Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 06-07-2012, 04:25 PM   #21
Thinks s/he gets paid by the post
Free To Canoe's Avatar
 
Join Date: May 2008
Location: Cooksburg,PA
Posts: 1,738
Quote:
Originally Posted by Animorph View Post
I do have a cash bucket, but with a target of 0%, so hopefully no drag. The rest of the portfolio is all diversified equities. I raise cash whenever the portfolio is doing better than planned, so drag there is not so much of a concern and hopefully ends up as selling high. I reinvest if there is a bear market or worse, in equal amounts on the way down, minus a few months of living expenses. So that's my buy low. If I don't get a chance to buy, this is my normal retirement spending withdrawal for a few years, so the cash doesn't hang around too long. If I don't get a chance to raise cash I just sell to raise what I need for expenses.

I think this strategy, which I have never seen described anywhere, has been a plus over the last few years. I started retirement with "just in case" cash in 2007, reinvested it during the downturn, raised cash again at the recent peak, and have started reinvesting it again. Just missed reaching a reinvestment trigger last week, but I'm sure it will come. I'll probably limit the amount of cash I raise to a few years if the world economies start looking better, but these days this is one way to make sure equities are sold at the planned for prices and the retirement plan stays on track even with the wild market swings.
I would like to hear more about your system if you feel so inclined. How do you determine the reinvestment triggers?
__________________

__________________
Free to canoe
Free To Canoe 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 06-07-2012, 05:17 PM   #22
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: 5,695
Quote:
Originally Posted by Free To Canoe View Post
I would like to hear more about your system if you feel so inclined. How do you determine the reinvestment triggers?
Not that I'm trying to discourage the answering of this question directly, but if you look up rebalancing strategies there are a gazillion of them. That is because it's all about timing strategies and most of these have not been studied in any great depth, IMO.

My own is to select the max equity exposure and then when it hits 1% above that, sell 1%. Do this check and possible sell at the end of each month. Might result in several small incremental sells. Is designed to be a mechanical strategy as opposed to a "hunch" strategy.
__________________

__________________
Lsbcal is online now   Reply With Quote
Old 06-07-2012, 06:31 PM   #23
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: 16,515
Articles that focus on maximizing long-term return ignore the main reason for a cash bucket - shorter term peace of mind. It's volatility of many asset classes (stocks AND bonds) that makes life rough for the retiree, and having some strategies to shield oneself from big market swings can really help deal with living off investments and helps tune out the market noise.

Cash as an asset class also has a place in an asset allocation if you are using the "efficient frontier" curve to choose your risk(volatility)/performance tradeoff and thus your AA. It sure comes in handy when you have a bad year across many asset classes like 2008 and need to rebalance your portfolio.

Of course, I don't "count" my shorter term cash fund for living expenses as part of my total long-term portfolio, so frankly I don't care about any "performance drag". That is money to cover the next year or two's expenses. It's not there to boost long term performance. I keep them religiously segregated.

Audrey
__________________
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 06-07-2012, 09:45 PM   #24
Full time employment: Posting here.
urn2bfree's Avatar
 
Join Date: Feb 2011
Posts: 711
Quote:
Originally Posted by Animorph
I do have a cash bucket, but with a target of 0%, so hopefully no drag. The rest of the portfolio is all diversified equities. I raise cash whenever the portfolio is doing better than planned, so drag there is not so much of a concern and hopefully ends up as selling high. I reinvest if there is a bear market or worse, in equal amounts on the way down, minus a few months of living expenses. So that's my buy low. If I don't get a chance to buy, this is my normal retirement spending withdrawal for a few years, so the cash doesn't hang around too long. If I don't get a chance to raise cash I just sell to raise what I need for expenses.

I think this strategy, which I have never seen described anywhere, has been a plus over the last few years. I started retirement with "just in case" cash in 2007, reinvested it during the downturn, raised cash again at the recent peak, and have started reinvesting it again. Just missed reaching a reinvestment trigger last week, but I'm sure it will come. I'll probably limit the amount of cash I raise to a few years if the world economies start looking better, but these days this is one way to make sure equities are sold at the planned for prices and the retirement plan stays on track even with the wild market swings.
This sounds like what is known as Value Cost Averaging.
__________________
urn2bfree is offline   Reply With Quote
Old 06-08-2012, 03:39 PM   #25
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Quote:
Originally Posted by Free To Canoe View Post
I would like to hear more about your system if you feel so inclined. How do you determine the reinvestment triggers?
I've discussed it a few times before, and I'm sure the long-time members are tired of seeing it again! And it is all mechanical in operation, no more timing involved than a triggered rebalance. Also, we are cash flow negative, even with DW working, so excess cash can be spent in a few years without touching equities. Something slightly different along the lines of over-rebalancing might work better than this during accumulation.

