Why having a Cash Buffer Does Not Increase the Longevity of Wealth in Financial Independence
In the end, the reality is that while cash reserve strategies appear psychologically appealing, their actual benefits as an enhancement for retirement income sustainability appear to be a mirage upon closer inspection. The buffer zone approach appears to do little to effectively “time” the market, and/or to the extent it does, the benefits are overwhelmed by the adverse consequences of a large allocation of cash in the portfolio that drags down long-term returns. Notably, though, separate research has shown that shifting equity exposure in light of market volatility (and based on fundamental valuation principles) can in fact enhance both returns, risk-adjusted returns, and the sustainability of retirement income – and without the unfavorable impact of an unduly large cash position. – Research Reveals Cash Reserve Strategies Don’t Work… Unless You’re A Good Market Timer?