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Old 03-31-2016, 06:35 PM   #21
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Good thread! I'm interested in some feedback on our situation.

We did not have a big stash of cash waiting for us as the market slowed last summer. We do, though, have pensions that cover almost 70% of expenses. So my issue is covering that last 30%.

We aim for a 70/30 asset allocation. So, over the last six months, when we need cash, it turns out that I am always selling fixed income assets (because the equity share of the portfolio has lost value). Which, I think, is OK. We are not selling equities at a "low" and we are maintaining the AA. And someday the equities will come roaring back and then we'll be selling them in order to get the AA back in shape.

Am I fooling myself here? Missing something? Because so far I'm sleeping fine. The only downside I see, is if equities stay down long enough that we run out of fixed income assets to sell...but it will take some time to get to that point.
I think you are doing it right. Its sort of what I am doing. I do one transaction a year. When I take cash out of my 401k, they take out a percentage from each fund. When that transaction has cleared, I rebalance. Gets me to the same place you are.
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Old 03-31-2016, 07:06 PM   #22
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Stash the cash near the end.
If you're a gambler you could always throw down on the wall st casino.
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Old 03-31-2016, 08:25 PM   #23
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Kudos to you. I don't think I'll have the fortitude to go that aggressive unless I've got at least $10 million.

It does depend on a combination of ones net worth and required expenses/withdraw rate. Plus risk tolerance

But an example - an ultimate goal would be to have withdraw rate equal to current year's portfolio (stock ) dividend yield. Around 2.4 percent currently

In this regard, a 95 percent equities portfolio might have some real advantages including dividend income taxes, equity inflation protection, and higher long term growth potential.

Unless dividends take long and protracted cut, one would not need to sell equities and incremental cash of say 5 percent (like an emergency fund) would be ok to smooth out the occasional spending bumps.

As a younger retiree the risks are really centered on sequence of return and potential inflation.

By comparison Older retirees with shorter likely retirement time horizons, and possible guaranteed pensions (even if just part of needs) etc do not have same risk profile.
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Old 03-31-2016, 09:04 PM   #24
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Originally Posted by ERsoonihope View Post
Good thread! I'm interested in some feedback on our situation.

We did not have a big stash of cash waiting for us as the market slowed last summer. We do, though, have pensions that cover almost 70% of expenses. So my issue is covering that last 30%.

We aim for a 70/30 asset allocation. So, over the last six months, when we need cash, it turns out that I am always selling fixed income assets (because the equity share of the portfolio has lost value). Which, I think, is OK. We are not selling equities at a "low" and we are maintaining the AA. And someday the equities will come roaring back and then we'll be selling them in order to get the AA back in shape.

Am I fooling myself here? Missing something? Because so far I'm sleeping fine. The only downside I see, is if equities stay down long enough that we run out of fixed income assets to sell...but it will take some time to get to that point.
You are in good shape, and not mistaken about anything, IMO.

You pretty much filled in the second part that I would have added to what I posted earlier (in post #5). I'll provide a bit more detail now.

So as I said, an investor has dividends coming in, which soften any need to 'sell in a downturn'. Couple that with the idea that, a conservative cash-holding type will probably be planning on a 3.0-~3.5% WR, rather than a more risky 4%. And something like SPY pays 2% divs, so the amount that needs to be made up is only 1.0 ~1.5%.

And a conservative investor may have an AA of 60/40? So in the process of rebalancing, we are talking about selling off 1.0~1.5% of assets ( so < 2% of fixed income holdings 1.25 * 60/40 ?). Over-simple math says 20 years, but that % would grow as fixed shrinks - still, that is many consecutive years of selling fixed.

Bottom line, I feel that the fears are over stated.

-ERD50
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Getting close - switch to saving cash?
Old 03-31-2016, 09:09 PM   #25
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Getting close - switch to saving cash?

I was 100% last year as we were preparing to transfer to Vanguard. We ended up only transferred my account because Vanguard screwed up so much, I was getting nervous about transferring. Finally, we decided not to transfer my husband's account, I moved his money back into stocks before Feb 11. He still 75-78% in G fund. No plan to take it yet until 2-3 years or maybe RMDs. Frankly I was getting very nervous to be all in cash, but I had taxable account in stocks. I'm never going to be more than 30-40 stocks for his account. I might be a bit more aggressive with my account, but still not crazy. I don't depend on the liquid asset to fund retirement but I would like it to be there in case I need it.


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Old 03-31-2016, 09:12 PM   #26
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I'm a new retiree. As I get the hang of it, I'll likely move toward 90-95 percent equities philosophy and reduce cash longer term.
Kudos to you. I don't think I'll have the fortitude to go that aggressive unless I've got at least $10 million.
90% is really not so scary. Make a FIRECalc 'investigate' run for a 40 year period (ER) and 3.5% WR. In terms of portfolio survival, a 35/65 AA has less chance of historical survival than a 90, 95 or 100% equities portfolio.

