Excerpted from Bogle on Mutual Funds by John C. Bogle, pages 79-80

Cash position. What percentage of the portfolio is held in cash reserves? Has the percentage varied? Has the cash position been effective in adding stability during market declines while not unduly retarding growth during market rises? Since there is no evidence stock managers have had any success in raising cash at market tops, nor in investing cash at market bottoms, with rare exceptions cash reserves should play only a limited role in an equity fund (say, 5% of the portfolio's total net assets). It does not seem sensible to pay high advisory fees for the privilege of owning the residual cash reserves held by most stock funds. Years ago, cash was supposedly held as a liquidity reserve to meet a possible run of redemptions on fund shares. Today the futures markets readily and inexpensively permit funds to remain effectively fully exposed to the stock market, while maintaining cash reserves for possible redemptions.