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Old 01-25-2013, 05:33 PM   #41
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Originally Posted by karluk View Post
I admit that having a pension that pays the majority of our month-to-month expenses may make me more willing than most to forego a cash cushion.
Risk Capacity.

You may be whatever you resolve to be.
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Old 01-26-2013, 06:55 PM   #42
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The paper quoted (and my own philosophical bias against too much cash) have half-convinced me to do what I've been slowly attempting to do: decrease the portfolio cash built up since 2010. (I built up cash before the 2008 crash, put some to work during that crash, didn't reinvest some dividends/LT/STgains, and sold some in 2010-early 2012 on the way up, so I'm currently up to 22% cash if you don't count the taxable savings, which would bring it up to about 30%.
I would keep a year of cash, just for the peace of mind and probably replenish when the portfolio gains are particularly strong (last March or April for instance).
One could use the short-term bond to replenish in a bear market plus I plan on sweeping dividends and some LT/ST gains to fund expenses. I can also see building up cash in anticipation of a market drop; I've been there for more than two months, but now I'll just put cash to work where I think the values are particularly attractive, while waiting for a drop elsewhere.

Other than regular rebalancing, what cash replenishment strategies are out there? Maybe this should be a new thread.

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Old 01-26-2013, 10:16 PM   #43
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Just for grins, and realizing as always that past performance is not indicative of future results, I took the info posted in two posts early in this thread regarding the length of past bear markets and did a very basic analysis...
- The average years it took to recover from a bear market was 5.0 when the crash of 1929 was included, 3.6 when it was not included.
- The median years for recovery was 3.1 when the crash of 1929 was included, and between 2.3 and 3.1 when it was not included.

So perhaps from a "peace of mind" standpoint it would seem that, 5 years of a cash cushion would give one a better than average chance to weather a bear market.

The longest bear market other than the crash of 1929 was 8.8 years. so 9 years of a cash cushion would have covered all the other bear markets.

Of course, this doesn't factor in inflation, and the longer you have cash, the more impact inflation on it will have.

Just an academic exercise done out of curiosity. Personally my comfort zone is having 6 years of cash withdrawals to supplement my pension before having to touch my investments, but that will also be influenced by the yearly investment performance.

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