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5 years in cash
Old 10-29-2008, 12:58 AM   #1
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5 years in cash

I've heard a lot of folks on this board talking about having 5 years in cash, but I have yet to hear anyone talk about having 5 years in bonds. Which surprises me since most experts on asset allocation advise putting the bulk of your non-equity holdings in bonds, not cash.

So all you folks who said you have 5 years in cash, do you really mean cash (e.g. CDs, saving account, money market) or do you mean bonds (duration longer than a few months)?
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Old 10-29-2008, 01:07 AM   #2
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Quote:
Originally Posted by free4now View Post
I've heard a lot of folks on this board talking about having 5 years in cash, but I have yet to hear anyone talk about having 5 years in bonds. Which surprises me since most experts on asset allocation advise putting the bulk of your non-equity holdings in bonds, not cash.

So all you folks who said you have 5 years in cash, do you really mean cash (e.g. CDs, saving account, money market) or do you mean bonds (duration longer than a few months)?
Good question and I've wondered myself how many folks literally have 5 years of retirement expenses in cash or cash equivalents.

I have about one year of retirement expenses in cash or cash equivalents. Added to bond and bond fund interest, stock dividends (estimated conservatively) and SS starting next year, that one year of cash would keep me from selling equities or fixed investments with longer durations for at least five years.

The weakness of my plan is that if I needed to call in several years worth of cash immediately for some sort of emergency, I couldn't. The divs and interest are only available over time. The strength of my plan is that the returns are usually higher than holding cash. (Not necessarily right now though! )
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Old 10-29-2008, 01:18 AM   #3
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My approach is to have 1 year in money market (Vanguard Prime) and 4-5 years in short term bonds funds (VFSUX). That way I have access to everything at a moment's notice if needed for rebalancing purposes, but I get the same return smoothing benefits as if I maintained a bond ladder.
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Old 10-29-2008, 01:24 AM   #4
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I have about 5 years in cash in a savings account. Add to that some bond funds and the bond portion of DC pension fund.

I only have this much since I lucked out and sold a small portion of a high flier in June (in order to encourage it to continue upward) and never got around to moving it to other equities. Now, I'm being a cross between a chicken and a market timer.
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Old 10-29-2008, 02:47 AM   #5
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I probably have about 15 years worth of cash in various currencies, getting a variety of yields. I move them around, generally based on the various Central Banks' interest policy directions. Works for me.
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Old 10-29-2008, 06:10 AM   #6
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I plan to pull cash for expenses from a combo of CDs and ginnie mae yield, depending on tax consequences. Will probably start doing that in December when my checking account zeros out. Retired at end of Aug.
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Old 10-29-2008, 06:42 AM   #7
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10 years of cash in CD ladder. FDIC insured and paying a mean return of 6%. Set it up 2 years ago and so far appears to be one of the only smart investing moves I've ever made.
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Old 10-29-2008, 07:08 AM   #8
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I am all cash, always have been, CD Ladder, of 55 CD's, paying an average of 5.8% over the next 6 years. Will be building the next rung as good rates become available. All are FDIC primarily in two of the largest Military Oriented Federal Credit Unions (actually #1 and #3). Been doing this for about 30 years now. Seems to work just fine for me. Have regular CD's, IRA and ROTH IRA CD's with about 10% Tax Free earnings, 40% Tax Deferred and 50% taxable CD's. It is very slow but always positive (about a half percent a month).
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Old 10-29-2008, 07:09 AM   #9
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Your bond funds can hold cash as well. For example, the intermediate bond fund in my 401(k) is reported by Morningstar to have 32% cash. And the Vanguard short-term corporate bond fund is about 14% cash.

So while I have almost no "cash" in the accounts you mentioned, my overall portfolio has about 16% cash according to a M* X-ray analysis which is about 4 years worth.
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Old 10-29-2008, 07:36 AM   #10
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I have a mix but most of the funds I turned to cash in the last two years went to CDs because bonds didn't look as good. I hope someone here will give a shout out when times are good for bonds. I don't pay enough attention.
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Old 10-29-2008, 07:53 AM   #11
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I have about 2.5 years in cash in short term accounts, and another 12+ years in cash/fixed income in my retirement portfolio due to the ~42-44% fixed income allocation in that portfolio.

