100% in cash?

[FinanceDude]

I guess if you don't mind inflation killing your purchasing power, do it. I personalyl would enver do it, I have very little in FDIC covered deposits and will have very little upon retirement.........YMMV...........

 

[CoolChange]

This is almost exactly what my mother (now over 80) has done since retiring on mostly SS income. (She still puts in a few hours every week for a small additional paycheck.)

Almost everything (which is quite a very small amount by the standards here but significant to her) has been in FDIC backed products (passbook accounts, CD's, etc.) as long as I can remember. She does not understand or trust the markets and would not be able to sleep at night if her money was at risk.

Since she can easily subsist on her SS income, the savings are just for peace of mind (an emergency fund of sorts) in any case.

 

[rbmrtn]

That's the problem here. We can't "know" future inflation any more than we can "know" future equity returns. We can no more assume inflation will remain (mostly) below 3% (officially, don't get me started) than we can assume equities will continue to return 10-11% over the long run.

Exactly. If the conditions were met in the OP, that we had enough to last our lifetime, taking to account inflation, then cash would be no-brainer.

 

[FinanceDude]

I guess I will add a caveat to this hypothetical: Are you interested in building a greater estate for your beneficiaries or charities or not? FDIC insured investments have never been known to build wealth. And a diversified investment over time will smoke FDIC returns. So, again, it goes back to the OP's intent........because its THEIR money..........

 

[Koolau]

I diversify, not so much because I don't feel I have enough to survive, but because I fear inflation more than I fear losses (and it's a close fear!) So, if reasonable inflation could be "guaranteed", I would consider all cash. Since it can not be guaranteed, I diversify. Though as someone pointed out, precious metals also lose value, they have never lost all value as all past currencies have eventually done. Yeah, I know, there are some (currently) surviving currencies, but they too will fail - even the dollar. Just hope it's not in my lifetime, though that looks more possible than 5 years ago. So one point of diversity, even if no other, would be PM if it were me (and for me, it is.) YMMV

 

[carib bound]

As for me, I agree with others who have said that the inability to predict inflation over time is reason enough to maintain a balanced portfolio, which grows more-conservative as one ages. When I hit 80, depending upon my portfolio's worth, I will certainly re-think the "all cash" (or SPIA) option.

 

[pb4uski]

The more I think about it, I could never go 100% cash (or cash equivalents) even if if I had an obscene nestegg and a very low withdrawal rate as I have spent a life-time trying to optimize my nestegg and to do an about face and IMO suboptimize my nestegg would be very uncomfortable for me.

Besides, I have heirs and charities who will benefit from whatever is left so in such a situation I would view myself as managing the investments for their benefit (just like I currently manage my mother's investments for my and my siblings benefit since between SS and a commercial real property she owns it provides more than what she needs).

 

[Bikerdude]

Well depending upon how long I have to live I may be able to go 100% cash now however, I would never drop below 25% equities.

As Henny Youngman said; "I have all the money I'll ever need if I die before 4:30."

 

[ejman]

Well depending upon how long I have to live I may be able to go 100% cash now however, I would never drop below 25% equities.

As Henny Youngman said; "I have all the money I'll ever need if I die before 4:30."

I think Benjamin Graham said regarding asset allocation something like never go below 25% equities or conversely never go below 25% bonds. Sounds like good advice to me.

 

[Bikerdude]

I think Benjamin Graham said regarding asset allocation something like never go below 25% equities or conversely never go below 25% bonds. Sounds like good advice to me.

Yes that and I believe Bernstein's risk/return chart in his asset allocation book.

 

[photoguy]

I understand, but the OP asked about what to do with a portfolio that was large enough for cash only (@ zero real return) to support an inflation adjusted, long (30 years +/-) retirement, most likely a 7 figure nest egg. $10-20K/yr would be trivial in that circumstance.

There's no limit on TIPS so anything that doesn't fit in the i-bonds portion could go there.

 

[HighRoller]

Hypothetical question. If you were certain that you had enough in your portfolio to cover all of your expenses for the rest of your life (after factoring inflation) without making any more money from your investments, would you ever consider taking all of your money out of the market and bonds and just put it in federally insured investments?

Yes - but only if I were certain I could live comfortably for the rest of my life. (what I consider comfortable)

 

[M Paquette]

Not me. I'm a dirty asset allocator, and have been known to *shudder* rebalance every once in a while!

 

[timo2]

FDIC covers to $100000 per account when the temporary increase to $250000 expires. You earn next to nothing for interest for the last 5 or 6 years and for at least a couple of more years to come. You pay tax at ordinary income level on whatever small amount of interest generated and the cash will lose value just as fast if there is significant inflation. Do not really see cash as any better hiding place.

