Why do they not take the Emergency Cash/Fund into consideration when calculating the return requirement?
Because you never do… The Emergency Cash is just a portion of the Capital Base that is set aside in Cash Equivalent securities so that they are highly liquid and can be pulled out very quickly and cheaply in the event of a need for cash.
ya, BigW is correct. you keep the asset base the same when calculating return but you note in the liquidity constraing that an a fund (emergencey?) should be available to fund unexpected expenses.
INteresting because in some of the Schweser examples they take all immediate liquid needs which they idenitify as needs within 12 months away from the capital base. PJStyles
Yes, you would if you were making a donation or buying a house, or paying for college you would subtract that from Capital Base as it is Actual Money flowing OUT of your account. But an Emergency Cash stash stays in your capital base but is held in highly liquid securitites such as Money Mkt account…You could keep it at say your local bank if you wanted to I guess but it should still be included in your portfolio b/c its not Spent unless it needs to be in case of Emergency.
Got it… okay that makes sense… So essentially in your asset allocation recommendation you would ensure that the emergency amount would be allocated to cash equivalents?
Yes, and it will typically be a very low % of total capital.
Cool thanks…