What percent of your portfolio should be in a money market account?
I would disagree with your analysis.  To me there are two purposes for a money market (MM): Your emergency fund should be from 3 to 6 months of expenses.  Think of it of an insurance policy against Murphy.  You may want to have some money designated for big expenses, or even sinking funds.  For example, I keep some money in a MM for a car as both the wife, daughter, and I driver older vehicles.  I may need to replace them. If you were planning on making a larger purchase car, house, boat, engagement ring I would put the money in a MM fund so you are not subject to the whims of the market.   After that you are free to invest all your money.  Its likely that you should have some money outside of tax advantaged funds so if you want to start a business you will not have to do high cost withdrawals.
You say you have 90% in stocks. I'll assume that you have the other 10% in bonds. For the sake of simplicity, I'll assume that your investments in stocks are in nice, passive indexed mutual funds and ETFs, rather than in individual stocks. A 90% allocation in stocks is considered aggressive. The problem is that if the stock market crashes, you may lose 40% or more of your investment in a single year. As you point out, you are investing for the long term. That's great, it means you can rest easy if the stock market crashes, safe in the hope that you have many years for it to recover. So long as you have the emotional willpower to stick with it. Would you be better off with a 100% allocation in stocks? You'd think so, wouldn't you. After all, the stock market as a whole gives better expected returns than the bond market. But keep in mind, the stock market and the bond market are (somewhat) negatively correlated. That means when the stock market goes down, the bond market often goes up, and vice versa. Investing some of your money in bonds will slightly reduce your expected return but will also reduce your standard deviation and your maximum annual loss. Canadian Couch Potato has an interesting write-up on how to estimate stock and bond returns. It's based on your stocks being invested equally in the Canadian, U.S., and international markets. As you live in the U.S., that likely doesn't directly apply to you; you probably ignore the Canadian stock market, but your returns will be fairly similar. I've reproduced part of that table here: As you can see, your expected return is highest with a 100% allocation in stocks. With a 20 year window, you likely can recover from any crash. If you have the stomach for it, it's the allocation with the highest expected return. Once you get closer to retirement, though, you have less time to wait for the stock market to recover. If you still have 90% or 100% of your investment in stocks and the market crashes by 44%, it might well take you more than 6 years to recover. Canadian Couch Potato has another article, Does a 60/40 Portfolio Still Make Sense? A 60/40 portfolio is a fairly common split for regular investors. Typically considered not too aggressive, not too conservative. The article references an AP article that suggests, in the current financial climate, 60/40 isn't enough. Even they aren't recommending a 90/10 or a 100/0 split, though. Personally, I think 60/40 is too conservative. However, I don't have the stomach for a 100/0 split or even a 90/10 split. Okay, to get back to your question. So long as your time horizon is far enough out, the expected return is highest with a 100% allocation in stocks. Be sure that you can tolerate the risk, though. A 30% or 40% hit to your investments is enough to make anyone jittery. Investing a portion of your money in bonds slightly lowers your expected return but can measurably reduce your risk. As you get closer to retirement and your time horizon narrows, you have less time to recover from a stock market crash and do need to be more conservative. 6 years is probably too short to keep all your money in stocks. Is your stated approach reasonable? Well, only you can answer that. :) "Nobody has mentioned your ""risk tolerance"" and  ""investment horizon"" for this money. Any answer should take into account whether you can afford to lose it all, and how soon you'll need your investment to be both liquid and above water. You can't make any investment decision at all and might as well leave it in a deposit-insured, zero-return account until you inderstand those two terms and have answers for your own situation." "One possibility you may consider is to keep all of your funds in the stocks and shares ISA while investing that proportion you wish to keep in cash into a tradeable ""Money Market"" ETF. A Money Market ETF will give you rates comparable to interest rates on cash and at the same time it will give you ""instant access"" subject to normal 3 day settlement of equities.   This is not exactly a perfect solution.  Most Money Market ETFs will pay monthly dividends, so depending on your timing, you may have to give up some interest.  In the worst case, if you were to sell the day before going ex-dividend, then you would be giving up a months interest.  In the best case,  if you were to sell on the day of going ex-dividend, you would be giving up no interest." "Easiest thing ever. In fact, 99% of people are loosing money. If you perform worse then 10% annually in cash (average over 5-10 years), then you better never even think about trading/investing. Most people are sitting at 0%..