Yet, many would describe the 35/65 AA as 'safer'.

-ERD50
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Old 03-31-2016, 09:14 PM   #27
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I like cash, always have. Even when I was young I had 6 months. Good thing too I was fired from 4 jobs in my career. Cash makes me feel good, cash makes me feel "flush"

It don't matter what anyone else thinks, it only matters what makes you feel "comfy"
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Old 03-31-2016, 09:55 PM   #28
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Decide on your AA for post retirement and work towards achieving that. If that AA includes a cash position - and you haven't reached it yet - then, by all means, leave your savings in cash.

Like some others, I have at most a few months of cash on hand. I do however have a short term bond fund as part of my AA.
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Old 03-31-2016, 11:10 PM   #29
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Yes, I think it's an excellent time to let the cash build and fund those first couple of years. That way you can leave the rest of your investments alone and not be preoccupied with their volatility as you make this huge transition.

We also socked away "extra" cash for splurging on travel the first couple of years.
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Old 03-31-2016, 11:55 PM   #30
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I'm going to splurge on traveling this year because of all the extra cash. No worries, since the stock market is back up from its low.


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Old 04-01-2016, 09:20 AM   #31
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After several typical newbie screw-ups in my early investing years, I realized that investing was 80% psychology for me. I had to find a plan I could live with day in and day out, otherwise every other investing goal/tactic was moot.
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Old 04-01-2016, 10:42 AM   #32
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90% is really not so scary. Make a FIRECalc 'investigate' run for a 40 year period (ER) and 3.5% WR. In terms of portfolio survival, a 35/65 AA has less chance of historical survival than a 90, 95 or 100% equities portfolio.

Yet, many would describe the 35/65 AA as 'safer'.

-ERD50
I am actually aware of that. However, there's always this niggling thought in the back of my head "What if we get returns like Japan?".
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Old 04-01-2016, 10:58 AM   #33
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I was laid off (age 51) in mid 2009 about 2 to 3 years before my planned exit. I had a significant amount of cash (CD ladders) yielding around 5% per year. As I look back, I'm very glad I had a lot of cash. It also allowed me to invest $300k into Real Estate during the crash (5 year old condo's that sold new for $750K). One of the best investments I ever made in my life.

Currently my cash portion is about 15%, but I've always liked cash and have done fairly well in CD ladders over time.
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Old 04-01-2016, 11:11 AM   #34
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We currently have enough cash to cover the gap between my pension+investment income for the number of years (currently 7) before the earliest date we plan to withdraw social security. That way we are not forced to sell equities during market downturn times. This also gives us flexibility to invest if things seem opportunistic, or splurge if our equities do better than expected.

It is not a "brilliant" strategy, but a "sleep comfortably at night" strategy.
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Old 04-01-2016, 12:33 PM   #35
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RE: High equity levels of AA -
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I am actually aware of that. However, there's always this niggling thought in the back of my head "What if we get returns like Japan?".
Yes. And I always have this niggling thought in the back of my head "What if we get inflation like the 80's?"


There's risk to everything. I don't mean to imply that holding some cash is a bad thing. Many here say it helps them sleep at night, so that's probably the right thing for them to do.

But I just think it's best if we all realize that there are costs (opportunity costs in the case of cash) associated with our decisions. And I do think many overstate the 'selling in a down market' fear. As I said, between divs and rebalancing, it probably won't be a big deal at all. And the opportunity cost of a few years cash probably won't be a big deal either. But we should see it for what it is.

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Old 04-01-2016, 01:01 PM   #36
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Opportunity cost = a higher terminal amount - leaving behind the most for heirs. But most investors don't go 100% small cap stocks even though that's most likely to give them the highest terminal amount. They might like a gentler roller coaster to be able to sleep at night while alive. Cash is an asset class - it outperforms during some periods, beating both stocks and bonds. It can be rebalanced with the other asset classes to help smooth the ride. And having some extra cash set aside might make all the difference far a successful investment strategy if it means someone is able ignore market noise and stick to their investment plan even when things get scary.
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Old 04-03-2016, 10:58 PM   #37
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A lot of good responses. Longterm, cash seems a problem in these days of .001% interest.
However,
1) as several have noted, cash is its own entity, as an asset class. I hold 15%, although my allocation calls for 10%
2) in a world where corporate bonds are yielding less than 3%, 0% for cash is bad, but comparatively, not that bad
3) personally, I reaped cash in 2014-2015 as the market continued to run up and anticipating early retirement, also putting the DW's bonuses largely into taxable accounts, largely in cash. We had two houses, one in Houston and a Colorado cabin and I couldn't predict when or if they would sell or for how much. Also when or whether DW would find a job in the new location out West.
Cash in a taxable account gives enormous flexibility for the change to early retirement. It certainly reduced the level of our headaches in buying a 3rd house while we were selling two (20% down and then using equity to reamortize, along with moving expenses, etc.)
4) After settling, you can redeploy cash in a taxable account as an investment, which is pretty much what we will do, to take advantage of tax loss investing and as yield. I will probably build cash in 401k/403b account as this shift takes place.
5) "Excess" cash in tax advantaged accounts can be deployed to take advantage of market slumps--if you have the courage to do so, which isn't common. I did some of that in early February--and then the market went up rapidly. (I had assumed a somewhat longer slump, and I was wrong.)