Raising cash:
I have a simple x% market return, x% inflation projection for my retirement portfolio. It assumes I sell enough equities each year to support my expenses. So if the portfolio is doing well and exceeds next year's sell point value, I'll sell immediately to lock in that cash for next year at the desired market return. I'll do that for a few years if the market keeps going up. If the market goes down, then I've got cash to live on for a while. My way of smoothing out the returns. All mechanical.

If I don't have any extra cash I sell equites as needed. I have a nominally all equity portfolio and no desire to hold cash or bonds long-term

Reinvesting cash:
If I have more than a year or so of cash, I'm happy to reinvest it if the market goes down more than 20%. I use (SPY + EFA)/2 with dividends reinvested as a market proxy for this number. I divide the cash into 5 equal amounts and reinvest one part each at -20%, -25%, -30%, -35%, and -40%. You never know how low it will go. I added a couple of steps during the last big market drop by adding HELOC money into the mix (now repaid and ready to go again). I was just about to transfer allocations from conservative funds into volatile funds, the last step I could take with no cash to reinvest, when the market finally turned back up. However, I did reserve enough cash for about 12 months of expenses so we could wait for the market to recover.

Even if you have to sell before a full recovery, you are taking out cash that was used to buy equities that were 40% down and have recovered, a net positive. The risk is of course that you sell equities at a 50% discount that you bought for a 40% discount, but that's still not too bad.

Again, absolutely mechanical, though exciting near the trigger points. I also like to work with ETF's when doing this so I can hit the triggers precisely intra-day. The last day of the 2009 drop included a 1% rise or so late in the day, IIRC, and I didn't place the MF buys because of that. And then I never had the chance because the market never reached that low again.


So, it's a way to ensure you sell equities at your targeted yearly prices to meet your retirement goals, even if you sell early sometimes. And a way to reinvest in a bear market sometimes. Otherwise, I just sell equities as needed during a hopefully boring average market. That hasn't happened very often so far.
__________________
Animorph is offline   Reply With Quote
Old 06-08-2012, 03:45 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Quote:
Originally Posted by urn2bfree View Post
This sounds like what is known as Value Cost Averaging.
Not as I understand it. VCA uses fixed dates and varying amounts of cash (IIRC), while I'm using price triggers and equal amounts of cash. I may never reinvest all of the extra cash. Not a big problem because I can spend it eventually.
__________________
Animorph is offline   Reply With Quote
Old 06-11-2012, 05:30 PM   #27
Thinks s/he gets paid by the post
Free To Canoe's Avatar
 
Join Date: May 2008
Location: Cooksburg,PA
Posts: 1,738
Quote:
Originally Posted by Animorph View Post
Not as I understand it. VCA uses fixed dates and varying amounts of cash (IIRC), while I'm using price triggers and equal amounts of cash. I may never reinvest all of the extra cash. Not a big problem because I can spend it eventually.
Thanks. I appreciate your the detailed input posts.
__________________
Free to canoe
Free To Canoe is offline   Reply With Quote
Old 06-11-2012, 06:42 PM   #28
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by audreyh1 View Post
Articles that focus on maximizing long-term return ignore the main reason for a cash bucket - shorter term peace of mind. It's volatility of many asset classes (stocks AND bonds) that makes life rough for the retiree, and having some strategies to shield oneself from big market swings can really help deal with living off investments and helps tune out the market noise.
I think of my bond/cash allocation as a low pass filter to damp out market variations and provide a constant income. In good times I "charge" them up as the gains from the market will out weigh my withdrawals. In bad times there should be enough stored in my bond/cash allocations to see me through until the equities provide enough to charge them up again. Thinking in terms of filters and simple resonant systems is an interesting way to look at your AA.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 06-11-2012, 10:04 PM   #29
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: 16,515
Nun - you're sounding like another EE or ME there! LOL!

