Maintaining a cash reserve serves as a defensive wall, protecting portfolios from the need to liquidate assets during market downturns. According to Thatcher, the primary calculation begins with a firm audit of monthly obligations, including housing, insurance, and food. Individuals relying heavily on fixed income sources like Social Security or pensions may find they require a smaller liquidity buffer than those dependent entirely on investment withdrawals.

Over-allocation to cash presents its own set of risks. Money sitting in low-yield accounts often fails to keep pace with rising costs, effectively shrinking in purchasing power over time. Thatcher suggests a tiered strategy: segregating funds into immediate daily accounts and separate emergency reserves. This structure, often supplemented by money market accounts or short-term certificates of deposit, allows for both accessibility and modest returns. Because personal circumstances shift—whether due to health changes or planned large-scale expenditures—advisors recommend an annual review of these reserves to ensure the balance remains aligned with current market conditions and individual risk tolerance.