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Old 07-11-2013, 11:07 PM   #21
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I'm 60% stocks, 10% bonds, and 30% Short Term Bonds/Cash.

I'm not kicking myself with making 1% on my other 40%. I sleep better because when the market goes down 5% in a week, I don't care since I can think "if It keeps going down... I have lots of cash to get in." If it keeps going up...I 'm happy with the 60% in stock
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Old 07-11-2013, 11:28 PM   #22
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Not kicking myself with roughly 21% in cash. This is my 10 year near term expenses and ER SWR buffer. I'm satisfied with the net gains for the rest of the portfolio (bonds slghtly down but offset by equity gains). As others have said, I can sleep fine my AA and keeping things balanced. Beware the "coulda-woulda-shoulda" syndrome of looking back.
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Old 07-11-2013, 11:45 PM   #23
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Nothing wrong with being in cash if that's what your AA calls for.

There is a lot wrong with being in cash because you think the market will drop.
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Old 07-12-2013, 12:48 AM   #24
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Nothing wrong with being in cash if that's what your AA calls for.

There is a lot wrong with being in cash because you think the market will drop.
+1

Psychologically speaking:
  • Easy to try to time the market by selling equities and going to cash.
  • Not so see easy, on the other hand, to reverse the transaction.
-gauss
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Old 07-12-2013, 08:27 AM   #25
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Originally Posted by gauss View Post
+1

Psychologically speaking:
  • Easy to try to time the market by selling equities and going to cash.
  • Not so see easy, on the other hand, to reverse the transaction.
-gauss
And that is the power of deciding an AA and sticking to it - it helps/forces you to do that reversal transaction when you should.
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Old 07-12-2013, 08:45 AM   #26
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The only time I kick myself is when I don't follow my well thought out plan. If one didn't learn from the many sad stories of people's lives being turned upside down during the recent past then they should take a refresher course.
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Old 07-12-2013, 08:53 AM   #27
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We have 30% allocated to cash for almost two years. As the S&P 500 continues to rise, we are starting to question the shift to cash. For those who have a large portion of their portfolio allocated to cash, are you having second thoughts (or regrets)?

I know it's a silly question since we cannot turn back the clock and must accept whatever decisions made in the past. Just curious.
You have many years of investing ahead of you yet. Much more important than what to do now is to ask what have you learned from this, how you can avoid making a similar mistake in the future and become a better investor.

Here's a recent and helpful column by Barry Ritholz Missed the big market rally? Here’s what to do now. - The Washington Post
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What do you do now? How to begin to repair the damage?

It is a two-part process: The initial steps are designed to help you overcome your risk aversion — the emotional aspects of investing. Call it your “erroneous behavioral economic zone.” After we fix that big underutilized brain of yours, we can move on to the investment steps that allow you to work your way back into markets.

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Old 07-12-2013, 10:13 AM   #28
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I think that you should do whatever is required (buy,sell,nothing) to stick to your planned asset allocation.

I've learned that investing is very simple, but difficult:
1- You choose an asset allocation (fixed or sliding with time).
2- You stick to it.
The hard part? You stick to it, meaning you don't change it because the last years were not good, and you don't try to second guess yourself.

Do whatever you want; it's your money. Me, I stick to my plan and accept whatever the market gives me (or takes back, sometimes).
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Old 07-12-2013, 02:17 PM   #29
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I gotta admit, I read the OP and thought: "DANGER!". It sounded a lot like a thought process that leads to buying high, and then kicking yourself again when the market drops, and eventually locking in losses.

I am about 74/18/8 (S/B/C) right now, and building the cash portion right now because I don't see much that's cheap (domestically, anyway) today. If the cash gets too high (above 10-12% or so), I'll either pay down my mortgage a little bit, or look for value in equities. We'll see what happens in six months when I look at my AA again.
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Old 07-12-2013, 02:29 PM   #30
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We have 30% allocated to cash for almost two years. As the S&P 500 continues to rise, we are starting to question the shift to cash. For those who have a large portion of their portfolio allocated to cash, are you having second thoughts (or regrets)?
My recollection is that "almost two years" ago was during the political gridlock in Washington that led to the U.S. losing its AAA credit rating. Is that why you allocated 30% to cash back then? If so, I would indeed have regrets if I were in your shoes. If you are perpetually changing your asset allocation according to what you see in your crystal ball, you are bound to be disappointed. Justifiable regret is the first step towards avoiding similar mistakes in the future.

As far as my own portfolio, I have no regrets at all. I am only about 40% stocks, but that is up from about 33% stocks in 2008. So I was increasing my stock allocation when the market was way down and am now able to sell at a handsome profit in order to fund our retirement expenses.

