Kiplinger Personal Finance: Storing Cash Can Be Dangerous For Your Investment Portfolio | Economic news
Single-income households should have six to twelve months of regular spending. For two-income families, three to six months should be sufficient.
It makes sense for retirees to build up a cash cushion of one to two years of living expenses so that they can dip into their emergency fund to weather a market downturn without having to sell their retirement savings to depressed prices.
“It’s about protecting your assets for the long haul,” Ward said, adding that research shows that the most balanced portfolios (60% stocks, 40% bonds) have fully recovered from bear markets of 2000 and 2008 in one to two years.
- Significant expenditure or medium-term objectives. If an expensive purchase, like a new car, school fees, or the down payment for a new home, is on the horizon, you should have some cash on the side as well.
You cannot afford to risk the money that you will need in a few years on the stock market. High yield savings accounts or money market accounts, or even conservative short to medium term bond funds are good choices for this goal-based fund.
- Investments. For long-term money, the less money the better.
“We don’t consider cash to have a place in an investment portfolio,” said McKenna, who doesn’t recommend more than 2%. Even a 5-10% cash weighting can act like a headwind. To maximize long-term returns, emulate the low liquidity favored by fund managers.