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Quick Question computing AA Percentages
01-18-2019, 02:23 PM
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#1
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Recycles dryer sheets
Join Date: Sep 2012
Location: Redmond, WA
Posts: 185
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Quick Question computing AA Percentages
When my total investments look like this:
37% Equity
53% Bonds
10% Cash (2 Years of Spending Buffer)
Do I say I am in a 37/63 AA? (The % w/ cash included in Bonds)?
Or do I say I am in a 41/59 AA (The % w/o cash included at all)?
(See I bet you were nervous I was about to ask what AA I should have based in just my age and hair color. )
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Shabby
- Live below your means
- Stay out of debt
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- Buy used cars
- Focus on your end goal (FIRED June 2019)
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01-18-2019, 02:28 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
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Quote:
Originally Posted by Shabby
Do I say I am in a 37/63 AA? (The % w/ cash included in Bonds)?
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+1
Or you could say 37/53/10 and we would understand. I'm currently at 41/46/13.
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Numbers is hard
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01-18-2019, 02:42 PM
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#3
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Recycles dryer sheets
Join Date: Apr 2005
Location: Seattle
Posts: 188
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I don't think the cash is part of your AA unless you're going to rebalance to keep it that way. In your example, let's say stocks have a great year and now you're 49/49/2. I assume you're going to sell some stocks and buy bonds to get back to your desired AA. But if you're not also going to cash out and get the cash back up to 10%, I wouldn't call that part of your AA. It's just a buffer (which you probably pick based on a dollar value rather than a percentage).
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01-18-2019, 02:56 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Oct 2010
Posts: 1,216
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I agree with REWahoo, I would personally call it a 37/63 AA, although 37/53/10 works too.
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01-18-2019, 03:16 PM
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#5
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,474
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Quote:
Originally Posted by jimbee
I agree with REWahoo, I would personally call it a 37/63 AA, although 37/53/10 works too.
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+1
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01-18-2019, 03:40 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2011
Location: NC Triangle
Posts: 5,807
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Seems to me it would make sense to add the cash to the bond portion under the notion that it’s part of the “fixed income” part of your stash.
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01-18-2019, 03:41 PM
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#7
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Recycles dryer sheets
Join Date: Sep 2012
Location: Redmond, WA
Posts: 185
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Thanks! I like the 37/53/10 style.
__________________
Shabby
- Live below your means
- Stay out of debt
- Save all you can
- Buy used cars
- Focus on your end goal (FIRED June 2019)
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01-18-2019, 04:16 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Dec 2017
Posts: 2,534
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37/53/10 is most specific, and it tells us your cash %. It's what I use because cash is part of my bucket approach.
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Quick Question computing AA Percentages
01-18-2019, 05:29 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2011
Location: NC Triangle
Posts: 5,807
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Quick Question computing AA Percentages
Probably the most interesting chunk is 37. That reflects how aggressive the portfolio is. The rest is your personal taste in breakdown. If the cash is a spending buffer, it could be moved out of a retirement plan, as you point out (41% in stocks).
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01-18-2019, 06:04 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2017
Location: City
Posts: 10,337
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The word "cash" gets thrown around a lot in these discussions without being defined. Literally, of course, it is banknotes but nobody here uses the word that way.
I just dumped a floating rate fund (SAMBX) that I considered to be "cash" but a majority might not agree with that. I just bought some TIPS with 1/15/21 maturity; I consider those to be close to "cash." I also put some of the proceeds into SWVXX, a money market fund that most would consider to be cash.
So, IMO to state an AA with a separate "cash" component really doesn't mean much until the poster defines what "cash" means in that portfolio.
FWIW, I don't separate out "cash" in my AA thinking because I can't draw a bright line that separates my fixed income holdings into the two piles. YMMV, of course.
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01-18-2019, 07:41 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2018
Location: Tampa
Posts: 11,233
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Quote:
Originally Posted by HNL Bill
37/53/10 is most specific, and it tells us your cash %. It's what I use because cash is part of my bucket approach.
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Same here. Cash is very important to my ACA MAGI.
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01-18-2019, 08:02 PM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,011
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I have an allocation to cash as part of my AA, but I usually report my stock%/fixed income% as I figure that's good enough for sharing on the internet.
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01-18-2019, 08:46 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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Quote:
Originally Posted by nuisance
I don't think the cash is part of your AA ....
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Of course it is... cash is just another form of fixed income that is liquid and has low credit risk and low return.
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01-19-2019, 06:43 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Jul 2013
Posts: 1,879
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37/63
Cash is part of fixed income.
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01-19-2019, 07:05 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Nov 2014
Location: Austin
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Whatever floats your boat. Most understand what you mean either way, though specifically calling out cash gives more information since, while both bonds and cash are "fixed" income, they're not the same. Of course that can be taken to extreme with something like TSM/SCV/EM/TBM/Cash :-)
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01-19-2019, 02:28 PM
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#16
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Recycles dryer sheets
Join Date: Apr 2005
Location: Seattle
Posts: 188
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Quote:
Originally Posted by pb4uski
Of course it is... cash is just another form of fixed income that is liquid and has low credit risk and low return.
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Cash can be part of asset allocation, but only if you're going to rebalance to keep its percentage inline, just like you do for other assets. I read OP's post as saying they have 2 years of spending cash set aside, which means they don't intend to rebalance. In that case it's something like an emergency fund: not really part of your assets invested for retirement.
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01-19-2019, 04:07 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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Nah... what is important is whether it is part of their retirement nestegg, which it is. The OP characterized it as two year spending buffer so it is clearly part of retirement nestegg. Whether OP intends to rebalance to a two year buffer or just use that in their first two years of retirement doesn't matter to whether the cash is included or not... both are sensible strategies.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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01-19-2019, 04:56 PM
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#18
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Thinks s/he gets paid by the post
Join Date: Oct 2010
Posts: 1,216
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Quote:
Originally Posted by pb4uski
Nah... what is important is whether it is part of their retirement nestegg, which it is. The OP characterized it as two year spending buffer so it is clearly part of retirement nestegg. Whether OP intends to rebalance to a two year buffer or just use that in their first two years of retirement doesn't matter to whether the cash is included or not... both are sensible strategies.
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Yep, this ^. If the cash buffer is maintained by rebalancing, he AA stays. If the cash buffer is depleted over time, the AA changes over time, following the depletion. I don't see how this is so difficult.
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Quick Question computing AA Percentages
01-19-2019, 05:14 PM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2011
Location: NC Triangle
Posts: 5,807
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Quick Question computing AA Percentages
If there’s a separate emergency fund then the additional cash would be considered part of the asset allocation. In Quicken terms, the difference is whether it belongs in a spending/savings account or under investments.
[ADDED] Referring to the cash as a “buffer” is what makes it a bit unclear I think. Also, if the cash is in a tax-favored (retirement) account, that would lean toward it being an investment.
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01-19-2019, 05:16 PM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2017
Location: City
Posts: 10,337
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There is "Actual AA," which is like a business balance sheet. It is constantly changing as time moves forward, most notably in forum members' case by spending and by marking assets to market. It's just a calculation.
Then there is "Target AA" for those who have a target.
In our case, our fixed side is a sort of two-part bucket that contains a short-term low risk component that we draw on and a longer-term component that looks farther down the road. Once we have a rough idea of what we want (in $) on the fixed side we can calculate an AA and use the number as a sanity check on the plan. Hence, we really don't have a target AA.
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