Hi Mathew,
Without going in to deep trance to work this out formally I will say that there is a simple answer. Normally you will keep the cash reserve in a savings account from which you can withdraw it rapidly. On this cash side there are several possibilities for maximising the yield on your money with a combination of high interest accounts and short term borrowing with the locked in cash as security. So, in this sense, you should never be caught with cash in your pants and always be fully invested. Your question indicates that you already see the logic of this.
AIMing is not so much a method of keeping cash at hand to invest at opportune moments but more a method of shifting capital to optimise the Growth Rate of your total Asset Base.
Coming back to your question, there is a general theory that as stocks dive in a Bear Market the yield on money assets rises. This creates an continuous tug of war between going into stocks with cash you pull from your money accounts, and gong into liquidities because of their high yield.
Your dilemma is not really a problem, for in the Bear Market you tend to shift your liquidities into stock, so you won't have so much money in the bond market to worry about it. However, to the extend that your money has not yet been shifted to stock you might be better off to transfer the money to a combination of a high-yield lending and short term borrowing for stock buying. This way you prevent penalties on your high-interest investment, and by borrowing only for short periods the borrowing cost remains low.
Now, this is the generalization. You have to do some work to fill in the details that you can get from your local bank. I myself stay away from the bond market as it does not fit my investment profile, so I prefer high yield liquidity accounts and borrowing(I use a special technique that allows me to buy the stock I want for AIMing with borrowed money and avoid the serious pitfalls of margin investing. My borrowing technique is especially effective for the AIM Buying Mode).
Justly or not, I "see" the bond market as boring and have the impression that it is very sluggish, meaning that high yield-money reacts much more rapidly to market conditions than the bond market does. It would pay you to simply compare the delay time for the bond market to react to the increased interest rates for liquidity accounts and calculate when the higher yield of the bond market you have in mind breaks even with your liquidity accounts. This way you can always maximise your liquidity yield.
I hope this will help you to start thinking about always being 100% invested, and at the same time, being able to buy all the stock you want as your AIM produces Buy Orders.
There is no need to run out of liquidity to buy stocks on the way down to the Big Dipper!
Conrad
