreadsheet that will tell me where to get the money from. I 2nd the recommendation for the podcast by Frank Vasquez ("Uncle Frank"). That helped me a lot on learning this. I had to stop after I learned the lessons though. Continuing to listen was making me want to churn my portfolio.

The problem with the "N years of cash" strategy is what do you do if the market is down for >N years? As you've observed yourself, the common response from people promoting the strategy is, "just hold MORE cash". That still doesn't solve the >N problem though, and eventually you may be holding so much cash that it drags down your portfolio's overall performance.

From the Risk Parity Radio podcast, I learned to think of cash as just another asset allocation along with equities, bonds and alternatives. Cash gets rebalanced along with the other assets at rebalancing time.

The podcast is hosted by ChooseFI member UncleFrank who provides an excellent education in portfolio construction. I highly recommend diving into the podcast.