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Do I have too large percentage in Cash?
Old 10-09-2015, 07:26 PM   #1
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Do I have too large percentage in Cash?

My current mix of all funds is 55% stock (Index funds), 30% Bond funds, and 15% Cash. I'm content with the stock allocation. We didn't overtly shoot for that Cash percentage, but over the years our conservative nature had us pouring extra money into simple savings.
I'm 63, DW will soon be 64, and plans to w*rk for a couple of more years. I've mentioned in other posts I have, and like, that sleep-at-night factor. We are not in the drawdown phase, yet, due to DW's employment income.
We're in a financially secure position both now and after DW calls it quits. So, is there anything "wrong" with that Cash allocation? We do have quite a bit in CD's, so we're at least squeezing out some extra interest.
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Old 10-09-2015, 07:44 PM   #2
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Nothing wrong with any asset allocation if it meets your needs. You feel financially secure now and after your DW quits. The main reason someone like myself would cut back on the cash is to go after a better return to increase the assets. But if you don't need that for your future financial security or need it to increase what you might pass to your kids or charities, there's nothing wrong with keeping a lot of cash. It's a wonderful position to be in!

BTW - everyone has some basis they use to be comfortable. Mine is to keep at least 3 yrs of funds I may need in cash or bonds. That allows me to ride out a market correction (hopefully) before I need to sell stock for living expenses. I keep only 3-6 months in actual cash....rest is in bond funds.
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Old 10-09-2015, 11:12 PM   #3
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Use these links to help decide on allocation...
https://gps.ricedelman.com/
http://www.vanguard.com/nesteggcalculator
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Old 10-10-2015, 06:44 AM   #4
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Originally Posted by mystang52 View Post
My current mix of all funds is 55% stock (Index funds), 30% Bond funds, and 15% Cash. I'm content with the stock allocation. We didn't overtly shoot for that Cash percentage, but over the years our conservative nature had us pouring extra money into simple savings.
I'm 63, DW will soon be 64, and plans to w*rk for a couple of more years. I've mentioned in other posts I have, and like, that sleep-at-night factor. We are not in the drawdown phase, yet, due to DW's employment income.
We're in a financially secure position both now and after DW calls it quits. So, is there anything "wrong" with that Cash allocation? We do have quite a bit in CD's, so we're at least squeezing out some extra interest.
If you look at model portfolios (managed portfolios, lifestrategy portfolios) on Schwab or Vanguard you'll see 15% or more cash in the more conservative allocations.
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Old 10-10-2015, 11:15 AM   #5
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... So, is there anything "wrong" with that Cash allocation? We do have quite a bit in CD's, so we're at least squeezing out some extra interest.
The term "cash" would refer to very liquid money and to me it means a checking or savings account. That checking account could bear interest.

CD's, depending on the maturity, are not really cash. If they are long dated then they are subject to inflation risks. CD's seem like a good way to go ... depending on the rates and how far you go out.

We have only about 1% in cash. The next block of money that can be converted to cash in about 1 week (transfers plus bank liquidity regulations) is 7% in short term investment grade bonds (VFSUX, 2 years duration).
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Old 10-10-2015, 01:38 PM   #6
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While I think 15% is suboptiimal, I don't think it would be a problem.
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Do I have too large percentage in Cash?
Old 10-10-2015, 02:09 PM   #7
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Do I have too large percentage in Cash?

I don't think it makes much difference considering how much bonds are paying. Your cash could be in 2 1/2% CDs and be liquid after paying a penalty. Just make sure it's just not sitting in a non interest or very low interest bearing account.


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Old 10-10-2015, 02:19 PM   #8
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How much cash is too much cash? It's very personal. What matters is that you should be comfortable with the AA.

This article may be relevant; a small excerpt is shown.

"The debate reignited earlier this month when Charles Schwab launched Intelligent Portfolios, an algorithm-based platform that builds and rebalances portfolios automatically, similar to the asset-management services of robo-advisors. Charles Schwab’s treatment of cash in the platform raised eyebrows immediately, attracting criticism of its allocation to cash, anywhere from 6 percent to 30 percent based on an investor’s risk profile."

http://money.usnews.com/money/blogs/...your-portfolio
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Old 10-10-2015, 04:22 PM   #9
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Here's Kitces's old paper on cash buffers:

https://www.kitces.com/blog/Research...-Market-Timer/

"In the end, the reality is that while cash reserve strategies appear psychologically appealing, their actual benefits as an enhancement for retirement income sustainability appear to be a mirage upon closer inspection. The buffer zone approach appears to do little to effectively "time" the market, and/or to the extent it does, the benefits are overwhelmed by the adverse consequences of a large allocation of cash in the portfolio that drags down long-term returns. Notably, though, separate research has shown that shifting equity exposure in light of market volatility (and based on fundamental valuation principles) can in fact enhance both returns, risk-adjusted returns, and the sustainability of retirement income - and without the unfavorable impact of an unduly large cash position."

I don't like most implementations that the researchers try, so you might want to try your own. Holding cash as a true part of a fixed-allocation AA (no market timing) will reduce volatility, but what's the point of holding 15% in cash for 30 years if you don't have a plan to utilize it during market downturns? Like Kitces says, it just drags down your performance. Currently cash is about as good as bonds, but eventually bonds should look better.
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Old 10-10-2015, 04:56 PM   #10
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The term "cash" would refer to very liquid money and to me it means a checking or savings account. That checking account could bear interest.

CD's, depending on the maturity, are not really cash. If they are long dated then they are subject to inflation risks. CD's seem like a good way to go ... depending on the rates and how far you go out.
I agree. I consider CD's a bond alternative and currently have 30% in a 10 year ladder. However, I'm 15 years into retirement and don't like dog food.
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Old 10-10-2015, 06:02 PM   #11
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Thanks all. I guess I'm over-thinking a bit. The CD's have varying maturity dates so I consider them liquid. I expect to tap into these cash reserves, first, once we start a true draw-down after DW's formal retirement. So, that'll then bring down the percentage if I decide I want a lower figure.
But, rational or not, I do draw a comfort level (that sleep at night factor) knowing there's a pot of money to draw on in event of market downturn just when I need funds.
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Old 10-10-2015, 09:39 PM   #12
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The other thing that makes cash more satisfying is that you dont "see" the value fluctuate the same way. Inflation averages smoothly over time (just like market returns) but also moves up and down unpredictably though much less so than individual stocks.

But... You don't see your spending power going down 3% and up 2% as inflation moves around because the cash # stays constant.

If you track your cash holdings' value to inflation at the same resolution as bonds and stocks it might be more accurate and less psychologically satisfying .

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Old 10-11-2015, 08:58 AM   #13
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I know a number of folks who have enough cash to live like they want "for life", (and not just get by and/or need to cut corners). They don't plan to leave an inheritance etc, and are 100% cash. (mostly laddered CD's, I think)

So I think the answer maybe "it depends" on how much you have and what your goals are.
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Old 10-11-2015, 09:05 AM   #14
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Since your wife is working I'm assuming your paying some taxes. I've used Vanguard's short term municipal bond fund and done well. Unlike CD terms, I can sell in a day if I want and earn about .6% tax free money.
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Old 10-11-2015, 09:14 AM   #15
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I don't think in terms of percentage of total investible... I think in terms how many months monthly spending... For some six months cash is more than adequate... I keep cash to a minimum.


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