-5% annually. They win some, loose some, and are being outrun by inflation and commissions. In fact, fall of market is not a big deal, stock indexes are often jump back in a few months. If you rebalance properly, it is mitigated. Your much bigger enemy is inflation. If you think inflation is small, look at gold price over past 20 years. Some people, Winners at first, grow to +10%, get too relaxed and start to grow already lost position. That one loose trade eats 10% of their portfolio. Only there that people realize they should cut it off, when they already lost their profits. And they start again with +0%. This is hard thing to accept, but most of people are not made for that type of business. Even worse, they think ""if I had bigger budget, I would perform better"", which is kind of self-lie." At twenty-two, you can have anywhere between 100%-70% of your securities portfolio in equities. It is reasonable to start at 100% and reduce over time.  The one thing that I would mention with that is that your target at retirement should be 70% stocks/30% bonds.  You should NEVER have more than 30% bonds.  Why?  Because a 70/30 mix is both safer than 100% bonds and will give a higher return.  Absent some market timing strategy (which as an amateur investor, you should absolutely avoid) or some complicated balancing scheme, there is never a reason to be at more than 30% bonds.   A 50/50 mix of stocks and bonds or a 100% bonds ratio not only returns less than the 70/30 mix, it is actually riskier.  Why?  Because sometimes bonds fall.  And when they do, stocks generally gain.  And vice versa.  Because of this behavior, the 70/30 mix is less likely to fall than 50% or 100% bonds.   Does that mean that your stock percentage should never drop below 70%?  No.  If your portfolio contains things other than stocks and bonds, it is reasonable for stocks to fall below 70%.  The problem is that when you drop stocks below 70%, you should drop bonds below 30% as well.  So you keep the stock to bond ratio at 7:3.   If you want to get a lower risk than a 70/30 mix, then you should move into cash equivalents.  Cash equivalents are actually safer than stocks and bonds either individually or in combination.  But at twenty-two, you don't really need more safety.   At twenty-two, the first thing to do is to build your emergency fund.  This should be able to handle six months of expenses without income.  I recommend making it equal to six months of your income.  The reason being that it is easy to calculate your income and difficult to be sure of expenses.  Also, you can save six months of income at twenty-two.   Are you going to stay where you are for the next five years?  At twenty-two, the answer is almost certainly no.  But the standard is the five year time frame.  If you want a bigger place or one that is closer to work, then no.  If you stay somewhere at least five years, then it is likely that the advantages to owning rather than renting will outweigh the costs of switching houses.  Less than five years, the reverse is true.  So you should probably rent now.   You can max out your 401k and IRA now.  Doing so even with a conservative strategy will produce big returns by sixty-seven.  And perhaps more importantly, it helps keep your spending down.  The less you do spend, the less you will feel that you need to spend.   Once you fill your emergency fund, start building savings for a house.  I would consider putting them in a Real Estate Investment Trust (REIT).  A REIT will tend to track real estate.  Since you want to buy real estate with the results, this is its own kind of safety.  It fell in value?  Houses are probably cheap.  Houses increasing in price rapidly?  A REIT is probably growing by leaps and bounds.  You do this outside your retirement accounts, as you want to be able to access it without penalty. "value slip below vs ""equal a bank savings account’s safety"" There is no conflict.  The first author states that money market funds may lose value, precisely due to duration risk.  The second author states that money market funds is as safe as a bank account.  Safety (in the sense of a bond/loan/credit) mostly about default risk. For example, people can say that ""a 30-year U.S. Treasury Bond is safe"" because the United States ""cannot default"" (as said in the Constitution/Amendments) and the S&P/Moody's credit rating is the top/special. Safety is about whether it can default, ex. experience a -100% return.  Safety does not directly imply Riskiness. In the example of T-Bond, it is ultra safe, but it is also ultra risky. The volatility of 30-year T-Bond could be higher than S&P 500.  Back to Money Market Funds.  A Money Market Fund could hold deposits with a dozen of banks, or hold short term investment grade debt. Those instruments are safe as in there is minimal risk of default. But they do carry duration risk, because the average duration of the instrument the fund holds is not 0.  A money market fund must maintain a weighted average maturity (WAM) of 60 days or less and not invest more than 5% in any one issuer, except for government securities and repurchase agreements.  If you have $10,000,000, a Money Market Fund is definitely safer than a savings account.  1 Savings Account at one institution with amount exceeding CDIC/FDIC terms is less safe than a Money Market Fund (which holds instruments issued by 20 different Banks).  