Question about Asset Allocation-Cash

[FREE866]

A lot of it is a matter of personal preference.... the success rate between 40/60 and 80/20 are very similar.

Right. Success % is same , but the portfolio value historically for 20-30 year time frames is substantially higher with 80/20.

 

[pb4uski]

Right. Success % is same , but the portfolio value historically for 20-30 year time frames is substantially higher with 80/20.

Agreed....did you miss post #42?

 

[Souschef]

I am the outlier. All my investments are in equities, and I am 81. I see no sense in putting any of it in bonds, CD's,etc.as we do not need the income.
We both get SS, and pensions, which cover our living costs.
We have no debt, and 2 very young cars
My RMD each year pays our taxes, gifts to our 4 sons, travel, and charitable donations. Right now is at 5.5% of my IRA, which translates to less that 2.5% WR

 

[FREE866]

Agreed....did you miss post #42?

Ahh...yes....Saw it after i posted....I guess it comes down to mentally if one has the stomach for the bumper ride with higher equities

 

[audreyh1]

Ahh...yes....Saw it after i posted....I guess it comes down to mentally if one has the stomach for the bumper ride with higher equities

Ultimately, you trade off long term higher returns against short term lower volatility. This is a very individual decision and very much depends on individual circumstances.

 

[rayvt]

I am the outlier. All my investments are in equities, and I am 81. I see no sense in putting any of it in bonds, CD's,etc.

You are a man after my own heart.

I'm not quite that old, but I too have almost all my investments in equities. A small portion is in a few preferred stocks and ETFs, paying yields in the range of 7% to 10%.

 

[Camas Lilly]

If one is retired, then I think that any cash should be part of your fixed income allocation which includes then bonds, savings accounts, cash, T-bills, etc.

I personally don't hold any cash if I can help it. I have some cash in my checking account which is enough to pay next week's bills. Otherwise, if I need money, then I am selling investments just-in-time to pay bills. That is, I am essentially living paycheck-to-paycheck where "paycheck" means selling shares of an equity or bond fund.

And if you are going to ask me, "What about an emergency fund?", then I will say I have credit cards and can get any needed cash in a couple days by selling shares. I don't have a job to lose, so I don't need an emergency fund in case I lose my job.

I am inclined to agree but trying to change my ways as we get closer to retirement. I don't like cash laying around too closely because it is easy to spend, so I plan on leaving my cash in PIMIX in my retirement account. If I actually have to "sell" something, it puts the brakes on and time to seriously think it through.

 

[Dtail]

You are a man after my own heart.

I'm not quite that old, but I too have almost all my investments in equities. A small portion is in a few preferred stocks and ETFs, paying yields in the range of 7% to 10%.

Not sure many folks on this forum who depend on their investment portfolio for at least a decent portion of their spending, will have a 100% equity allocation.

 

[jollystomper]

Ultimately, you trade off long term higher returns against short term lower volatility. This is a very individual decision and very much depends on individual circumstances.

+1

In my own circumstances I understand I am trading off those longer term higher returns, but the potential gain (as shown in the 40/60 to 80/20 comparison) for me is not worth the associated volatility. I am fine with that, and at my age, and retired, am fine with going with an AA and cash allocation that suits my temperament and circumstances.

 

[Markola]

OP, I guess it worries me that you have let go your Vanguard PAS advisor in order to DIY. To state the obvious but important caveat, for the projected very long term returns above of any given AA to materialize, the AA needs to remain fixed that long, not fiddled with. 20 - 30 years + are required to allow for some bulls and some bear cycles to happen within each asset class, rebalancing regularly. Some posters here have veins of ice water and DIY successfully but they seem pretty rare in my reading of the forum. Most seem to fiddle every now and then in the attempt to “optimize”, me included, i.e. we end up market timing and, therefore, failing to receive the long term returns. I finally admitted that I tend to fiddle “just one more time to get this right”, plus DW has no interest in DIY investing and wants third party help. So, we hired Vanguard PAS to keep our chosen AA locked in long-term and to advise us through the tricky process of spending it sustainably as we age.

Can you say more about why you ditched your Vanguard PAS advisor and why you are setting out to handle your finances solo?

