Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 09-07-2010, 07:16 AM   #21
Recycles dryer sheets
 
Join Date: May 2010
Location: SW Ohio
Posts: 360
I have a 5 year CD ladder with annual maturity amount 4x my expenses in a taxable account. They mature every 3-4 months. This is my money market and I keep nothing short term(APR too low). I pay my expenses on the interest + divy. Because I always try to obtain highest FDIC insured APR and thanks to this forum have found Penfed, I will probably stretch it to 7 years.
__________________

__________________
jayc is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-07-2010, 08:12 AM   #22
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,648
I have 10% in cash in money market funds. Managed to get 1.4% on these funds for 3 months after threatening to take my money out. (call the customer retention department for your bank). When 3 months are up, I will either try to negotiate with the bank again or move it elsewhere still keeping it in cash.

I have 65% in Certificates of Deposit paying between 4% - 5% having placed the funds there back in 2008 and 2009 locking it up for anywhere between 2 to 7 years. Most comes due before 2013 which is the year I ER.
I figure I can pay the penalty if rates EVER go higher than that (which they won't). As they come due...and depending on what is going on then, I will probably route some to tax advantaged vehicles.

I have 25% with a broker. These funds are my tax deferred accounts plus 1 small taxable account. Taxable account is in NOTAX funds and IRA funds are a mix of bond funds and equity funds. Just routed some to equity funds as ....am thinking we might get a pop in the market before November elections (could be wrong). Am up about net 5% YTD with these accounts. Also in these accounts I have 3 equity positions that are pure speculation (BAC,C and LVS) that may pay off in the long run.
These monies are there for the long run...and hopefully won't touch it until I am 70 1/2.
After this crisis, I don't trust the market that much and felt I needed to make sure I could live for 15 plus (starting in 2013) years regardless of what the market does....hence the conservative plays. If inflation becomes a problem, I'll readjust.
__________________

__________________
sheehs1 is offline   Reply With Quote
Old 09-07-2010, 08:23 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
dex's Avatar
 
Join Date: Oct 2003
Posts: 5,105
Currently, all my expenses are paid out of investments. Let's ignore that I am 100% in cash. I plan to move the bulk of my money into High yield corp bond funds and that will supply the money for my expenses.

At 62 I will need very little from my investments - if my projections are correct.
Budget
-Pension
-SS
= $ from investments (401k distribution &
taxable accounts)

The cash flow is positive for 2 years (not a large pension or SS but a small expense budget) So, I am anticipating having very little in cash; probably only an emergency fund and I think HYCB MF is fine for that.
__________________
Sometimes death is not as tragic as not knowing how to live. This man knew how to live--and how to make others glad they were living. - Jack Benny at Nat King Cole's funeral
dex is offline   Reply With Quote
Old 09-07-2010, 02:58 PM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
harley's Avatar
 
Join Date: May 2008
Location: Following the nice weather
Posts: 6,425
Quote:
Originally Posted by chinaco View Post
The VG Bond funds... that was the fee, not the yield.
That's a sure sign of how bad things are, when I couldn't tell the difference.

Actually, I think I was thinking about the VG MM yield and wasn't paying enough attention to your post.
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Will Rogers, or maybe Sam Clemens
DW and I - FIREd at 50 (7/06), living off assets
harley is offline   Reply With Quote
Old 09-07-2010, 07:32 PM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,274
Quote:
Originally Posted by LOL! View Post
I manage the money without regard to time frame. Everything is one big bucket. It just doesn't matter whether I spend it tomorrow, next week, next year, a few years from now or whatever. After all, what I spend in the next year is going to be less than 4% of the total. The total portfolio has gone up or down by more than 3% on some days, so anything less than about 10% is really just lost in the noise.
+1

I think people get way too hung up on the concept of 'short term money. It's all money, people.

It would be different for someone who needed exactly $X in one year, and $X was the only liquidity they had at the time. Yes, then you need to be super-conservative with it. OTOH, are you really planning to spend your last liquid dollar within the next year? Sounds like a bigger problem needs to be solved.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 09-08-2010, 03:29 AM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by ERD50 View Post
+1

I think people get way too hung up on the concept of 'short term money. It's all money, people.

It would be different for someone who needed exactly $X in one year, and $X was the only liquidity they had at the time. Yes, then you need to be super-conservative with it. OTOH, are you really planning to spend your last liquid dollar within the next year? Sounds like a bigger problem needs to be solved.

