Warren Buffet is keeping $128 billion that can be deployed when stock market goes down. Should a middle class person hold little more of their investments as cash? Suppose if the person is responsible (no debt other than home) and with 3 month of expenses as cash. Should that person start thinking about holding 6 month or 1 year cash as cushion and deploy that cash to market when market goes down per his/her feeling?
There are saying such as 'cash is trash' and counter one is 'cash is king'.
Added point is that this middle class person is expecting a down turn in the market.
By middle class, I mean the person has no bad debt, has few months of cash and few years of stocks to cover expenses in case of job loss. and He/She is looking to maximize his/her return.
By no bad debt, I mean no credit card loan outstanding or any other debt other than home loan.
When asset allocation goes from 80/20 (stock v/s non stocks) to 85/15 with stock market rise, at that time I do not wish to sell the stocks (as taxes will kick in), but simply stop( or decrease) putting additional money to stocks side and it automatically increase the other side of the equation( for me there is no bond, but plain cash equivalent money market/savings).
As an further example, if one feels the stock market is at all time high, one should decrease the monthly buy in to S&P500 mutual funds or what ever fund one is buying every month to do $ cost averaging, suppose if (I use to buy $600 ( other than 401k) and adds $500 to cash for total $1100, then I will suggest only investing $400 per month to stocks and $700 to cash till he or she feels that market is in correctly priced with discipline*) times the factor one uses. For some this factor can be 0.25 or for some 25 or any value in between.