Cash as part of your allocation

[Dash man]

I'm about 50% equities, 35% cash and 15% real estate including rentals. I'm completely out of bonds and believe bond funds are pretty risky right now. If bond funds crash they would be much slower to recover than equity funds IMO. I keep 5 years of living expenses in cash figuring that would outlast most bear markets.


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[FIREd]

I have 25% in cash/I-bonds/CDs, 25% in intermediate bonds, 45% in equities, and 5% in commodities.

[foxfirev5]

Long term 45% equities going into a very small pension ER. In the fixed income 55% I count all cash, stable value and bond funds. At this stage of the game all new contributions are going into the SV fund ( a low 1.46% ). My plan is to take in service w/d at 59 1/2 next year and keep the 401k until later in 2016. At that time I'll evaluate the current interest rate situation. I am considering a CD ladder for 5 years in conjunction with the IRA rollover I must take. Cash or fixed income the lines become blurred. All I know is that the fixed income portion for me is more complicated than the equity side.

[eta2020]

I like amount of cache at the level that serves some purpose and makes me money

For example if I need to buy medical insurance for next 7 years then I want my income to be at level that I qualify for subsidies with rest of money supplied by cache.

I like some dry powder cache that I can deploy to work when market drops, but that is not really cache....It is cache waiting to be spend. By itself cache is not a good investment. So I like to keep it at minimum needed to benefit me.

[Bikerdude]

Seems like you have time to start a 5 yr CD ladder. By the time you retire you will have a CD (cash) maturing each year.

[LOL!]

Quote:

Originally Posted by eta2020 I like some dry powder cache that I can deploy to work when market drops, ...

I call that a "bond fund".

The returns of bond funds are blowing away the return of cash, so that if bond funds ever drop in value, they will still be ahead of where cash would be.

[RockyMtn]

about 8% cash or 5 years expenses. Higher than normal but scared of interest rates. Overall AA is 62/38 equities to fixed.

[calmloki]

Looks like we have about 14% sitting in PenFed certs, but that is due to change in January when they mature. We have a fairly large chunk in cash normally, but it is used to make money via hard money real estate loans. Right this hot moment we have about all our cash loaned out, which is scary, but really juices up the returns. We also have a couple PenFed loans which total about 7.5% of our net worth. No reason to pay those off when we can have that equity making money for us.

[audreyh1]

5% of my asset allocation is in cash. This is completely independent of cash I have set aside for spending.

I set the model up from the beginning when the "efficient frontier" graphs showed that cash can help improve the long-term performance versus volatility.

There have been years where cash was my best performing asset class and sire came in handy for rebalancing.

[Animorph]

I don't have a cash allocation within the AA. As has been mentioned, holding cash for 30 years isn't exactly productive.


I compare my actual portfolio value to my retirement projections, which just use a simple fixed growth rate. If the actual portfolio value matches the projected value for a future year I go ahead and sell to cover that year's expenses. So I'm covered with cash through 2016 or so now, right on plan, depending on how irregular expenses pan out. If the market declines more than 20% from the peak, I'll start reinvesting any excess cash about 20% at a time as the market hits certain loss points. If I don't have extra cash I just raise cash month to month.

[CoolChange]

Quote:

Originally Posted by calmloki Looks like we have about 14% sitting in PenFed certs, but that is due to change in January when they mature. We have a fairly large chunk in cash normally, but it is used to make money via hard money real estate loans. Right this hot moment we have about all our cash loaned out, which is scary, but really juices up the returns. We also have a couple PenFed loans which total about 7.5% of our net worth. No reason to pay those off when we can have that equity making money for us.

While not something I would consider cash as part of my allocation, hard money loans seem like a possibly reasonable diversifier for excess cash. Is this something that you manage hands-on or via an intermediary of some sort?

Probably off topic; but, other non-cash investments have already been mentioned in this thread: CD's, short term bonds, etc.

I am just trying to learn more from those with actual experience; and, I assume it would be beneficial to others as well.

Thank you.

[calmloki]

Quote:

Originally Posted by CoolChange While not something I would consider cash as part of my allocation, hard money loans seem like a possibly reasonable diversifier for excess cash. Is this something that you manage hands-on or via an intermediary of some sort? Probably off topic; but, other non-cash investments have already been mentioned in this thread: CD's, short term bonds, etc. I am just trying to learn more from those with actual experience; and, I assume it would be beneficial to others as well. Thank you.

