"Keep Your Powder Dry" versus "Keep Your Money Working"

[Bryan Hancock]

I see comments about maintaining liquidity on the forums all of the time. This is obviously person-specific and represents a risk/reward tradeoff, but I was wondering what people's comments about debt are. I have heard 10% of long-term debt is a good target to maintain borrowing capacity. I have also heard banks want 6 month's worth of PITI payments for each project.

These seem like good minimal requirements, but they aren't very useful targets for building a long-term portfolio prudently. How much cash do you recommend keeping in your portfolio? What factor(s) would influence your decision to keep more or less cash? Is measuring your cash against long-term debt a useful tactic as your portfolio scales in size? If not, what alternative measures or ratios would be good to look at?