Getting back to the second part of your question....Juergen wrote: I just wanted to get something clear in my mind: Is the money I saved as an emergency fund (say the living expenses for one year) part of the cash portion of the PP? If so, any withdrawal in a case of emergency would mean that one could be forced to sell assets like stocks and gold even if there are in the red when the cash portion drops below 15%. Is this correct? And if so, wouldn't it be better to keep the emergency fund outside of the PP? appreciate eery answer
If all the volatile assets are down, then the cash allocation will have increased relative to the entire portfolio. Thus, it's unlikely you'll see cash dropping below 15% after a withdrawal. See the following thread for backtests regarding portfolio performance during a "withdrawal" phase:
http://gyroscopicinvesting.com/forum/ot ... or-a-myth/
UNLESS, of course, your withdrawal constitutes a large portion of the cash allocation. The problem would be compounded if part of your cash allocation is in tax-deferred accounts and difficult to access. For this reason, it's probably better to keep your emergency fund separate from the PP until your PP has grown sufficiently large.
I'm wrestling with this very issue myself. It's compounded by the fact that rebalancing might call for savings account cash to be used to buy gold, since cash in tax-advantaged accounts may only be able to buy stocks and bonds. Thus, how about this for a rule of thumb:
Keep the e-fund separate until the taxable portion of the PP has built up to at least twice the amount needed for a generous emergency fund. Note that "taxable portion of the PP" excludes savings for 529 accounts, new car, house down payment, etc.