In this episode of Finance Lab, host Cory Clark sits down with Louis Harvey, CEO of Dalbar, to discuss the importance of cash in financial planning. Louis challenges the commonly used rule of thumb among investors, emphasizing the need for a prudent asset allocation strategy. He introduces his paper on the topic and explains how having a spending portfolio can give investors the freedom to make decisions, both good and bad. They delve into the concept of investor behavior and its impact on asset allocation, highlighting the vulnerability of investors during market turmoil. Louis’ system of allocating funds for five years of spending aims to mitigate irrational behavior and provides comfort and reassurance during the market recovery. They also discuss the three categories of investments – diversified equity investments, speculative holdings, and real estate – and the importance of forecasting cash rather than relying on a fixed percentage of the portfolio. This thought-provoking discussion addresses the need for proactive financial planning and the importance of adapting investment strategies to individual needs and goals. Key Moments 0:15 - 1:05: Introduction of Lou Harvey, President and CEO of Dalbar, who will be discussing cash needs and investments. 1:40 - 2:15: The importance of having a spending portfolio and how it can affect investor behavior. 3:10 - 3:50: Discussion on how Prudent Asset Allocation can help mitigate irrational behavior and the importance of mid-year reviews and active management. 4:40 - 5:20: Exploring the significance of a five-year period in investing and why it was chosen over other timeframes. 6:00 - 6:50: Discussion on the three categories of investments: diversified equity investments, speculative holdings, and real estate. 6:50 - 8:00: Critique of the popular 4% rule for spending and the importance of forecasting cash instead. 8:00 - 8:30: Discussion on the two main uses of money: spending it or using it to earn more money. 9:20 - 10:00: Maximizing investments by investing aggressively and withdrawing when the market has recovered. 10:00 - 10:50: Acknowledgment of panic selling during market downturns and the importance of keeping calm. 10:50 - 11:40: Handling emergencies or unforeseen circumstances when making a five-year financial forecast. Connect with Louis Harvey LinkedIn: https://www.linkedin.com/in/louis-harvey-50793135  Read “Prudent Asset Allocation”: https://blog.dalbar.com/prudent-asset-allocation-case-study About Louis Harvey Founder and leader of DALBAR, Lou Harvey is relentless in the search for the forces that are shaping the world of financial services today, tomorrow, and for years hence. Using DALBAR' s research capabilities, Lou seeks insights from inside and outside the industry to understand and anticipate changes in customers’ needs and the ways products are distributed. Under his leadership, DALBAR is now recognized and respected in the financial services community for its credibility, independence, and its contributions in raising the level of excellence in the industry. Fiercely committed to delivering value to customers, he has proved through DALBAR that the business principle of putting the customer first does work. In the spring of 2010, Lou was named President of the Fiduciary Standards Board, an organization dedicated to maintaining fiduciary standards and communicating the inherent value of fiduciary relationships to the public at large. Lou has held governance positions at a number of institutions including the...