When markets are rallying, cash in the portfolio is a drag on performance, returning about zero.

The bottom line is this: Cash, in modest increments, has a role in any portfolio. But unless you are Warren Buffett, you should limit it to 2 or 3 percent.

When it comes to investing, there is no such thing as a one-size-fits-all portfolio.

Much of the traditional thinking about cash is well intentioned but unrealistic. Should you have six months of living expenses in the bank for emergencies? Sure. Do you? Probably not.

Markets are frequently ahead of, and often out of sync with, the economy.

Owning a variety of asset classes means that some part of your portfolio will be doing well when the cyclical turmoil arises. A broadly diversified portfolio includes large capitalization stocks, small cap, emerging markets, fixed income, real estate and commodities.