Of course I would have done even better with a higher stock allocation, but who knew that at the time I was making asset allocation decisions? The whole point of deciding on an asset mix and sticking with it is that it's your best estimate of what you need to do to have enough savings, regardless of whether the stock market meets your expectations or not.
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Old 07-12-2013, 02:48 PM   #31
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I do not go by a % of allocation. Based on my budget I keep 3yrs of cash on hand. seems to work for me. the rest of my assets are a 50/50 allocation.
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Old 07-12-2013, 03:04 PM   #32
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Old 07-12-2013, 03:24 PM   #33
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In anticipation of retiring next year, I converted enough of my holdings to cash to cover the next 2 years, knowing I'd take a hit on returns if the market went up. It's a price you pay to avoid selling in a down market later should that be the future scenario.
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Old 07-12-2013, 03:28 PM   #34
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I do not go by a % of allocation. Based on my budget I keep 3yrs of cash on hand. seems to work for me. the rest of my assets are a 50/50 allocation.
Same here - 3 yrs of cash with the rest around 50/50 allocation. The 3 yr cash position gives me a sense of security so as not to overreact and try to time the market.
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Old 07-12-2013, 04:34 PM   #35
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In anticipation of retiring next year, I converted enough of my holdings to cash to cover the next 2 years, knowing I'd take a hit on returns if the market went up. It's a price you pay to avoid selling in a down market later should that be the future scenario.
When folks dread "selling in a down market," I wonder if that's as bad as it sounds.

I suppose it's how much of your portfolio you MUST sell each year to support your budget. After SS, pension, divs and interest, we generally don't have to sell anything out of our 50/45/5 FIRE portfolio. But, lets say we had to sell about 2% of the portfolio every year to supplement SS, pension, divs and interest.

First I'd look at the 45% bond portion to see if there was something maturing or, despite equities being down, some bond or shares of a bond fund worth selling. If not I'd go to the equity portion and look for tax loss harvesting possibilities. Or some equity that is up even if the overall equity portion of the FIRE portfolio is down. If there was nothing there worth doing, I'd sell and take the loss.

If the equity portion of the portfolio was down, say, 20%, that means I'd be selling 4% of my equities while they were 20% down. Not something that would be my first choice, but not a disaster IMO.

Unless it's a prolonged down market in equities and simultaneous with the fixed portion also being down, it just doesn't seem like protecting yourself from a year or two of "selling into a down market" is necessarily worthwhile.

An exception might be a year where you plan to spend significantly above your usual budget say for a new car or a house remodel. For that, I'd begin accumulating cash in advance.
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Old 07-13-2013, 04:02 PM   #36
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Hey,

Plan your flight,
Fly your plan

It is the in between (on the fly) deviations which will get you.
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Old 07-13-2013, 06:02 PM   #37
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We are somewhat overweight in cash right now because of the (perceived) bond bubble, which will hit bond funds pretty hard some day. I don't want the exposure for that day, in return for the tiny yields the bond funds are producing today.

Normally, we would rebalance from stock funds into bond funds, but these are not normal times.
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Old 07-13-2013, 09:00 PM   #38
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I am lazy about many things but I am always very diligent about making sure my money is working really hard for me, so I don't have to work.
Here is how I perform dynamic AA calculations.

I know roughly 2/3 of the time stocks will return -10% to a +30% in year. Now if you want to argue that stocks are over priced and you expect the range of stock returns to be 5% lower ( a really big assumption) meaning 2/3 of the times the range will be -15% to +25%.

Now looking at bond funds assume an average duration of 5 years. Rates are likely (certainly 1 standard deviation and possibly two) to go down 1% or up 2%. With a current yield of 2.5% this gives a range of returns from -7.5% to +7.5%

Finally cash offers 0% in money markets to 1% for short term CDs.

Then factor in your risk/gambler tolerance which for most people means reducing the expected return of equities significantly and 5+ year bonds slightly. Meaning that say you'd rather have a sure 6% return (i.e a 40% penalty) than the 10% average stock gives you normally or say 3% today because you think the market is overvalued. Do the same thing with bonds. If 10 year treasuries were paying their normal 5%, I'd rather have a money market fund/low penalty CD ladder that was paying 4% (i.e. 80%) to avoid interest rate risk. At today's rates it would be 80% of 2.5%=2% but I expect there is twice as much risk in interest rates rising rather than falling.

This results in what I call a risk adjusted expected return for the asset classes.
Stocks 3%
Bonds -.5%
Cash +.5% (MM + 3 year CD ladder).
Looking at the asset classes this says equities > cash > bonds. Now if you are highly confident that stocks are more than 10% over valued AND that market will drop by more than 10% in the next year, then by all means hold a large cash position.

But in general, it seems to me that you should keeps only as much cash as lets you sleep at night say 1 or 2 years max. The rest should be working for you, in long term CDs, bonds with a heavier weighting than normal in equities. This remains a very challenging investment environment, so I don't see how you can have a reasonable withdrawal rate if 30% of your assets are making 0%.

Of course a perfectly fine, arguable smarter, approach is to stick to an AA and periodically rebalance.
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Old 07-13-2013, 10:36 PM   #39
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Of course a perfectly fine, arguable smarter, approach is to stick to an AA and periodically rebalance.
That's approach that we intend to follow. Stay the course and do not attempt to outguess or time the market. Thanks.
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Old 07-13-2013, 11:16 PM   #40
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That's approach that we intend to follow. Stay the course and do not attempt to outguess or time the market. Thanks.

Ok but why have 30% cash, unless you have a boat load of Penfed 5% 10 year CDs?
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