-ERD50
+1 and 1/2

Before the meltdown I also operated in the one big pot of money. I still mostly operate this way.

However, 3 years ago I started building a CD ladder which has 1/2 years living expense in each year as well as keeping ~1/2 year in money market/savings. The plan was to make a 5 year CD ladder although with Penfed 10 years CD who knows...

There is some comfort in knowing that if the market goes south, interest rates plummet, and dividends get cut, that will have a year to figure out which depressed assets I need to sell to maintain my living.
__________________
clifp is offline   Reply With Quote
Old 09-08-2010, 07:53 AM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,459
Yes, it's mostly psychological, although experts do tell you to manage money intended for different time frames separately.

Over 10 years, my short-term fund for living expenses has allowed me to look at my long-term portfolio in a much more dispassionate way, ignore sudden scary market events, and still rebalance when blood is in the streets instead of running for the hills. Without it, I'm not sure I would be able yo stay disciplined with my long-term investment plan.

In investing, psychology is everything, IMO.

Audrey
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 09-08-2010, 09:06 AM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
dex's Avatar
 
Join Date: Oct 2003
Posts: 5,105
Quote:
Originally Posted by clifp View Post
+1 and 1/2

Before the meltdown I also operated in the one big pot of money. I still mostly operate this way.

However, 3 years ago I started building a CD ladder which has 1/2 years living expense in each year as well as keeping ~1/2 year in money market/savings. The plan was to make a 5 year CD ladder although with Penfed 10 years CD who knows...

There is some comfort in knowing that if the market goes south, interest rates plummet, and dividends get cut, that will have a year to figure out which depressed assets I need to sell to maintain my living.
Shouldn't that be -1 and 1/2 since you are disagreeing with the idea of one pot of money?
---
I think your 3 years of cash is the way to go. You can ride out most stock market downtrends. If that isn't enough you could use dividends/interest to prepare for a longer time period.
__________________
Sometimes death is not as tragic as not knowing how to live. This man knew how to live--and how to make others glad they were living. - Jack Benny at Nat King Cole's funeral
dex is offline   Reply With Quote
Old 09-08-2010, 09:14 AM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
The bucket approach works well, ya just need different size buckets...............
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 09-08-2010, 09:26 AM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Quote:
Originally Posted by audreyh1 View Post
Yes, it's mostly psychological, although experts do tell you to manage money intended for different time frames separately.
...
In investing, psychology is everything, IMO.

Audrey
I agree that it is psychology, mental accounting, and behavioral traps. But it seems to me that one can rise above these if one acknowledges these factors. I liked the book by Gilovich and Belsky "Why Smart People Make Big Money Mistakes and how to correct them". After I read that book, I threw off the chains that had been holding me back. I step over buckets nowadays and not in them.
__________________
LOL! is offline   Reply With Quote
Old 09-08-2010, 10:41 AM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,459
Why "rise above" something that works well? This is not a "mistake" that needs to be corrected. Certainly not a "Big Money Mistake". I am not seeking to maximize long term return, just to manage volatility and have a reasonably long portfolio survival.

Audrey
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 09-08-2010, 11:10 AM   #32
Thinks s/he gets paid by the post
 
Join Date: Jun 2010
Location: France
Posts: 1,195
Quote:
Originally Posted by rescueme View Post
The reason we keep separate cash buckets (rather than plan for liquidation of stock/bond fund holdings) is that the market is always in flux, for both stock/bond holdings (as you well know) and we don't want to get into a position of selling when funds are at a point lower than purchase price (e.g. not paper, but actual loss). As profits (in both equity & bond holdings) are shown throughout the year, a portion of these funds are sold off and added to cash, if needed to maintain our target. If it's a down year (e.g. 2008), we just sit tight (but sleep well).
I'm slightly surprised that someone who obviously thinks very hard about their investments would still have this approach to sunk costs. Give or take the costs of the transaction, it makes no difference whether you realise the loss or spend the cash - in fact, there might be tax advantages to taking the loss.

There are good risk management reasons to hold a mixture of bonds and cash (and the rest), but to not sell a particular asset simply it would represent a nominal loss compared to the purchase price is not rational.