It's funny - I think of it more like computer digital hardware with buffers and all LOL!
__________________
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 06-11-2012, 10:06 PM   #30
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: 5,695
Quote:
Originally Posted by nun View Post
I think of my bond/cash allocation as a low pass filter to damp out market variations and provide a constant income. In good times I "charge" them up as the gains from the market will out weigh my withdrawals. In bad times there should be enough stored in my bond/cash allocations to see me through until the equities provide enough to charge them up again. Thinking in terms of filters and simple resonant systems is an interesting way to look at your AA.
What I'm struggling with is how lousy that low pass filter is right now. It's kind of leaky since it's got really lousy real return probabilities going forward. I'm a former EE and so maybe you could suggest a nice analytical model for this situation?

Maybe a high resistance short to ground?

P.S. I was really in digital and semiconductors so not too much analog please.
__________________
Lsbcal is online now   Reply With Quote
Old 06-11-2012, 10:25 PM   #31
Thinks s/he gets paid by the post
Htown Harry's Avatar
 
Join Date: May 2007
Posts: 1,516
Quote:
Originally Posted by Animorph View Post
Raising cash:
I have a simple x% market return, x% inflation projection for my retirement portfolio. It assumes I sell enough equities each year to support my expenses. So if the portfolio is doing well and exceeds next year's sell point value, I'll sell immediately to lock in that cash for next year at the desired market return...
Very helpful and interesting, Animorph.

Could you elaborate on how your inflation projection is used in the calculation of the sell point value for a given year? Say for a couple of months ago, did you compare projected real return of X% for full year 2012 against an actual real return YTD for 2012 of Y, then sell when Y>X?
__________________
Htown Harry is offline   Reply With Quote
Old 06-11-2012, 11:30 PM   #32
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by audreyh1 View Post
Nun - you're sounding like another EE or ME there! LOL!

It's funny - I think of it more like computer digital hardware with buffers and all LOL!
Nope, physicist/astronomer/optical engineer.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 06-12-2012, 09:25 AM   #33
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Quote:
Originally Posted by Htown Harry View Post
Very helpful and interesting, Animorph.

Could you elaborate on how your inflation projection is used in the calculation of the sell point value for a given year? Say for a couple of months ago, did you compare projected real return of X% for full year 2012 against an actual real return YTD for 2012 of Y, then sell when Y>X?
Yes, essentially. I leave inflation in rather than using real returns, but it's the same either way. And I'm comparing absolute portfolio values, not relative yearly returns. However, my projected portfolio value has been nearly flat for the last few years and will be for the next few years. So I can just set a constant value and sell if the actual portfolio goes above that. I'll have to formalize the math to add a portfolio target slope. I do want to provide for continuous incremental selling instead of a single start of the year sell.

Inflation comes in as an assumption for future years, but also in adjustments to your target portfolio values each year. If I assume 3% inflation each year, but this year comes in at 10%, then I'll need to adjust my future portfolio target values. That means I may have sold a little earlier than I should have, but I'm OK with that.
__________________
Animorph is offline   Reply With Quote
Old 06-12-2012, 10:11 AM   #34
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Quote:
Originally Posted by nun View Post
I think of my bond/cash allocation as a low pass filter to damp out market variations and provide a constant income. In good times I "charge" them up as the gains from the market will out weigh my withdrawals.
+1

Same here. Some may look at cash (along with bonds) as a drain on their returns, but I doubt that many of them are actually retired (e.g. "walk the talk") and depending on cash (along with possibly bonds) to have enough retirement income to live the life they want, while equities are in the dumpster.

Folks need to understand that there is a difference between the accumulation phase (when you have a paycheck) and retirement (when you don't). One is dreaming - one is reality.

Retirement isn't for sissies (especially for those of us without SS or pension to count on) ...
__________________
rescueme is offline   Reply With Quote
Old 06-12-2012, 06:21 PM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,384
Quote:
Originally Posted by rescueme
+1

Same here. Some may look at cash (along with bonds) as a drain on their returns, but I doubt that many of them are actually retired (e.g. "walk the talk") and depending on cash (along with possibly bonds) to have enough retirement income to live the life they want, while equities are in the dumpster.

Folks need to understand that there is a difference between the accumulation phase (when you have a paycheck) and retirement (when you don't). One is dreaming - one is reality.

Retirement isn't for sissies (especially for those of us without SS or pension to count on) ...
Count me as a sissy! I live entirely off my pension, plus save some of it, and 75% of my investment money is in either CDs or I Bonds. Most of the 25% is in STAR funds which is only about 60% stock. If I was retired living off my nest egg instead of a pension, I would probably waste away my ER years staring at the indices rolling at the bottom of FBN all day.
__________________

__________________
Mulligan 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


 

 
All times are GMT -6. The time now is 12:51 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.