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Opportunity cost = a higher terminal amount - leaving behind the most for heirs. But most investors don't go 100% small cap stocks even though that's most likely to give them the highest terminal amount. They might like a gentler roller coaster to be able to sleep at night while alive. Cash is an asset class - it outperforms during some periods, beating both stocks and bonds. It can be rebalanced with the other asset classes to help smooth the ride. And having some extra cash set aside might make all the difference far a successful investment strategy if it means someone is able ignore market noise and stick to their investment plan even when things get scary.
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Old 04-03-2016, 11:24 PM   #38
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A lot of good responses. Longterm, cash seems a problem in these days of .001% interest.
However,
1) as several have noted, cash is its own entity, as an asset class. I hold 15%, although my allocation calls for 10%
2) in a world where corporate bonds are yielding less than 3%, 0% for cash is bad, but comparatively, not that bad
3) personally, I reaped cash in 2014-2015 as the market continued to run up and anticipating early retirement, also putting the DW's bonuses largely into taxable accounts, largely in cash. We had two houses, one in Houston and a Colorado cabin and I couldn't predict when or if they would sell or for how much. Also when or whether DW would find a job in the new location out West.
Cash in a taxable account gives enormous flexibility for the change to early retirement. It certainly reduced the level of our headaches in buying a 3rd house while we were selling two (20% down and then using equity to reamortize, along with moving expenses, etc.)
4) After settling, you can redeploy cash in a taxable account as an investment, which is pretty much what we will do, to take advantage of tax loss investing and as yield. I will probably build cash in 401k/403b account as this shift takes place.
5) "Excess" cash in tax advantaged accounts can be deployed to take advantage of market slumps--if you have the courage to do so, which isn't common. I did some of that in early February--and then the market went up rapidly. (I had assumed a somewhat longer slump, and I was wrong.)
It's important for people to know that cash is doing a lot better than 0.001%. You can get around 1% on your cash in a high yield FDIC insured savings account - super liquid. If you are willing to park some cash short-term, you can earn 1.25 to 1.3% with a one year CD, and 1.45-1.5% for a two year CD. I recently scooped up a 15 month PenFed CD paying 1.5% (this was a temporary offer that didn't last long).

Comparing cash to short-term bonds, you have to look long and hard to put money in a short-term bond fund when cash is actually paying a competitive rate. You take on interest rate and credit risk unless you are investing in a treasury bond fund (still has interest rate risk). For example, VFISX is yielding 0.69% (0.85% distribution yield) and with a 2.3 year average maturity which indicates your interest rate risk exposure. There are higher yielding short-term bond funds out there (short-term corporate bond index has SEC yield of 2.18% and average maturity of 2.9 years), but they are also exposing you to credit risk interest rate risk that the savings accounts and CDs aren't.

Good points otherwise.
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Old 04-04-2016, 02:03 AM   #39
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My wife and I (both 49 year old employed expats who will return to the USA for ER) are currently 1 year out from ER and have plans to retain a large cash position immediately before we retire in April 2017 based upon the following:
We were previously at 27% cash in August 2015, which we reduced to 7% by the end of January 2016 by moving it to a Vanguard taxable account using Admiral funds.
We will build up a new cash position during 2016/2017 which will come from our normal salary/bonus inputs as well as separation payments which should put us back up to a 16% cash position.
A large portion of that 16% cash position (about 60% of it) will be consumed immediately when we return to the USA (new vehicles, home furnishings, home upgrades/remodeling and some fun) which I expect to leave us with a remaining cash position, after the dust clears, of 7.5% in mid-2017.
That remaining cash position will cover our Emergency Funds, Fun Bucket and 2 years worth of expenses which I will allow to drop down to 5% during retirement. Once we are retired I will have all taxable dividends and gains etc. paid out in cash and not automatically reinvested.
Short/Mid-term I expect us to end up at about a 80/15/5 asset allocation of stocks/bonds/cash and I may eventually slowly move more to a 60/35/5 allocation over the Mid/Long-term.
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