Apparently the temporary increase was made permanent in Dodd-Frank North American State Bank Online

If one did go all in for 100% FDIC coverage, I would have several different institutions, so if one goes belly-up, you still would have some immediate assets available.

 

[timo2]

Hypothetical question. If you were certain that you had enough in your portfolio to cover all of your expenses for the rest of your life (after factoring inflation) without making any more money from your investments, would you ever consider taking all of your money out of the market and bonds and just put it in federally insured investments?
Personally, I don't think I would unless I were in my 90s.

What would bother me about having all that cash laying around is a fear that my financial intelligence will diminish with age, leading me to squander my remaining funds or be swindled. Annuities can protect against that, but some of them have such high fees.

 

[Dawg52]

What would bother me about having all that cash laying around is a fear that my financial intelligence will diminish with age, leading me to squander my remaining funds or be swindled. Annuities can protect against that, but some of them have such high fees.

That's the number 1 argument for me buying a SPIA one day. I should easily be able to live off of SS and interest/dividends, but my aging pea-brain might lead me down the wrong path.

 

[pb4uski]

That's the number 1 argument for me buying a SPIA one day. I should easily be able to live off of SS and interest/dividends, but my aging pea-brain might lead me down the wrong path.

You might be able to accomplish the same thing by setting up a conservative automatic monthly withdrawal and then forgetting your password.

 

[Gatordoc50]

I remember walking into a bank a few decades ago and seeing all these blue hairs standing in line for CDs paying 10 %. So, yes, there would be scenarios where I would be 100% cash.

 

[Dawg52]

You might be able to accomplish the same thing by setting up a conservative automatic monthly withdrawal and then forgetting your password.

I'm already forgetting passwords. Right now I have the sense to have all my passwords written down and stored in a fire proof(supposedly) file box. I am going to be in trouble when I forget where I put the list of passwords or file box .

 

[imoldernu]

All small amounts, but enough for the next 10-15 years after which we'd be well into our 90's.
CD's, Small untouched 6% Annuity from 1984 , IBonds (limits in the early years were $30K/person.)
A few old paper stocks. So yeah... in cash.

We never think about money, except as a hobby for us to see where we get the most for $$$. DW and I fight for bragging rights.

We didn't plan it that way, but we don't do very much to support the Government in the way of income taxes.

 

[bondi688]

I'm already forgetting passwords. Right now I have the sense to have all my passwords written down and stored in a fire proof(supposedly) file box. I am going to be in trouble when I forget where I put the list of passwords or file box .

Google announced at the beginning of this month it has created a new access program in lieu of passwords by identifying your body odor. Sites that contain more sensitive information such as your banking and brokerage accounts , require you not to shower to gain access.

 

[tightasadrum]

I have way too much parked in cash now. And I watch the real value decrease every month. To be all in cash is too much risk. Too much in ANYTHING is risky. If/when inflation really takes off...never mind, it has already depending on what things you buy. I watched my dad put everything he had in CDs. I wonder what he would do today with rates so low.

My 91yo Mother-in-law complains about having no interest income. I ask her about taking some risk to get a little more income. Nope! Not taking any risk. It makes me wonder if I'll be as risk averse if I make it to 91. I better get my daughter trained to handle it. I'll tell her if she does a good job, she'll inherit more.

 

[bondi688]

2 opposing views of the Fed's zero interest rate policy.
No, Ben Bernanke Doesn
"James Surowiecki of The New Yorker, argues that this criticism is wrong, or at least misguided. First off, Surowiecki argues, most Americans aren’t living off the interest from their savings. In fact only 7% of all financial assets in the U.S. are held in interest-bearing assets. Even senior citizens, the group of Americans that Bernanke is purportedly hurting, only receive 10% of their income from interest. The truth is, says Surowiecki, people who are living mostly from savings and interest from savings tend to be a small and elite group. More Americans are in debt than are savers, and low interest rates help those in debt."
Retirees Must Stand Up and Fight the Federal Reserve
"It's easy to argue that for the good of the entire country, retirees should bear the brunt of the burden. After all, they do tend to have more savings than younger Americans, having had a whole career to create their retirement nest eggs. But retirees are far less wealthy than younger Americans in one key asset: the value of their human capital. Younger Americans can look forward to years or even decades of future earnings from wages and salaries."

 

[Moscyn]

No, not even in my nineties. Maybe 80% cash at that age.