OK, here’s my take on this just for sake of debate. I totally respect your views first and foremost.

Mutual Fund managers do carry a cash position which can vary depending on market conditions and the fund’s objectives. They can also employ derivative strategies to protect asset value. This takes us into another category. Active fund managers can manage a cash position depending on how the market is behaving. They may not keep it for a long time but there is no rule against them doing so. If you invest in an index fund, you probably won’t have any cash position and no break from a crashing market. These funds offer daily liquidity so people that start panicking on a market dip can get out. The successful investors are the ones who stay in for the duration.

The last bear market to my recollection was fairly recent. I believe it really got started in March of 2000. Before that, back in the 80’s, the market was pretty ugly for a while. My point here is everything is cyclical. Certain assets will outperform other assets depending on macro and micro economic situations. Always make sure that you invest in a fund where the manager has been around for atleast 5-7 years.

I just think investors need to keep a grander view of their investments and not focus on short term trends. If you do your homework and pick the right managers you should be fine. Have exposure to as many noncorrelating asset classes and stick to an asset allocation policy of rebalancing.

But like I said, this is just my view and I’ve been in the business a long time and have experienced a lot of crazy markets (up & down).