How many years of cash/cash equilivents do you have now

[TromboneAl]

This thread is making me realize that perhaps I should move a few year's expenses from my Vanguard GNMA account to a money market account. We currently have only about a year's worth of funds in our money market account.

Any pitfalls in transferring a few years of living expenses from GNMA to money market?

I noticed today that, since much of our taxable funds are in VG 500 Index, getting to 59.5 (55 now) without needing IRA money will be a little trickier. But we'll probably see some recovery by then.

 

[REWahoo]

This thread is making me realize that perhaps I should move a few year's expenses from my Vanguard GNMA account to a money market account. We currently have only about a year's worth of funds in our money market account.

Al, I wonder if some folks could be confused about what is being reported when someone says "I have x number of years living expenses in cash". I posted ~10 years, but I don't actually have that amount sitting in a MMkt account.

What I do have is enough in a MMkt account and CDs to cover the annual shortfall I expect to experience over the next 10 years after applying other sources of income to my annual expenses using the following formula:

Estimated annual expenses (includes taxes)
- estimated annual income from SS
- estimated annual income from dividends
= estimated annual shortfall

Are others using similar logic when reporting how many years living expenses they have in cash?

 

[freebird5825]

FWIW, I'm going to use Wikipedia's definition for cash equivalents:
Cash equivalents are assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper. Cash equivalents are distinguished from other investments through their short-term existence; they mature within 3 months whereas short-term investments are 12 months or less, and long-term investments are any investments that mature in excess of 12 months.

I own no Cds, no short term govt bonds or T bills.
I have a small money market account with 2 months living expenses.
My immediate liquid cash reserve is monthly income from a COLAd govt pension and a fixed annuity. Right now I have 4 months living expenses in a savings account.
I have immediate check writing on my muni bond fund. I could tap the currently reinvested dividends if need be.
I have a small stake in EE and I bonds, which I could cash only in dire emergencies. Last resort only.
Future income is a deferred FERS pension and SS at an unknown level.

 

[Culture]

About 11 years cash currently, no pension (unless I get SS, I am 44 so it is more likely that someone will close flying pigs first), plan (hope) to retire in 4-6 years. I plan on keeping 12.5 to 14.5 times annual living expenses in cash when I am in retirement.

 

[Moemg]

What I do have is enough in a MMkt account and CDs to cover the annual shortfall I expect to experience over the next 10 years after applying other sources of income to my annual expenses using the following formula:

Estimated annual expenses (includes taxes)
- estimated annual income from SS
- estimated annual income from dividends
= estimated annual shortfall

Are others using similar logic when reporting how many years living expenses they have in cash?

That is how I am figuring it .Last year I had only three to five years in cash or cash equivalents but the market was causing me to lose sleep so I went to ten years . If and when the market picks up I may lessen this to six years .

 

[youbet]

Are others using similar logic when reporting how many years living expenses they have in cash?

I am, but I don't think everyone else is. Other posters are explaining what they're doing, but the posts are filled with manifestations of the current sad economic times and strategies designed for liquidity perhaps at the expense of prudent asset allocation.

I think it would be helpful if folks would mention what their total AA is given their "years of cash" plans.

My target AA in retirement is 50/45/5. Currently, thanks to the "auto-rebalancing" feature of the current downturn, I'm at 40/55/5 and I'm dragging my feet on rebalancing. But either of those allocations or anything inbetween, coupled with SS and future pension, gives me a cash flow adequate to not have to sell equities or long/mid-term fixed holdings during a downturn.

My priority for my AA is portfolio performance with liquidity secondary as long as it is adequate to protect me from significant selling in a downturn. I think some folks have had their thinking changed by this recession to the point where they're saying that liquidity is #1 and after liquidity is established look and see what AA that gives you.

As I've mentioned in earlier posts, I'm concerned about future inflation as much as I'm concerned about liquidity. I think it's possible that we may find prices rising faster than equities during a sluggish upturn. So, given a target AA of 50/45/5, I'm trying to rebalance with these three goals:

1. portfolio performance
2. adequate liquidity
3. inflation protection

"Years of cash" is only one variable in the equation. BTW, I'm not doing very well so far......

