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As stock indexes hit record highs, nervous investors increasingly face a difficult choice: Do they keep betting as heavily on the markets, or do they move more money into cash? Cutting exposure with the aim of putting cash back to work when valuations drop can be soothing at first, but maddening if stocks continue climbing. With interest rates so low and stocks climbing, holding a lot of cash in a portfolio recently has been costly. But value managers view it differently: Cash not only can buffer a portfolio against market corrections, it provides flexibility to buy again after prices have fallen a lot.

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