Replies to post #21088 on A.I.M. Users Bulletin Board (AIMUSERS)

[OldAIMGuy]

Hi Ray, Re: Starting Cash Reserve.................

It's my feeling that to be rigid in the cash reserve starting point of 50/50, 33/67 or 20/80 is about the same as buying "one size fits all" underwear! Sometimes it's going to be too much, sometimes not enough and if Goldielox is there at the right time, sometimes it might be "just right."

The i-Wave helps at least with stocks that have a long term positive correlation with the general markets. I'd say that an entire, well diversified portfolio of individual stocks should probably have an average cash reserve equal to the i-Wave's "diversified mutual fund" level to start, along the way and at any particular point in time.

So, if all of your holdings are positively correlated and very high BETA the "fund" level might be a bit light. Certainly if you had 15 stocks in the same industry, they should probably all carry a bit more cash than the "mutual fund" level since there's not industry diversification.

There are times when it seems all stocks are rising or falling in harmony. However, as we're seeing lately, industries do seem to drift off and go their own ways giving us sector rotation. That's where the IW's Mutual Fund level is probably closer to the market if we're well diversified.

Best regards, Tom