Why do we need cash?

[Soh]

I'm new to this topic, so maybe somone asked this already...

Anyway, why do people recommend to have like 5% cash in your mutual fund portfolio? I'm looking at this one particular model, and it says 75% US stocks, 20% international, and 5% cash, as an optimal aggressive plan.

Thanks

Soh

[Sniper]

You might hold interest earning cash, to reduce volatility.

[DesertCat]

It may also be for emergency needs. Say you lose your job, you don't want to be forced to sell stocks or bonds (possibly when they are at their lows) to pay your rent.

Similarly if you are in retirement and will be taking regular cash distributions from your portfolio for living expenses. You would keep some cash ready, so you aren't forced to sell at the wrong time.

[Soh]

My cash inside of my portfolio is earning some interest, but I'm sure there's better safe investment that earns more interest, like some bonds.

Soh

[Sniper]

[ QUOTE ]
My cash inside of my portfolio is earning some interest, but I'm sure there's better safe investment that earns more interest, like some bonds.

[/ QUOTE ]

I'll just note, that you didn't ask what was a better use for the 5% cash... you just asked why portfolio strategists recommend it... and you received several correct answers to that question!

Personally, if you are young, my recommendation is to be fully invested!

[crownjules]

[ QUOTE ]
Personally, if you are young, my recommendation is to be fully invested!

[/ QUOTE ]

Are you saying that someone young, like myself (23), should invest all they have saved? I have ~6K in an ING account currently and I'm trying to decide if I should start investing (I've done quite a bit of stock trading research). The real question is how much should I take from savings?

[hedgeyerbets]

You should have a 3 to 6 month emergency fund in savings. Enough for you to pay the rent, pay for food, other unescapable espenses for a few months if you lost your job. 6k is probably enough unless you live in NYC or the like.

[Sniper]

[ QUOTE ]
Are you saying that someone young, like myself (23), should invest all they have saved? I have ~6K in an ING account currently and I'm trying to decide if I should start investing (I've done quite a bit of stock trading research). The real question is how much should I take from savings?

[/ QUOTE ]

Just to clarify, I am suggesting that you should be fully invested with all funds that you have allocated to your investment "bankroll"... and you should be striving to add to this every month, as much as possible.

Your poker bankroll should be actively working for you too.

[NobodysFreak]

you can't use a debit card or stock to buy drugs and prostitutes.

[wonderwes]

When the 2 big hurricanes tore through the gulf coast, a majority of credit card machines, ATM's and banks went offline. No matter where in life, cash will always be accepted.