 

[OldShooter]

OP, I guess it worries me that you have let go your Vanguard PAS advisor in order to DIY. To state the obvious but important caveat, for the projected very long term returns above of any given AA to materialize, the AA needs to remain fixed that long, not fiddled with. 20 - 30 years + are required to allow for some bulls and some bear cycles to happen within each asset class, rebalancing regularly. Some posters here have veins of ice water and DIY successfully but they seem pretty rare in my reading of the forum. Most seem to fiddle every now and then in the attempt to “optimize”, me included, i.e. we end up market timing and, therefore, failing to receive the long term returns. I finally admitted that I tend to fiddle “just one more time to get this right”, plus DW has no interest in DIY investing and wants third party help. So, we hired Vanguard PAS to keep our chosen AA locked in long-term and to advise us through the tricky process of spending it sustainably as we age.

Can you say more about why you ditched your Vanguard PAS advisor and why you are setting out to handle your finances solo?

@Markola makes a good point here. I'm not advocating for or against, but rather for considering multiple points of view on this important tradeoff. We run our own money, but one concern I have is that we have no plan for the possibility that both of us will become incompetent to do so. Not quite @Markola's point, but close.

Along the lines of @Markola's point I was talking to an FA one time and he said: "Look, I can't beat the market for my customers but if I can keep them from panic selling just once or twice, I will have earned every dime they have ever paid me and every future dime they will pay."

 

[downrod]

OP, I guess it worries me that you have let go your Vanguard PAS advisor in order to DIY. To state the obvious but important caveat, for the projected very long term returns above of any given AA to materialize, the AA needs to remain fixed that long, not fiddled with. 20 - 30 years + are required to allow for some bulls and some bear cycles to happen within each asset class, rebalancing regularly. Some posters here have veins of ice water and DIY successfully but they seem pretty rare in my reading of the forum. Most seem to fiddle every now and then in the attempt to “optimize”, me included, i.e. we end up market timing and, therefore, failing to receive the long term returns. I finally admitted that I tend to fiddle “just one more time to get this right”, plus DW has no interest in DIY investing and wants third party help. So, we hired Vanguard PAS to keep our chosen AA locked in long-term and to advise us through the tricky process of spending it sustainably as we age.

Can you say more about why you ditched your Vanguard PAS advisor and why you are setting out to handle your finances solo?

Strictly as a cost save. I have no intention of changing any of my investments for the next 4 yrs, so I didnt see the need to pay the advisory fee for those 4 yrs.
I may pick the service back up as I get closer to my planned retirement date. I have many worries about withdrawal strategies, Roth conversions, Tax implications, ACA concerns, SS timing, etc.
I may learn enough over the next 3 yrs to feel comfortable on my own, but if not, I will work with an advisor. Either the PAS or a fee only advisor
I just hope that I am not missing anything that I should be doing right now.

 

[mickeyd]

In my youth I did not include Cash in my AA as I had a tendency to raid savings for fun and purchasing stuff. Also it was a smaller dollar amount. Today I am retired and my cash position is much larger than in my youth and I don't need to raid it so often. Today it's used mainly for large purchases (car, CCRC entrance fee, cruise etc.).


The nature of Cash seems to change as we age and get more investable assets.

 

[Markola]

Strictly as a cost save. I have no intention of changing any of my investments for the next 4 yrs, so I didnt see the need to pay the advisory fee for those 4 yrs.

I may pick the service back up as I get closer to my planned retirement date. I have many worries about withdrawal strategies, Roth conversions, Tax implications, ACA concerns, SS timing, etc.

I may learn enough over the next 3 yrs to feel comfortable on my own, but if not, I will work with an advisor. Either the PAS or a fee only advisor

I just hope that I am not missing anything that I should be doing right now.

Good luck to you. I decided 30 basis points to have all the services is well worth it. One simple way for you to have AA continuity is to pick the Vanguard Target Date or LifeStrategy fund with the AA closest to what you want, put all of your $1.3M in it and don’t touch it for anything. This is what we’ve done with our non-PAS portfolio, e.g. VG Target 2020. When the next bear happens, that fund will quickly rebalance before I can get my paws on it. Also, related to your initial question, that fund’s current cash position is 1.42%.

 

[Dtail]

I guess it comes down to having ice in your veins when you need to.
I didn't sell in 2000 or 2008, but wasn't retired then.
Dec 2018 was still calm for me. We will see on the next bear market. I have trust in the historical patterns.

 

[sengsational]

Ice in the veins gets you most of the way there. IOW setting and sticking to one set of allocation targets is what really matters. Will 60/40 return less than 80/20 over some spans? Probably. But if you don't go too extreme in your allocation targets, and you rebalance to target occasionally, I really do think that you're getting most of what's available.