Quote:
Originally Posted by donheff
I hope someone here will give a shout out when times are good for bonds. I don't pay enough attention.
I think you are being paid very well to hold non-govt bonds right now, and the is usually considered a "good" time to buy bonds. We may be on a rollercoaster for another year or so, but as soon as bonds look "safe" again, the yields will disappear.

Audrey
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Old 10-29-2008, 12:18 PM   #12
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2 years in cash (money market), 3 years in bonds. I used to keep more cash (3-2 rather than 2-3), but I switched my bonds to shorter duration so I'm more comfortable with the current mix. Working to get down to just 1 year of cash, but DW loves the comfort of 'cash' so it'll probably go no lower than 1.5 years, even after the market recovers...
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Old 10-29-2008, 12:23 PM   #13
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The original question was about how much cash one holds in their accounts and how do you do it. I noticed one poster indicating that their cash wouldn't cover an emergency.

So overall I have about 3.5 years in cash (checking, mm, cd's), but in that amount is an emergency fund equal to two years expenses.

I have an additional 10 years of cash in bond funds (short-term, intermediate term, and TIPS).

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Old 10-29-2008, 01:19 PM   #14
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We probably have 7-10 years of funds in cash in the bank earning 6% on average. We have zero in bonds as I can't see the advantage as they don't seem to pay any more than what I can get for my cash and my cash is readily available.

For those that are in bonds, how does the return compare to what you are able to get on your cash?
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Old 10-29-2008, 01:53 PM   #15
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Can someone point me to where I can get a cash bank account or CD yielding 6%, please?
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Old 10-29-2008, 01:56 PM   #16
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G-Squared I have my money invested in Australia which is why I am able to get the 6% on my regular bank account.
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Old 10-29-2008, 02:02 PM   #17
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Thanks for posting the question. It clears up some of the things I didn't understand when folks talked about "cash".

I keep three "buckets" I guess of cash (in savings accounts). These buckets are mainly for major expenses or emergencies, Car (either for major repair or down payment if it gets big enough - Home repair (major appliance - or furnace repair, roof etc - and Travel ).

I feed these accounts monthly. And I haven't actually included them as part of my "portfolio". And when I figure my expencses, I include an amount in expenses to feed these buckets.

In my portfolio I have about 30% bonds (government) and about 70 equites (various).

If I factor in my emergency cash into my portfolio, I'm probably looking at
Cash - 9%
Bonds - 26%
Stocks - 65%
( I just did some quick numbers and at beginning of year these percentages were 4%, 18% and 72%)

But I don't plan to change how i'm looking at my cash - I know I'm going to need this cash and it probably won't be something I can put off - if my furnace breaks - I'll need to fix it, if my car breaks - I need to fix it(or buy a new one)- So I don't really count this cash as part of my portfolio, or count it as available for balancing my portfolio.

But - hearing how folks account for the "cash" part of the portfolio is informative.

Not sure if it's pertinent to the discusion, but I do have a COLA'd pension that covers 90% of my expenses.

Rick
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Old 10-29-2008, 02:24 PM   #18
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I have 1 year cash in MMF and 4 years cash in I-bonds.

I also have bonds in MF's such as Wellesley, Wellington and Schwab total bond index(in my 401(k) )

I also have a non-COLA pension for 70% of retirement expenses
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Old 10-29-2008, 02:32 PM   #19
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Can someone point me to where I can get a cash bank account or CD yielding 6%, please?
Cannot do that today however Capital One has 5.5% APY - albeit long term, but then I am looking to fill the "out rung" at any given time so 5-10 years out is fine for me especially since I can "pull" the interest periodically, which lowers the APY to the APR (5.23%). BTW I do not know what the impact of today's 1/2 point drop in FED rates will do to CD rates - have to wait a few days to see.
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Old 10-29-2008, 02:49 PM   #20
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We maintain one of year expenses + 10k in a money market fund.

Be more interesting thread if knew the working/retirement status of those responding to this question, as some might consider the cash needs of a retiree different than, say, a dual income family that can live off either income or versus a single income family.
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