Assuming (again) that transaction costs and tax considerations can be discounted, you have a pile of "money" (stocks, bonds, cash) and a decision to make about how you balance the future growth/income/risk associated with that pile of money. That's it. How much you bought X stock or Y bond for is irrelevant. (Of course, it has emotional value, but taking advantage of people's tendency to honour sunk costs is one of the ways in which the hard-headed people make money.)
__________________
Age 56, retired July 1, 2012; DW is 60 and working for 2 more years. Current portfolio is 2000K split 50 stocks/20 bonds/30 cash. Renting house, no debts.
BigNick is offline   Reply With Quote
Old 09-08-2010, 12:27 PM   #33
Thinks s/he gets paid by the post
Free To Canoe's Avatar
 
Join Date: May 2008
Location: Cooksburg,PA
Posts: 1,738
Quote:
Originally Posted by Nords View Post
For the first year of our cash stash we use a money-market account.

For the second year of our cash stash we use a five-year CD ladder, with the idea being that we hopefully won't have to break into it but once or twice a decade. As you can imagine, we re-started this system in 2009...
Do you have set rules for replenishment of the stash once depleted?

Free to canoe
__________________
Free To Canoe is offline   Reply With Quote
Personal finance for Vulcans
Old 09-09-2010, 07:41 AM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Personal finance for Vulcans

Quote:
Originally Posted by dex View Post
Shouldn't that be -1 and 1/2 since you are disagreeing with the idea of one pot of money?
---
I think your 3 years of cash is the way to go. You can ride out most stock market downtrends. If that isn't enough you could use dividends/interest to prepare for a longer time period.

No I fundamentally agree with the one pot money. I agree with ERD50 that people are way too hung up on buckets. I find Ray Luca (sp) buckets overly complicates things. I believe BigNicks analysis is spot on. Money is money it is extremely fungible and liquid assets be the stocks, bonds, money market funds, and even CDs are just that--liquid and easily transformed in cash needed to pay property taxes, grocery bills and utilities.

I'd even argue that having one pot, instead of buckets helped make money during the crisis. Because I had all my cash in one pot I was all be to take advantage of the huge opportunities to buy ownership in fabulous US and global companies at bargain prices. Like Warren Buffett I was convinced that stock prices would be significantly higher in 2013 and beyond than the were in Q4 2008. If I had my money in buckets I wouldn't have been able to take advantage of the bargains. Now like a lot of board members, I have a fair amount of Vulcan in my blood, which is generally a good thing during crisis cause it lets you invest with your brain and not your emotions.

However, one of the most important things I've learned in the last few years is that there are two sides to Personal Finance. The finance and the personal. From analytical, MBA,Vulcan, amateur stock analyst, finance etc side, I don't understand the bucket approach. Nor for that matter your decision to be 100% in cash. However, from personal side I really do.

I think I've posted about this before but maybe worth repeating. By Dec of 2009, I had completely used all of my cash reserves buying stocks that I was sure were undervalued. However, these stocks not only weren't going up but seemed to continue down at dizzying pace. Now a fair number of people did this back then obviously including Warren Buffett. However, I took it a step further. I also beginning writing naked puts on various stocks. In effect, I was writing insurance policy for investors terrified that their stocks were going to down to near zero Now this would have ok because the insurance premiums were so incredibly high due to the fear in the markets (i.e the volatility index VIX was off the charts) and many cases the puts were for Jan 2010 so I had plenty of time to come up with the cash. At one point I had written almost 200K in insurance policies/puts.

Now rationally,even the market if went down to Dow 2500, I still had enough GNMA funds, and Municipal bonds to pay off the insurance claims and still have a year or two worth of living expenses even if all my dividend stocks stopped paying. Compared to the vast majority of American I knew I was very good shape.

This is where the "personal" part of personal finance comes in. Eventhough rationally I knew that odds that various municipal bonds much less GNMA bonds would default or their price would collapse were very slim, in 2008 I realized anything was possible. When I looked at the few thousand dollar in a money markets, 10K in Ibonds and lousy 10K CD at Penfed due in Oct 2010, I had a genuine moment of panic. I thought "dude you have really screwed yourself, and your very comfortable Hawaii retirement." All those stocks, bonds, and MLPs you have are nice, but as far as cash goes you really don't have crap . How exactly are you going to pay your living expenses? "Mr sophisticated investor" you are a stupid idiot.

At personal level I started to really understand the appeal of CD ladders, buckets etc. I definitely would have slept better in 2008, knowing that no matter what happens in the stock or bond market a good chunk of my living expense over the next few years are in a bank with FDIC insurance. Now I frankly I hate locking my money away in a CD pay 3 or 3.5% or even the 5% 10 year PenFed CD knowing that the interest if fully taxable and at historically low levels etc. From a finance prospective is sub optimal in my opinion, however the peace of mind it provides is extremely value.