 

[audreyh1]

This thread is making me realize that perhaps I should move a few year's expenses from my Vanguard GNMA account to a money market account. We currently have only about a year's worth of funds in our money market account.

I think many here would consider a GNMA bond fund to be high quality enough to be a "cash equivalent".

Personally, when I figure how many years expenses I have covered, I include ALL my bond funds even though some of them are not conservative enough to be considered a "cash equivalent". Most of my bonds are in short term diversified bond funds which hold plenty of corporate bonds, but I feel that I have so many years worth including cash (over 10), that I have time for the corporate bonds to recover too. In the meantime, I can enjoy the interest payments.

Audrey

 

[youbet]

I think many here would consider a GNMA bond fund to be high quality enough to be a "cash equivalent".

Audrey

I think it would be a matter of your definition of "selling in a downturn." The Vanguard GNMA fund has a historical trading range that shows a 10% drop in NAV is very possible and happens from time to time. If you consider selling shares that are down 10% to be OK, then I'd consider a GNMA fund a source of liquid assets. If selling something 10% down would give you a headache, better keep GNMA's in the mid/longterm fixed category.

A GNMA fund is definitely not a "cash equivalent" however. Quality isn't the only measure of "near cash" status. Example: a long term Treasury is surely of the highest quality but is a long, long way from being a "cash equivalent."

 

[Moemg]

I am, but I don't think everyone else is. Other posters are explaining what they're doing, but the posts are filled with manifestations of the current sad economic times and strategies designed for liquidity perhaps at the expense of prudent asset allocation.

I think it would be helpful if folks would mention what their total AA is given their "years of cash" plans.

......

My asset allocation for many years was 75% stock 20% bonds and 5% cash . I could handle this AA when I was working and it was just on paper but now that I'm retired this AA especially during this market caused me to lose sleep and I love to sleep so my new and improved AA is 60% 25% 15% cash . I will return to less cash and more bonds once the market stabilizes to end up with a AA of 60% 30% 10%.

 

[ziggy29]

One wonders if the market can recover at all given that almost everyone says they aren't selling now but plan to reduce their AA in stocks when we recover some...

 

[Bikerdude]

Estimated annual expenses (includes taxes)
- estimated annual income from SS
- estimated annual income from dividends
= estimated annual shortfall

Are others using similar logic when reporting how many years living expenses they have in cash?

That's what I used. + a pension.

 

[Bikerdude]

One wonders if the market can recover at all given that almost everyone says they aren't selling now but plan to reduce their AA in stocks when we recover some...

I tend to agree that the market recovery will be difficult due to people selling rallies. I started this downturn at 50/50 and am currently 30/70. If a recovery comes I would think the professionals will jump in the market hard sending it up 20 or 30 % quickly. As my allocation nears the 50% point I will consider trimming but a balanced approach has served me well so far. Now those who were 80 or 90% equities may have a much different allocation in mind as I'm sure some have seen losses they did not expect.

 

[rpow53]

cash reserve

we have 5 yrs. of living expenses if calpers stopped paying me. but then we would not be the only one in a pickle.

 

[TromboneAl]

Thanks Audrey and YouBet. I guess my #1 objective in having cash is to avoid selling an asset that has dropped in value, thus losing an opportunity for it to rebound.

If I were to move $100,000 from GNMA to Prime MM, I'd be giving up about $3,000 per year in returns (currently 5.6% vs. 2.3%) but avoiding the possibility of having to sell GNMA shares at a time when it's value has gone down. It's all trade-offs.

I think I'll probably split the difference, and move about half of the amount I would if GNMA were a more volatile investment.

 

[ejman]

I feel that a simple calculation of years cash based on current price levels (or very moderate inflation) can lead to a false sense of security particularly when you get to 10-20 year levels. There are plenty of examples of countries (Argentina, Brazil, Germany) where inflation quickly got VERY out of hand and I don't think there are any guarantees that we will be able to avoid some exposure to significant inflation. If that happens, cash and near cash are the worst offenders.

For what is worth, cash is currently about 10% of my allocation and I really don't want to go any higher than this. I am retired, don't have a pension and am still four years away from SS...

 

[youbet]

Thanks Audrey and YouBet. I guess my #1 objective in having cash is to avoid selling an asset that has dropped in value, thus losing an opportunity for it to rebound.