At moment we have about 1/2 loaned directly from us to a couple flippers we have done business with for years - really respect their whole method of doing business. We have another 1/2 loaned through an intermediary (for a point extra and 2 points higher interest). Also have a history with the intermediary. We've been doing real estate a long time and loans for a number of years - we've also lost a large amount of money to a loan company back when we were starting. Not risk free at all.

[Ally]

With the retirement plan we have at our company, the general cash account rate was grandfathered in 1979, when the plan began. It was guaranteed to never go below 3%, which for many years seemed ridiculously low, but now is the best cash rate I can find. So I have about half in that account and the rest spread among other funds, some conservative and some not so much.

[mathjak107]

we run about 10% cash but at times cash has been as high as 25%.

cash is a useful tool for controlling volatility. in fact cash and equities may be a better option than bonds and equities when rates start to kick up.

while you may do better with bonds now may actually turn out to be losing deal later when rates reverse. many times winning isn't losing.

folks have this mentality that if everything is not maxing out gains then they are losing money. but many times controlling volatility or holding cash as a call option at peaks for when stocks eventually fall is not a bad idea.

[jollystomper]

Though not retired I keep about 20% in cash. My "able to sleep at night" reasoning is that this covers the projected portfolio withdrawals needed for our planned lifestyle for up to 7 years, so we won't be forced to liquidate any stock/bond funds during a down market period. In seven years we will will be 63, which is the earliest we are planning to take social security, if we want/need that additional cash flow based on our financial situation at that time.

[Lsbcal]

In the postwar era, after 1948, this chart shows that cash (short term Treasury bills) beat bonds up to about 1981 and then bonds becames the winners. With rates extremely low now it's not clear where we are headed.

[Live And Learn]

Quote:

Originally Posted by jollystomper Though not retired I keep about 20% in cash. My "able to sleep at night" reasoning is that this covers the projected portfolio withdrawals needed for our planned lifestyle for up to 7 years, so we won't be forced to liquidate any stock/bond funds during a down market period. In seven years we will will be 63, which is the earliest we are planning to take social security, if we want/need that additional cash flow based on our financial situation at that time.

Maybe this should be a new thread - but ... how do you account for the Cash portion of your AA when you use retirement calculators that do not have Cash as part of the AA ? How do you treat short term bonds ?

For me, I ignore the cash portion and treat it as an unaccounted for cushion. I treat short term bonds and the 5 year PenFed CDs as "Bonds" in the calculators.

[jollystomper]

Quote:

Originally Posted by Live And Learn Maybe this should be a new thread - but ... how do you account for the Cash portion of your AA when you use retirement calculators that do not have Cash as part of the AA ? How do you treat short term bonds ?

Just don't use retirement calculators that don't assume cash.

Seriously though, I do what you do - just do not include it. It makes for a conservative planning forecast, which is fine by me.

[jkern]

I have 40% stocks, 40% bonds and 20% cash. (Not counting rentals)


If I add my rental properties: 35% real estate, 25% stocks, 25% bonds and 15% cash


I've always been a fan of cash even though it's a drag on ROI.

[Cobra9777]

Since you are still 5-7 years away, I see no issue staying 80/20 for now and either waiting, or just very gradually moving heavier into fixed income. Someone suggested a SV fund for new contributions, which is a good idea if you have access to one, but sounds like you don't. Another idea is to hold some cash, wait for higher rates, lower bond prices, and make some opportunistic shifts into bonds at that time. Personally, I would not strategically hold cash as a defensive fixed income substitute in your situation.

Our investable assets include 5% cash. This is mainly held at Ally earning 0.9%, with the rest in a cash management account at Fidelity earning nothing. This level of cash was intended to cover 2 years of expenses, not covered by other sources. I've been retired 1.5 years and the balance has not moved an inch, mainly because our spending is below plan and we take taxable dividends in cash. So, I'm thinking of reducing the cash to one year or less, to minimize the drag on performance. I just need another little "correction." That last one was over before I could blink my eyes.