Likewise from a finance perspective I don't understand being a 100% cash, with zero current interest rates. But I completely understand the fear of losing 20 or 30% or maybe even 50% of your assets if we see Dow 5000 in the next year or so. The pain of losing far outweighs the potential benefits if you miss out on a move from 10,000 to Dow 15,000. This analysis is a completely personal one and there is no right or wrong answer. While we talk about risk tolerance, I think the reality is you don't really know your risk tolerance until you've experienced it. Boy did we all get a wonderful learning experience over the last couple of years. One which I'm perfectly happy never to repeat.

So my 1/2 vote for buckets or a separate short-term fund is for a really simple reason, if it helps you sleep better at night, then the economic pro or cons don't matter much.
__________________
clifp is offline   Reply With Quote
Old 09-09-2010, 08:04 AM   #35
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Quote:
Originally Posted by BigNick View Post
I'm slightly surprised that someone who obviously thinks very hard about their investments would still have this approach to sunk costs. Give or take the costs of the transaction, it makes no difference whether you realise the loss or spend the cash - in fact, there might be tax advantages to taking the loss.

There are good risk management reasons to hold a mixture of bonds and cash (and the rest), but to not sell a particular asset simply it would represent a nominal loss compared to the purchase price is not rational.

Assuming (again) that transaction costs and tax considerations can be discounted, you have a pile of "money" (stocks, bonds, cash) and a decision to make about how you balance the future growth/income/risk associated with that pile of money. That's it. How much you bought X stock or Y bond for is irrelevant. (Of course, it has emotional value, but taking advantage of people's tendency to honour sunk costs is one of the ways in which the hard-headed people make money.)
First, all sales transactions are "tax neutral", since +95% of our retirement investments are in tax-deferred funds, and "sales to cash" are also held in the tax-deferred MM accounts. We do not pay any federal tax until the money is transferred to our checking account. BTW, we pay no state/local tax on any withdrawals, since our state/local taxes were paid at the time of contribution. Any gains (which is the money we're withdrawing) is tax free - other than federal tax. Since we would not gain anything from selling at a loss, there is no need to consider what is normal in a taxable account, since we don't hold any such investments. The other 5% is held in tax-free accounts (e.g. Roth and non-deductable IRA's).

I know you will probably respond with movement of funds from tax-deferred to non-tax (e.g. Roth conversion). We've already run the numbers, and since tax would have to be paid out of tax-deferred funds, the tax hit would be considerable. I'm a firm believer in not paying tax till tax is due. Since the majority of our terminal estate will be going to charity (except a portion to additionally fund our disabled son's trust) and if the tax laws do not change radically, a good portion of our estate will be going to our named charities with little/no tax paid.

Lastly, even though in dollar amount we have a lot in "cash", to take care of immediate retirement expenses, the actual % vs. our total holdings is quite small from an overall view. And over the next 7 years or so, that percentage will be less and less, as our SS and pensions come on-line. In fact, at that time our estimated withdrawl rate (around 2%) will be due to excess RMD's (e.g. money withdrawn beyond what we need to live on). We would be close to a 0% withdrawl rate if excess RMD's were not required.
__________________
rescueme is offline   Reply With Quote
Old 09-09-2010, 09:07 AM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
dex's Avatar
 
Join Date: Oct 2003
Posts: 5,105
Quote:
Originally Posted by clifp View Post
No I fundamentally agree with the one pot money. I agree with ERD50 that people are way too hung up on buckets. I find Ray Luca (sp) buckets overly complicates things. I believe BigNicks analysis is spot on. Money is money it is extremely fungible and liquid assets be the stocks, bonds, money market funds, and even CDs are just that--liquid and easily transformed in cash needed to pay property taxes, grocery bills and utilities.

I'd even argue that having one pot, instead of buckets helped make money during the crisis. Because I had all my cash in one pot I was all be to take advantage of the huge opportunities to buy ownership in fabulous US and global companies at bargain prices. Like Warren Buffett I was convinced that stock prices would be significantly higher in 2013 and beyond than the were in Q4 2008. If I had my money in buckets I wouldn't have been able to take advantage of the bargains. Now like a lot of board members, I have a fair amount of Vulcan in my blood, which is generally a good thing during crisis cause it lets you invest with your brain and not your emotions.

