7 steps on the road to retirement
Step 5. About that cash flow reserve ladder…
As mentioned earlier, the cash flow reserve ladder acts as an emergency pool of funds that clients can use for living expenses instead of selling securities when the market is down.
Thornburg notes that there are three parts to a cash flow reserve ladder: There’s the fixed-income investment portfolio, which has enough in it to cover five years of spending; the cash flow reserve, which holds two years of spending needs in the form of a money market account or a limited term bond fund; and the checking account, which is fed from the cash flow reserve and covers monthly expenses.