Duration Risk Your Savings account doesn't lose money as a result of interest rate change because the rate is set by the bank daily and accumulated daily (though paid monthly).  The pricing of short term bond is based on market expectation of the interest rates in the future. The most likely cause of Money Market Funds losing money is unexpected change in expectation of future interest rates.  The drawdown (max loss) is usually limited in terms of percentage and time through examining historical returns.  The rule of thumb is that if your hold a fund for 6 months, and that fund has a weighted average time to maturity of 6 months, you might lose money during the 6 months, but you are unlikely to lose money at the end of 6 months. This is not a definitive fact.  Using GSY, MINT, and SHV as an example or short duration funds, the maximum loss in the past 3 years is 0.4%, and they always recover to the previous peak within 3 months. GSY had 1.3% per year return, somewhat similar to Savings accounts in the US." Unless you are getting better than a 2.95% return on that money market account. Pay cash. That's the purely logical way to make the decision. However if it were me I'd pay cash anyway just because I like the idea of not owing money and having the hassle of dealing with a payment every month. "Considering that I can't find anything on Chase's web site referencing a ""Money Market IRA"" I suspect that this is a type of account that they aren't actively supporting anymore, but aren't forcing you to cash it in.  I would call Chase to find out for sure, however. That said, a money market is not a good investment if you are looking for any kind of growth.  They are basically a savings account that pay (currently) a small amount of interest.  You can get much better return from other low-risk investments.  You can rebalance periodically if you want to keep a certain amount of ""cash"" available." "Wikipedia has a solid article on Money Market Funds which includes a section on ""Breaking the Buck"" when the money market fund fails to return its full dollar.  Money market funds smoothing out the daily (generally small) fluctuations of investing in short-term treasuries directly but have similar risk over longer periods.  Some funds can and have lost money in market crashes, though even the worst performers still returned 95+ cents on the dollar. While few investments are guaranteed and likely none in your retirement account,  money-market funds are likely the choice you have with the least fluctuation and similar minimal risk to short term treasuries. However, a second important risk to consider is inflation.  Money market funds generally have returns similar or less than the inflation rate.  While money markets funds help you avoid the fluctuations of the stock market the value of your retirement account falls behind the cost of goods over time.  Unless the investor is fairly old most financial professionals would recommend only a small portion of a retirement account be in money market instruments.  Vanguard also has a set of target retirement investment funds that are close to what many professionals would recommend.  Consulting a financial professional to discuss your particular needs is a good option as well." It's important to realize that any portfolio, if sufficiently diversified should track overall GDP growth, and anything growing via a percentage per annum is going to double eventually. (A good corner-of-napkin estimate is 70/the percentage = years to double). Just looking at your numbers, if you initially put in the full $7000, an increase to $17000 after 10 years represents a return of ~9.3% per annum (to check my math $7000*1.09279^10 ≈ $17000). Since you've been putting in the $7000 over 10 years the return is going to be a bit more than that, but it's not possible to calculate based on the information given.  A return of 9.3% is not bad (some rules of thumb: inflation is about 2-4% so if you are making less than that you're losing money, and 6-10% per annum is generally what you should expect if your portfolio is tracking the market)... I wouldn't consider that rate of return to be particularly amazing, but it's not bad either, as you've done better than you would have if you had invested in an ETF tracking the market. The stock market being what it is, you can't rule out the possibility that you got lucky with your stock picks. If your portfolio was low-risk, a return of 9%ish could be considered amazing, but given that it's about 5-6 different stocks what I'd consider amazing would be a return of 15%+ (to give you something to shoot for!) Either way, for your amount of savings you're probably better off going with a mutual fund or an ETF. The return might be slightly lower, but the risk profile is also lower than you picking your stocks, since the fund/ETF will be more diversified. (and it's less work!) Rebalancing your portfolio doesn't have to include selling.  You could simply adjust your buying to keep your portfolio in balance.  If you portfolio has shifted from 50% stocks and 50% bonds to 75% stocks and 25% bonds, you can just only use new savings to buy bonds, until you are back at 50-50. Remember to take into account taxes if you are thinking of selling to rebalance in taxable accounts. The goal of rebalancing is to keep your exposures the way that you want them.  Assuming that you had a good reason to have a portfolio of 50% stocks and 50% bonds, you probably want to keep your portfolio similar in the future.  