In recent months I’ve been suggesting that my retired clients consider increasing their cash reserves and keep two years of income needs in a money market or ultra short term bond fund. While the time-tested standard of six months to one year of living expenses has worked fine over the past 25 years, it just makes sense to me to step up one’s liquidity in a financial crisis.
This suggestion has played to mixed reviews. Some clients embrace the idea and others are reluctant to take money from their portfolio earning up to 20% (at least this year!) to put it in a money market account earnings 0.05%. Of course, the real issue is not return but it’s safety and peace of mind.
I was interviewed on this topic by Charles Passy of the Wall Street Journal and the story, “Back to Basics”, appeared in the December 3rd edition. You can read more here.