If I were to move $100,000 from GNMA to Prime MM, I'd be giving up about $3,000 per year in returns (currently 5.6% vs. 2.3%) but avoiding the possibility of having to sell GNMA shares at a time when it's value has gone down. It's all trade-offs.

I think I'll probably split the difference, and move about half of the amount I would if GNMA were a more volatile investment.

Sounds like as good a plan as any T AL.

I have DW's IRA 100% in a GNMA fund and it sure has done well though all this. 5%+ interest plus some NAV gain is hard to knock when equities are falling like a rock. But, like you, I've been thinking the time to move some of that to another fixed investment may be here. It won't be a MM since her IRA isn't on our list of possible sources of cash. Maybe some shares of the TIP ETF if the share price drops to the $95 range.

I feel inflation coming down the road.....

 

[Rambler]

Our AA is 41/41/12/6, or will be shortly when I top off my munis with a bonus due within the next couple weeks (equities, bonds - mostly munis, real estate held for sale at some future date, cash). My earlier post said we had three years worth of barebones expenses, which is true, and assumes no other income. With the bond interest, and current levels of dividends, we have non-work related income approximately equal to our moderate expense scenario, and would not need to dip into the cash. So why am I not FIREd? I'm not sure DW's and my tastes and hobbies can be satisfied with the moderate expense budget, I am fearful of the market becoming much worse than it is now, and I am fearful of health insurance being much higher than anticipated in any of our current budgets (about $13,200 budgeted). So, I keep pouring money into the bottomless pit/market.

R

 

[TromboneAl]

It won't be a MM since her IRA isn't on our list of possible sources of cash.

Our GNMA is in an IRA, but if I need cash I use patented TromboneAl Switcheroo[FONT=Times New Roman, serif]®[/FONT] .

That is, I transfer, say $20,000 of shares from our taxable-account 500 Index fund to our taxable MM account, and on the same day transfer $20,000 shares from IRA MM to IRA 500 Index fund.

 

[youbet]

Our GNMA is in an IRA, but if I need cash I use patented TromboneAl Switcheroo[FONT=Times New Roman, serif]®[/FONT] .

That is, I transfer, say $20,000 of shares from our taxable-account 500 Index fund to our taxable MM account, and on the same day transfer $20,000 shares from IRA MM to IRA 500 Index fund.

I remember you mentioning that propriatary procedure before, and it does make some sense. I'll have to give that some thought.

 

[Koolau]

I guess my #1 objective in having cash is to avoid selling an asset that has dropped in value, thus losing an opportunity for it to rebound.

Al, et. Al (sorry!)

Guess I'm the opposite in that I only keep equities as an inflation hedge. Based on CURRENT inflation and CURRENT WDR I don't need equities. However, I'm trying to increase my equities (which is tough to do right now as we all know) to combat the inflation I assume is coming. Ironic that the "cure" for our current equity mess may well be inflation. I guess it just shows you can't fool mother nature. You push something in here and it pops out over there. Or, there is no free lunch, or...

To someone else's point about the actual AA I use. I'll be honest. I'm not sure. Even though I've added to equities lately, I haven't had the nerve to calculate everything out. If I did that, I'd probably abandon my plan to increase equities. I'm trying to work up to about 25/65/10 or there about. For the purposes of this thread, I lumped the 65 and 10 together and called them cash, even though I know that's incorrect. The bulk of my "bond" equivalent investments are through a Stable Value fund. Not sure how stable "Stable" is, but in 35 years the NAV has never gone down. The returns vary, but the NAV holds steady. For that reason, I felt OK about calling them "cash" - at least for now. Heretical? Probably.

 

[Florida]

Are you saying you're going for a 30% or so allocation to cash/cash equivalents? Sounds pretty high as a long term position.

Would you let that diminish as you go through retirement? Or replenish it and keep it at 10 years?

I will keep 10 years of cash and TIPS for living expenses.

The remaining amount can be invested in non cash equilivents.
My allocation would be heavy on the cash side but I do not see
that much risk in this.

I would not replenish it since I do not have any income to do so
unless I choose to work.
No pension or full SS for 10 years