Cash strategies don't work?

[Animorph]

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.

 

[Free To Canoe]

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.

 

[nun]

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.

 

[audreyh1]

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!

 

[Lsbcal]

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.

 

[Htown Harry]

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?

 

[nun]

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.

 

[Animorph]

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.

 

[rescueme]

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) ...

 

[Mulligan]

+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.