Cash as a Buffer

Cash is not only a dead asset. It can protect you from forced selling, cover emergencies, and give flexibility when markets are stressed. It can also drag returns when held in excess for too long.

Some investors use cash to rebalance during downturns, but that is different from guessing the bottom. Decide on a cash buffer in calm markets based on expenses, job stability, and risk tolerance. Then use it according to a plan, not a headline.

Keeping 5-15% of your portfolio in cash or cash equivalents (high-yield savings, T-bills, money market funds) gives you "dry powder" for opportunities. Cash isn't a hedge — it's ammunition. The key is having it ready before the crash, not scrambling to find it after. Experienced investors decide on their cash buffer in calm markets, so the choice is already made when fear takes over.