However, one of the most important things I've learned in the last few years is that there are two sides to Personal Finance. The finance and the personal. From analytical, MBA,Vulcan, amateur stock analyst, finance etc side, I don't understand the bucket approach. Nor for that matter your decision to be 100% in cash. However, from personal side I really do.

I think I've posted about this before but maybe worth repeating. By Dec of 2009, I had completely used all of my cash reserves buying stocks that I was sure were undervalued. However, these stocks not only weren't going up but seemed to continue down at dizzying pace. Now a fair number of people did this back then obviously including Warren Buffett. However, I took it a step further. I also beginning writing naked puts on various stocks. In effect, I was writing insurance policy for investors terrified that their stocks were going to down to near zero Now this would have ok because the insurance premiums were so incredibly high due to the fear in the markets (i.e the volatility index VIX was off the charts) and many cases the puts were for Jan 2010 so I had plenty of time to come up with the cash. At one point I had written almost 200K in insurance policies/puts.

Now rationally,even the market if went down to Dow 2500, I still had enough GNMA funds, and Municipal bonds to pay off the insurance claims and still have a year or two worth of living expenses even if all my dividend stocks stopped paying. Compared to the vast majority of American I knew I was very good shape.

This is where the "personal" part of personal finance comes in. Eventhough rationally I knew that odds that various municipal bonds much less GNMA bonds would default or their price would collapse were very slim, in 2008 I realized anything was possible. When I looked at the few thousand dollar in a money markets, 10K in Ibonds and lousy 10K CD at Penfed due in Oct 2010, I had a genuine moment of panic. I thought "dude you have really screwed yourself, and your very comfortable Hawaii retirement." All those stocks, bonds, and MLPs you have are nice, but as far as cash goes you really don't have crap . How exactly are you going to pay your living expenses? "Mr sophisticated investor" you are a stupid idiot.

At personal level I started to really understand the appeal of CD ladders, buckets etc. I definitely would have slept better in 2008, knowing that no matter what happens in the stock or bond market a good chunk of my living expense over the next few years are in a bank with FDIC insurance. Now I frankly I hate locking my money away in a CD pay 3 or 3.5% or even the 5% 10 year PenFed CD knowing that the interest if fully taxable and at historically low levels etc. From a finance prospective is sub optimal in my opinion, however the peace of mind it provides is extremely value.

Likewise from a finance perspective I don't understand being a 100% cash, with zero current interest rates. But I completely understand the fear of losing 20 or 30% or maybe even 50% of your assets if we see Dow 5000 in the next year or so. The pain of losing far outweighs the potential benefits if you miss out on a move from 10,000 to Dow 15,000. This analysis is a completely personal one and there is no right or wrong answer. While we talk about risk tolerance, I think the reality is you don't really know your risk tolerance until you've experienced it. Boy did we all get a wonderful learning experience over the last couple of years. One which I'm perfectly happy never to repeat.

So my 1/2 vote for buckets or a separate short-term fund is for a really simple reason, if it helps you sleep better at night, then the economic pro or cons don't matter much.
Good perspective. You can tell, I really don't have 'pots' of money.

I think the psychological aspect of investing is the most important. We are our own worst enemies in that regard. Most systems try to take out the emotional aspects. In that regard the 'pots' of money is a good idea, it also gives structure.

From my reading of those who lost most or all of their money in 'investing' or 'trading' the one mistake they made was they didn't have a goal for when to quit. They may have made a lot of money but didn't stop and change gears from making money to preserving and enjoying it.

So, I am at the point of preserving and enjoying it. At this time I see the risk losing more money than can be gained in stock market. The bond market is not worth the time, nor does it fit into the time line I see for when I might move out of cash.

You might be interested in reading the book by this guy. He has good advise.
Jesse Lauriston Livermore - Wikipedia, the free encyclopedia
__________________
Sometimes death is not as tragic as not knowing how to live. This man knew how to live--and how to make others glad they were living. - Jack Benny at Nat King Cole's funeral
dex is offline   Reply With Quote
Old 09-09-2010, 07:14 PM   #37
Thinks s/he gets paid by the post
Free To Canoe's Avatar
 
Join Date: May 2008
Location: Cooksburg,PA
Posts: 1,738
Quote:
Originally Posted by clifp View Post
While we talk about risk tolerance, I think the reality is you don't really know your risk tolerance until you've experienced it.
Lot's of good stuff in this thread but this one will go down in the annals of history (if it is not there already).

