Quote:
Originally Posted by jodi
Anyone know anything about this guy? I started getting a daily e-mail from him when my other newsletter (might have been Mary Hunt?) stopped - they said in an e-mail that Bruce's newsletter would replace it. I've had a few of those "things that make you go 'huh?'" moments when reading his advice (such as when he said "dollar cost averaging? Whatever that is" in resopnse to a question about it), but here's the latest:
SMART MONEY
By Bruce Williams
DEAR BRUCE: The recent ups and downs in the market have made me question whether I have enough money in cash. Conventional wisdom used to recommend keeping an emergency nest egg of cash equal to six months of living expenses. As someone with a relatively low risk tolerance, I am wondering whether my current 5.2 percent money-market account for my rainy-day fund would be a good place to park more money. What percentage of a portfolio should be kept in cash? Where are the best yields and returns to be found for that cash? My husband and I hope to retire in 15 years.
--L.R., e-mail
DEAR L.R.: Let's address the rainy-day-fund idea. You observe correctly that it was a common notion to keep about six months' cash on hand for emergencies. That idea has somewhat outlived its usefulness, given the availability of instant credit. Put another way: Why have money sitting around for a possibility (and, in most cases, not a probability) at a low interest rate when you can get a higher rate and arrange for a line of credit to provide that instant rainy-day money if needed? The instant loan, credit card, line of credit, etc., can be paid back almost immediately by converting other investments into cash. That said, this notion is somewhat tempered because of your low risk tolerance. You clearly are aware of the fluctuations in the market, which would give many investors a stomachache. At this writing, if you had ridden it out, you would be more than OK. There are many institutions across the nation that are FDIC-insured and that are paying about 5 percent, with absolutely no risk. Your money market has little risk and is paying about the same. There's nothing wrong with a low risk tolerance, but it does, in essence, condemn you to a low return on your savings. If you're retiring in 15 years, I'm guessing your age is late 40s, early 50s. If so, I suggest you increase your risk tolerance, because you do have the time to overcome the ups and downs of the marketplace.
(end of article)
It sounds like he's advocating the absence of an EF due to the presence of instant credit! Anyone else think he's off base here, or do you think things have things changed?
(Personally, I think I'll be unsubscribing to him)
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Two issues, the writer needs to understand personal finance and understand premise of an EF.
The second issue is the person which asked the question includes his EF in his asset allocation. Unless a person liquidates the EF when the market goes down (to buy more on a dip) then this premise is entirely off base.
The primary issue is the person asking the question is taking on too much risk. He should liquidate equity positions and create a bond or cash position. In addition, when the market does go down, this cash position should be liquidated to buy on the dip. If person is not comfortable with this, they need to create a larger cash position to begin with, and read up on asset allocation and rebalancing.