Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
% Cash in asset allocation
Old 10-08-2015, 09:04 AM   #1
Full time employment: Posting here.
Tailgate's Avatar
 
Join Date: Jul 2013
Location: Texas
Posts: 881
% Cash in asset allocation

A forum search took me to a 2009 poll that showed 21% of folks responding that they had 30+ months of expenses in cash. That was during the downturn so it might be skewed differently now.

I just moved some cash to Vanguard in their MMF. My AA is now 15% cash, 42% bonds and 43% stocks.

Question is: Since pensions and SS currently cover basic expenses, should I keep less cash and keep my AA 60/40 (age 65) or should I keep the cash to take advantage of any downturns?
__________________

__________________
Tailgate is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-08-2015, 09:12 AM   #2
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 388
Quote:
Originally Posted by Tailgate View Post
A forum search took me to a 2009 poll that showed 21% of folks responding that they had 30+ months of expenses in cash. That was during the downturn so it might be skewed differently now.

I just moved some cash to Vanguard in their MMF. My AA is now 15% cash, 42% bonds and 43% stocks.

Question is: Since pensions and SS currently cover basic expenses, should I keep less cash and keep my AA 60/40 (age 65) or should I keep the cash to take advantage of any downturns?
Don't try to time the market. Keep your money working for you.
__________________

__________________
mrfeh is offline   Reply With Quote
Old 10-08-2015, 09:56 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,178
IMO, it's an individual choice.

First, if you're a market timer, keep cash when the market is high, but if you aren't a market timer this doesn't apply. I'm not going to say you should be one or the other.

The comment about holding 30+ months cash during a downturn (and I know you didn't say that was you) doesn't make sense though. In a downturn you would be putting cash back into the market unless you thought it was still going lower. Most likely this is a factor of illogical thinking, that when the market is down you are afraid of it and won't buy low, instead waiting for it to get higher before getting back in. Not a strategy to replicate.

The other factor is how likely you are to need ready money. Do you foresee any big expenses coming? Kids who might need help?

A lot of people talk about emergency funds, but I don't think those have to be cash. Have enough for the more common emergencies if you have them, but if the unexpected happens you can always sell stocks when the market is high, or bonds when it is low. I have so few emergencies that I'd rather have my money working for me and take whatever hit, if any, to sell funds if I have to. Sounds like you're retired so you don't have to worry about replacing income due to job loss.

If it makes you feel better to have some cash in place of bonds, go ahead, it probably doesn't have that much impact.

I'm actually probably close to 15% cash myself right now, but a lot of it is tied up in CDs as an alternative to bonds. I don't even think of this as "cash" though, since it's not readily accessible without penalty.
__________________
RunningBum is offline   Reply With Quote
Old 10-08-2015, 10:05 AM   #4
Full time employment: Posting here.
Tailgate's Avatar
 
Join Date: Jul 2013
Location: Texas
Posts: 881
Quote:
Originally Posted by RunningBum View Post
IMO, it's an individual choice.

First, if you're a market timer, keep cash when the market is high, but if you aren't a market timer this doesn't apply. I'm not going to say you should be one or the other.

The comment about holding 30+ months cash during a downturn (and I know you didn't say that was you) doesn't make sense though.
FWIW, here is the link to the poll I was referencing
__________________
Tailgate is offline   Reply With Quote
Old 10-08-2015, 10:18 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,178
Quote:
Originally Posted by Tailgate View Post
FWIW, here is the link to the poll I was referencing
Ah, didn't realize that was an e-r.org poll, not a general one, even though I should've since you mentioned finding it in a forum search. There is a contingent here who use CD ladders, which would mean a higher % cash. And some do just choose to have multiple years of cash. I suspect many of those don't have pensions, at least not enough to cover their needs along with SS.

Really, I think you have to access your own needs and comfort levels and do what's right for you, not what the majority do whether or not it's right for you. No two situations are the same.
__________________
RunningBum is offline   Reply With Quote
Old 10-08-2015, 10:30 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,459
Quote:
Originally Posted by Tailgate View Post
A forum search took me to a 2009 poll that showed 21% of folks responding that they had 30+ months of expenses in cash. That was during the downturn so it might be skewed differently now.

I just moved some cash to Vanguard in their MMF. My AA is now 15% cash, 42% bonds and 43% stocks.