Free to canoe
__________________
Free To Canoe is offline   Reply With Quote
Old 09-09-2010, 08:29 PM   #38
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,274
Quote:
Originally Posted by clifp View Post
No I fundamentally agree with the one pot money. I agree with ERD50 that people are way too hung up on buckets.
I should probably expand a bit on that post. It may have been clear, but maybe not. While I call it one big pot of money, that still means divided up in some AA that meets your personal risk tolerance, and includes some liquidity for normal cash flow purposes.

But let's say I know I have a big expense due in a year or two (planned major house maintenance, new cars, or whatever). Let's call 'big' 1% or 2% of your NW (so roughly a 25% or 50% boost in expenses at the 4% level). I don't see the need to keep that money 'safe' in some dollar-certain investment like a CD or MM. I just keep it at my AA (while assuring that amount is reasonably liquid). When I need to pull it, I can do any rebalancing that is needed, and I need to consider tax implications.

Bonds/stocks may be down when we need to pull $ out - but we invest in stocks because we believe that over the long run they will be up. So odds are, they will be up when we sell. I just don't see the need to go super-conservative for a short time-frame, if we aren't also super-conservative for the long time-frame. Stick with the AA, IMO.

edit/add - geez, re-reading my own post I got struck with what seems now like an obvious point:

What the heck is the difference between pulling money out now to put in a MM for a purchase a few years out, and just pulling money out when needed? Either way, at some point you are pulling money out. Seems like deciding now is better than later is market timing?

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 09-09-2010, 10:22 PM   #39
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by ERD50 View Post
edit/add - geez, re-reading my own post I got struck with what seems now like an obvious point:

What the heck is the difference between pulling money out now to put in a MM for a purchase a few years out, and just pulling money out when needed? Either way, at some point you are pulling money out. Seems like deciding now is better than later is market timing?

-ERD50
Exactly, now that you point it out it is obvious but it wasn't before at least not to me.

I think a big part of the problem is so many rules are written for working people or retirees who are primarily living on SS and pension and don't have access to big pool of money. If you are working stiff saving up to buy a new car or make a down payment on a house, which you plan/need to buy in 6 months to a year. You shouldn't stick the money in a small cap index fund, even though on average it will earn more money than money market. The consequences of not having enough money for the house or car are quite severe much more important than extra 5 or 10% you'd earn in the small cap fund.. If on the other hand if it is a few percent of your net worth keep it in the small cap fund till you need it. Of course the number of books telling people how to become millionaire is lot bigger than than those telling how to chance our money behaviors once you accumulate a million.


I see a similar thing with insurance. I see a lot of people (e.g. mom) who take out insurance on bunch of things which frankly they can easily self insurance on (trips, collisions on older cars, extended warranties etc.)
A 25 replacing a 3 year old car that got totaled, is a major financial event.
For a 60 year old retiree it shouldn't be a major event, and if you pool all the money you save from paying premiums, on cars, contacts, trips, appliances you should easily be able to pay for the things that need replacing. But this all assumes you have the funds to easily replace these things and many working people simply don't. So advice that is sensible for a 25 year old is bad for 60 year old.
__________________
clifp is offline   Reply With Quote
Old 09-09-2010, 10:29 PM   #40
Recycles dryer sheets
Marc1962's Avatar
 
Join Date: Aug 2010
Location: Evansville
Posts: 60
Quote:
Originally Posted by ERD50 View Post
Bonds/stocks may be down when we need to pull $ out - but we invest in stocks because we believe that over the long run they will be up. So odds are, they will be up when we sell.

[...]

What the heck is the difference between pulling money out now to put in a MM for a purchase a few years out, and just pulling money out when needed? Either way, at some point you are pulling money out. Seems like deciding now is better than later is market timing?
Don't you wind up hurting aggregate return due to reverse dollar cost averaging when you sell as/when needed?
__________________

__________________
Marc1962 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Give away assets or buy long term care insurance rec7 FIRE and Money 49 02-20-2010 04:28 PM
Managing the Game mickeyd FIRE and Money 0 03-13-2008 03:13 PM
Be careful managing assets, accounts, money, over the internet on wireless chinaco Life after FIRE 51 05-21-2007 09:58 AM
Managing my Investment Advisor Rich_by_the_Bay FIRE and Money 3 03-22-2006 01:44 PM

 

 
All times are GMT -6. The time now is 02:52 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.