"Cash - the most under-rated asset class"

Most people become edgy with undeployed surplus lying in liquid funds and feel they are not doing quite enough with their capital. Belief is liquid investments are a drag on the portfolio and money should be working harder for them. However, efficient treasury management is not always akin to profitable Investments. Eventually due to this behaviour capital tends to be deployed at wrong times or worse, in wrong assets. This behaviour is more dangerous than the ‘idling returns’ - by no means a dud at 6% p.a.  

(Jerry Seinfeld had a hilarious take on this aspect that he would rather do the hard work himself and let his money relax rather than let the money go out to work hard and end up getting fired !!!.)

Apart from the benefit of not investing at wrong time in the cycle, the psychological benefit of liquid assets is enormous. It allows one to tolerate the whipsaw of market cycles on balance capital surefootedly and helps one avoid a knee-jerk reaction in volatility. It also allows one to be aggressive when market valuations are attractive and invest balance capital from a position of strength. One can consider a strong offensive without any trepidations only when they know home base is safe and guarded from threats.

Liquidity builds in a ‘Factor of Safety’ and Resilience into your portfolio. It is akin to ‘Overdesign margins’ which were built into rugged machine designs in the yesteryears. The cost incurred for the over-design used to be marginally more, but the equipment used to run way past its design life and with reduced breakdowns. In modern Industrial design, the margins have been eradicated due to cost pressures resulting in more breakdowns and lost production time, the cost of which is much higher.  

While percentage which one can allocate to liquid would vary for each individual based on age, risk appetite and tenacity to deploy in buckling market, having some level of cushion is certainly sensible for most.