Question is: Since pensions and SS currently cover basic expenses, should I keep less cash and keep my AA 60/40 (age 65) or should I keep the cash to take advantage of any downturns?
I have 5% cash in my allocation for my retirement fund. This cash is for rebalancing.

But I also have cash outside of my retirement fund. This is for near term expenses and for funding years where I come up short, as well as funds earmarked for splurges or special (one-time) expenses. This cash is not factored into my AA.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 10-08-2015, 10:44 AM   #7
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by Tailgate View Post
A forum search took me to a 2009 poll that showed 21% of folks responding that they had 30+ months of expenses in cash. That was during the downturn so it might be skewed differently now.

I just moved some cash to Vanguard in their MMF. My AA is now 15% cash, 42% bonds and 43% stocks.
I have 3 months expenses in cash and another 3 months in bonds as emergency funds so if you count those in the AA, that's 1/3 cash, 1/3 bonds, 1/3 stocks. I don't count them in my AA though as they are my "helps me sleep better at night" funds rather than actually being part of the investment portfolio. I do plan on growing the emergency fund to 12 months expenses but will likely hold 20-30% of it in stocks as inflation hedge (I-bonds may be tied to CPI but they don't really keep up with medical costs).

Funds earmarked for retirement are at 90/10 (the 10 being either cash or bonds depending on whether I use mutual funds or ETFs in that specific account).
__________________
hnzw_rui is offline   Reply With Quote
Old 10-08-2015, 10:58 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,676
1% in cash and half of that is in an interest bearing account. I think of Vanguard short term investment grade as near cash.

Can get it to my bank in a few days. Example, sell VFSUX and it gets to checking account in about 2 days. I guess to really spend this I'd have to wait a bit but this is just for topping off the account so their is always available cash there.
__________________
Lsbcal is online now   Reply With Quote
Old 10-08-2015, 12:54 PM   #9
Full time employment: Posting here.
 
Join Date: Aug 2007
Posts: 892
Right now, over 10%. But that's because I'm tax loss harvesting.

Normally I'm at 0% cash, which is where I'll be at the beginning of November. This might change when I'm retired, but probably not.
__________________
Eat, Drink and Be Merry.
tulak is offline   Reply With Quote
Old 10-08-2015, 12:56 PM   #10
Full time employment: Posting here.
 
Join Date: Apr 2014
Location: Houston
Posts: 639
Agree with those that say the amount of cash really depends on your situation and what you can be comfortable with. In my case, I keep 3-6 months worth of expenses available as cash but also keep a minimum of 3 yrs worth of combined cash+bond funds. Normally I plan to rebalance my bond / stock allocation yearly to a set target. But if the market was in a severe correction right when I wanted to sell some stock, I plan to use some of the bond money to hold me over until the market settled down a bit before I rebalance. Nothing magical here, just what makes one guy comfortable.
__________________
Whisper66 is offline   Reply With Quote
Old 10-08-2015, 01:03 PM   #11
Thinks s/he gets paid by the post
Live And Learn's Avatar
 
Join Date: Feb 2012
Location: Tampa Bay Area
Posts: 1,689
The question is an excellent one and one that I struggle with. For OP, since pension and SS cover basic expenses I'd probably keep less cash; probably enough for a "normal" emergency (20k ?). I have zero secure income right now, so I am keeping 4 years expenses in cash / near cash. I struggle with that however since I feel like that cash isn't working for me and may in fact be harming me. I'd deploy half of it if the S&P 500 ends up 25% below its high --- which sadly, makes me a market timer. Right now that cash helps me to sleep at night since I ER'd 3.5 months ago and then almost immediately had a portfolio drop.
__________________
"For the time being no discipline brings joy, but seems grievous and painful; but afterwards it yields a peaceable fruit of righteousness to those who have been trained by it." ~
Hebrews 12:11

ER'd in June 2015 at age 52. Initial WR 3%. 50/40/10 (Equity/Bond/Short Term) AA.
Live And Learn is offline   Reply With Quote
Old 10-08-2015, 01:17 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
My official AA is 98% equities/2% cash. It's handy for rebalancing (simultaneous buy and sell instead of waiting a day in between), transferring assets to different accounts, and emergency cash if I run low in checking without noticing it. Not really intended for buying more equities.
__________________
Animorph is offline   Reply With Quote
Old 10-08-2015, 02:09 PM   #13
Thinks s/he gets paid by the post
Cobra9777's Avatar
 
Join Date: Jul 2012
Location: Texas
Posts: 1,132
Quote:
Originally Posted by Tailgate View Post
Question is: Since pensions and SS currently cover basic expenses, should I keep less cash and keep my AA 60/40 (age 65) or should I keep the cash to take advantage of any downturns?
If your expenses are covered, then I see no reason for cash in the AA unless you want to do some opportunistic buying. However, you said "basic expenses." So I'm guessing you should probably hold enough cash to cover the "non-basic" spending for whatever period of time makes you comfortable.