If you end up with a portfolio of 75% stocks and 25% bonds due to stock market fluctuations, the exposure and the risk / return profile of your portfolio will have changed, and it's probably not something that you want. You don't want to rebalance just for the sake of rebalancing either.  There can be costs to rebalancing (taxes, transaction fees, etc...) and these aren't always worth the effort.  That's why you don't need to rebalance every month or if your portfolio has shifted from 50/50 to 51/49. I take a look at my portfolio once a year, and adjust my automated investments so that by the end of the next year I'm back to the ratio I want. (After seeing your most recent comment on the original question, it looks like others have answered the question you intended, and described the extreme difficulty of getting the timing right the way you're trying to. Since I've already typed it up, what follows answers what I originally thought your question was, which was asking if there were drawbacks to investing entirely in money market funds to avoid stock volatility altogether.) Money market funds have the significant drawback that they offer low returns. One of the fundamental principles in finance is that there is a trade-off between low risk and high returns. While money market funds are extremely stable, their returns are paltry; under current market conditions, you can consider them roughly equivalent to cash. On the other hand, though investing in stocks puts your money on a roller coaster, returns will be, on average, substantially higher. Since people often invest in order to achieve personal financial stability, many feel naturally attracted to very stable investments like money market funds. However, this tendency can be a big mistake. The higher returns of the stock market don't merely serve to stoke an investor's greed, they are necessary for achieving most people's financial goals. For example, consider two hypothetical investors, saving for retirement over the course of a 40-year career. The first investor, apprehensive Adam, invests $10k per year in a money market fund. The second investor, brave Barbara, invests $10k per year in an S&P 500 index fund (reinvesting dividends). Let's be generous and say that Adam's money market fund keeps pace with inflation (in reality, they typically don't even do that). At the end of 40 years, in today's money, Adam will have $10,000*40 = $400,000, not nearly enough to retire comfortably on. On the other hand, let's assume that Barbara gets returns of 7% per year after inflation, which is typical (though not guaranteed). Barbara will then have, using the formula for the future value of an annuity, $10,000 * [(1.07)^40 - 1] / 0.07, or about $2,000,000, which is much more comfortable. While Adam's strategy produces nearly guaranteed results, those results are actually guaranteed failure. Barbara's strategy is not a guarantee, but it has a good chance of producing a comfortable retirement. Even if her timing isn't great, over these time scales, the chances that she will have more money than Adam in the end are very high. (I won't produce a technical analysis of this claim, as it's a bit complicated. Do more research if you're interested.) Everyone would like a savings/checking account that has the same liquidity as others but pays multiple times as much, but such a thing would break the laws of finance.  The thing keeping savings and checking accounts cheap isn't particularly the FDIC insurance but the high liquidity and near certainty that you will not lose money.  In all of finance you are compensated for the risk (and perhaps illiquidity) you bear.  If you insist on a risk-free and highly liquid investment, you will get the risk-free and highly liquid rate, which is currently around 1%. Doesn't matter what type of investment it is (savings, money market, treasuries, etc.).  Money market funds, in particular, were designed to be a replacement for savings accounts.  They have decent liquidity and almost no risk (and no FDIC insurance).  But they earn about what good savings accounts do, because that's what risk-free investments earn. If you wish to earn more you must decide what you will give up: Decide on one (or both) of those to sacrifice and you will find yourself with options. If you're relatively certain that you're going to meet the requirements, it sounds like a good move for you. The #1 priority with emergency funds should be easy access to the money when you need it.  Before the current economic situation, money market funds were great for this since they preserved the value of the dollars you put in.  Now the rates on money market accounts are barely better than the 0.2% you're currently getting. 10% is way high unless you really dedicate time to managing your investments. Commodities should be a part of the speculative/aggressive portion of your portfolio, and you should be prepared to lose most or all of that portion of your portfolio. Metals aren't unique enough to justify a specific allocation -- they tend to perform well in a bad economic climate, and should be evaluated periodically. The fallacy in the arguments of gold/silver advocates is that metals have some sort of intrinsic value that protects you. I'm 32, and remember when silver was $3/oz, so I don't know how valid that assertion is. (Also recall the 25% price drop when the CBOE changed silver's margin requirements.)