From: Will Trice 
Newsgroups: misc.invest.financial-plan
Subject: Re: cash vs bonds in allocation
Date: Sun, 19 Mar 2006 16:25:13 -0600
	iQBVAwUARB3aSfl/I4+O31e5AQFF+gIAzEmxDUMvMQqbgSomD4cFlKyGPO4jrHwR
	njcfTjKFJ6ogAI2XBCf3SiCb9BN6NlAL4T+OG+mNjSUlpDSeWSzvYQ==
	=ZlOa



Chris Cowles wrote:
> For the purposes of this question, I'll combine growth, value and blend 
> categories to describe the target mix as 25% large, 20% mid, 15% small, 15% 
> foreign, and 25% bonds. I have to adapt that to my own situation. I have 
> ~20% of my portfolio in cash, a guaranteed interest fund currently earning 
> 4%. That investment is directed by my employer and is outside my control.
> 
> My question is, how do I make that adjustment? Do I reduce the bond portion 
> to 5% (Option A)? Or do I reduce all categories proportionately (Option B)? 
> If I reduce all proportionately, non-performance by the cash fund will be a 
> drag on the rest. However, if I reduce the bonds to 5%, won't I lose the 
> principal protection of negative correlation between stocks and bonds?

The only time you care about negative correlation is when stocks are 
moving down, right?  So when they're moving down, wouldn't your 
guaranteed return investment be negatively correlated to stocks?

Just a thought,
-Will