We have pensions and rentals that cover 70% of expenses. When I retired 2 years ago, the original plan was to hold enough cash in the AA to cover that 30% gap for 2-3 years. However, we now take cash dividends in the taxable account which cover about half the gap. So in reality, we were holding 4-6 years of real cash need. I've also done some reading recently (Kitces and others) that challenges the conventional wisdom about holding cash at all. So I'm in the process of working it down through a combination of: (1) simply not replenishing as planned after spending, and (2) some opportunistic buying during the recent volatility. We'll still hold some cash in the AA, but probably more like 2 years of the "real" need after cash dividends. This drops the target allocation from 5% to about 2%.
__________________
Retired at 52 in July 2013. On to better things...
AA: 55% stock, 15% real estate, 27% bonds, 3% cash
WR: 2.0% SI: 2 pensions, some rental income, SS later
Cobra9777 is offline   Reply With Quote
Old 10-08-2015, 02:15 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,881
Right now we have about 3 years of expenses in what I call "cash reserves". It's not all in cash or cash equivalents, but I can easily convert it to cash in a very short time frame. It's still a small portion of our investable assets.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Old 10-08-2015, 04:27 PM   #15
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 882
Personal choice. I keep almost no cash -- maybe 2-3 weeks of expenses on average.
__________________
jebmke is offline   Reply With Quote
Old 10-08-2015, 04:28 PM   #16
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 882
Quote:
Originally Posted by mickeyd View Post
Right now we have about 3 years of expenses in what I call "cash reserves". It's not all in cash or cash equivalents, but I can easily convert it to cash in a very short time frame. It's still a small portion of our investable assets.
What is the rest invested in that can't be converted to cash?

We use VG mutual funds. They can be liquidated in 24 hours.
__________________
jebmke is offline   Reply With Quote
Old 10-08-2015, 05:19 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,861
I keep about $2k (often a little more than that) in my local bank's checking account, well above the minimum balance to avoid monthly fees. This is my first layer of emergency funds. Just yesterday, I needed about $260 of fast cash for something important so it was no big deal to withdraw it from a nearby ATM. My next layer of EF is about $40k in an intermediate-term muni bond fund which I can tap into via check or electronic transfer to my local bank's checking account.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 10-08-2015, 06:50 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,412
Quote:
Originally Posted by Tailgate View Post
...Question is: Since pensions and SS currently cover basic expenses, should I keep less cash and keep my AA 60/40 (age 65) or should I keep the cash to take advantage of any downturns?
I would reduce my cash allocation if my pension and SS covered my expenses.

Currently not collecting either and I target 6% cash, which is about 2 years of spending.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 10-08-2015, 08:50 PM   #19
Recycles dryer sheets
 
Join Date: Jan 2013
Posts: 67
Also, don't forget to take into account the cash held by any stock or bond funds that you own. This can impact your cash allocation although it isn't readily available as cash. If you are not careful, you can end up with an over allocation to cash. This may not be an issue for someone using only index funds.
__________________
marinauser is offline   Reply With Quote
Old 10-08-2015, 10:30 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,035
Don't know the percentage, but the dollar amount is less than a share, otherwise i would buy another share.

Holding cash is like holding gold, unless you are a trader and need powder.


Sent from my iPhone using Early Retirement Forum
__________________

__________________
dallas27 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Asset Allocation for drawdown phase: Keep "cash" in IRAs or taxable? samclem FIRE and Money 14 03-03-2012 04:54 PM
Cash cushion and Asset Allocation walkinwood FIRE and Money 28 09-15-2008 07:38 PM
Vanguard Asset Allocation fund now 10% cash... Lancelot FIRE and Money 18 03-02-2008 11:02 AM
High Cash Position in Asset Allocation Rocket_J_Squirrel Hi, I am... 15 10-22-2007 07:40 AM
How to make Asset Allocation Easy RYD FIRE and Money 7 08-03-2003 11:35 AM

 

 
All times are GMT -6. The time now is 03:12 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.