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Old 06-21-2007, 03:21 PM   #21
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Originally Posted by figner View Post
I'm a bit unclear on what's meant when someone says they keep x years of expenses in cash/FI, and replenish it from equities. If you're keeping the cash to be able to survive an x-year market downturn, do you avoid replenishing it during any down year? Or do you wait until what looks like a major downturn before you skip replenishing?
I have a cash buffer separate from my investment portfolio that keeps 1 to 3 years of income needs. I don't like it to go below 1 year, so I suppose that even if the market were in an extended downturn, I would still replenish it to at least 2 years worth of cash once it got down to 1 years cash. I would simply take from whichever is the highest performing asset class in the portfolio - equities or bonds.

I don't let the cash buffer go above 3 years worth of cash either. So even after some banner years or lower than expected expenses, if it's "full" (i.e. at 3 years), I plow any excess back into the balanced investment portfolio.

I guess I don't let the cash buffer go below 1 year because that's kind of an "emergency" fund. There just in case there is a sudden capital need.

Audrey
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Old 06-22-2007, 02:30 PM   #22
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Fully ER'd, my allocation is about 65/30/5. The 5% cash plus interest from the 30% fixed and dividends from the 65% equities would see us through three or four years of routine expenses without liquidating any positions. If the 5% cash were ever consumed quickly due to an emergency, I'd replace it at the first reasonable opportunity. No separate buffer or bucket labels. It all co-habitates on the same spread sheet.
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Old 06-22-2007, 05:59 PM   #23
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id have 500,000 in cash cd's,money markets

400000 in bonds,bond funds, unlisted reits, and annuities

4000,000 growth and income funds

700,000 growth funds,stocks, traded reits, junk bonds

you will never have to liquidate in a down market,
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Old 06-25-2007, 06:33 AM   #24
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It depends

Quote:

Let's say a guy has a 2M portfolio, and he wants to safely suck 70K per year out of it for retirement. Let's say the portfolio looks like this:

10% real estate
10% cash
80% stocks (non dividend paying for the most part)

Is that enough cash to keep around to fund 70K in annual living expenses? If not, how much cash should you keep in the portfolio for the 70K per year living expenses, or do most of you sell stock to fund expenses when you feel the price is good, or what
While most of the posters before me where "statistically" or "academically" correct, I think the answer depends a lot on your personal situation.

What is you age?
What is your historical return in the stock market - is it 8% or 20% a year?
What is your tolerance to risk?
Can you handle a few years with income of less than 70K?
Is it important for you one day to become much richer (decimilioniar), or 2-3 millions are more than enough?
And so onů

If, for example, you are 40 years old and in the last 15 years you averaged more than 15% a year in the stock market and your worse year was down 5%, then I see no reason for you to have more than 50K in cash.
I am still working now and we rarely have more than 2-3K in cash (most of the time we have only 1K or so). We have ~900K in stocks and ~100K in house's equity.

When we retire in 12 months or so, I plan to have only a few months of cash. We plan to spend in the neighborhood of 20K a year in the first 1-2 years and I expect it to grow at least 20% each year.
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Old 06-25-2007, 09:58 AM   #25
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Quote:
Originally Posted by cardude View Post
Let's say a guy has a 2M portfolio, and he wants to safely suck 70K per year out of it for retirement. Let's say the portfolio looks like this:

10% real estate
10% cash
80% stocks (non dividend paying for the most part)

Is that enough cash to keep around to fund 70K in annual living expenses? If not, how much cash should you keep in the portfolio for the 70K per year living expenses, or do most of you sell stock to fund expenses when you feel the price is good, or what
It would be REAL close.

1.75 M could possibly generate 4% dividends (70k) per year.

I would put the 1.75 M in a portfolio of something which resembled:

1/3 money market (yielding 5%??)
1/3 REIT's (should yield >3%)
1/3 dividend paying stocks (should yield 3%)

I would diversify the stock portion into 3 buckets. 50% in blue chip companies which pay a dividend approaching 2%. PG, JJ, C types. 25% into small cap stocks which pay out a dividend. These should yield closer to 3%. These should also grow in value more than other equity buckets. 25% should be in utilities. Because you have REITs as a different bucket, I did not include them here (2/3 or money split 40-20-20-20 might be a good alternative).

As money market yield's decline, shift more into the equities (find a method to rebalance based on yield).
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Old 06-25-2007, 05:47 PM   #26
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Just read through the posts to date and did not see mention of need to rebalance in down markets. So there is a double wammy, need to buy more stocks from either cash or bonds as well as fund living expenses. Personally I'm 60/36/4 S/B/C. The bonds are 24/8/4 in 10yr TIPS/intermediate term bond fund / Ibonds. I personally don't like to have too much in short term bonds or cash.

Since TIPS tend to rise when stocks decline I'm planning on rebalancing from the 3.5yr duration bond fund and/or TIPS. The cash should last 1yr and then it will be time to rearrange the deck chairs to generate more cash for living expenses. By this I mean I'll sell some taxable money equities and buy them back in non-taxable accounts by selling either TIPS or intermediate duration bonds.

Only time where this may get sticky is if real rates rise (TIPS decline) and stocks also decline. Hasn't happened over a few years to my knowledge but it could happen I suppose.

Les
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