'All cash' versus '80% cash and 20%' stock portfolio

When the market turned downwards recently, some bloggers declared that they had cashed out and were 100% in cash.  Yes, the market did turn down further, but then it rebounded quickly and to a higher level.

"When the market goes down, people think it will continue to go down."

"After the stock market has gone up, people think that the probability of the market continuing to go up is high."

If we slashed our stock-market exposure every time we felt uneasy, we would buy high, sell low and garner disastrous investment results.

Also these short-term events that we react to need to take into consideration two desirable yet conflicting goals - one goal is to avoid being poor and the other goals is having a shot at being rich. Each goal is desirable. The question is, how do you allocate your portfolio between these two goals.

Is being 100% in cash at any time a sensible action? Experts are unlikely to suggest an all-cash (or all-bond) portfolio. After all, a mix of 80% cash (or bonds/ and 20% stocks will have comparable portfolio gyrations, but with a significantly higher expected return. At the other extreme, advisers probably won't recommend an all-stock portfolio. They will plunk at least some money in conservative investments (cash or bonds), to temper the stock portfolio's price swings and provide money in an emergency.