There are some classy arguments for sitting in cash. Warren Buffett, for example, thinks of cash not just as an "asset class that is returning next to nothing", but rather as "a call option that can be priced relative to the ability of cash to buy assets". Something he put to good use during the most recent financial crisis. David Merkel at the Aleph blog has a far more pedestrian reason for holding cash that "especially applies to the little guy who’s bought popular shares hoping they’ll do well". It goes something like this: "Invariably, when a significant panic hits the market … the value of their portfolio falls a lot, but they don’t sell or worry immediately, because they have a solid job and a buffer of a few months’ expenses set aside. Then a second shock hits. In the midst of the panic they suddenly face, say, the loss of their job (or severe trouble in their business), disability with no insurance, divorce, a health problem not covered by insurance or any one of the other n...
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