Each week, Wes Moss answers real reader questions on money, investing, and retirement. Wes is Chief Investment Strategist at Capital Investment Advisors and a fee-only financial advisor. He hosts a weekly Ask an Advisor segment with Christa DiBiase on the Clark Howard Podcast and YouTube channel.

Wes's answer: In financial terms, dry powder refers to your safety assets: cash, high-yield savings accounts, short-term government bonds, and certain high-quality corporate or intermediate fixed income. These are assets inside your overall portfolio that generally fluctuate less than stocks. The idea behind keeping about three years of living expenses in dry powder is that stocks have historically taken roughly three years, on average, to recover from a bear market.

When it comes to consuming these assets, you do not need to rely solely on dry powder during normal or rising markets. In typical years, when both stocks and bonds are growing, you can withdraw from your portfolio in a relatively proportional way.

The trigger to lean on your dry powder kicks in when the market enters a deeper correction. For example, if stocks are down 15%, you consider shifting your withdrawals toward dry powder to avoid selling stocks at a loss. If the market is down 20% or more in a true bear market, you should draw almost entirely from your dry powder. This buys your growth assets the time they need to recover without being systematically depleted.

As for replenishing your dry powder, that may be possible when markets rebound and do well. If you maintain a baseline asset allocation — say, 60% stocks and 40% fixed income/cash — a strong market rally might push your stock allocation up to 70%. When you rebalance back down to your target allocation, you automatically trim your stock gains and use those proceeds to replenish your dry powder back to that full three-year threshold.