FANOFJESUS
Thinks s/he gets paid by the post
I was thinking about an idea like this. My social security is small and not enough to live on.
Anybody doing five years of cash the rest in stocks or anything like that?
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38Chevy454
Thinks s/he gets paid by the post
My opinion is that you are potentially giving up even modest returns on the cash keeping 5 years. I would suggest more like a three bucket approach if you like having cash. Adjust yearly on rebalancing and bucket distribution:
1) Cash for 1-2 yrs living expenses.
2) Moderate 60/40 type AA for 2-5 years money
3) Higher equities like 80/20 for 5 year plus money
You can adjust the AA values to match your risk tolerance. Just beware that you can also adjust on more frequent basis than yearly as I listed above as well. Such as if you decide to becomoe more conservative and wanting to reduce market volatility.
I personally don't do this approach, but it does make it easy to follow the logic. It gives you the cash to live on that is easy to see and track. It will also help to provide returns that will be better than pure cash.
1) Cash for 1-2 yrs living expenses.
2) Moderate 60/40 type AA for 2-5 years money
3) Higher equities like 80/20 for 5 year plus money
You can adjust the AA values to match your risk tolerance. Just beware that you can also adjust on more frequent basis than yearly as I listed above as well. Such as if you decide to becomoe more conservative and wanting to reduce market volatility.
I personally don't do this approach, but it does make it easy to follow the logic. It gives you the cash to live on that is easy to see and track. It will also help to provide returns that will be better than pure cash.
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OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Well, your question again raises the question of "What do you mean by 'cash' ?"
We have five+ years in "fixed assets" of various amounts, maturities, and risk levels. Basically, the assets are liability-matched to a five year scenario. Money we might spend next year if the market goes down is our lowest risk, highest liquidity, and lowest yield money. We have some TIPS maturing next month and as we get older we need less inflation protection, so that money will probably go into a 3-year or a 5-year MYGA. Pretty much what @38CHevy454 said.
I think that people sometimes forget that the outyear money (4-year, 5-year) will probably never be needed. It's the last of the SORR protection but a down market that truly persists for 5 years is not something that has been seen for many decades. So that's another argument against tying up those funds in highly liquid, hence low yielding, investments.
We have five+ years in "fixed assets" of various amounts, maturities, and risk levels. Basically, the assets are liability-matched to a five year scenario. Money we might spend next year if the market goes down is our lowest risk, highest liquidity, and lowest yield money. We have some TIPS maturing next month and as we get older we need less inflation protection, so that money will probably go into a 3-year or a 5-year MYGA. Pretty much what @38CHevy454 said.
I think that people sometimes forget that the outyear money (4-year, 5-year) will probably never be needed. It's the last of the SORR protection but a down market that truly persists for 5 years is not something that has been seen for many decades. So that's another argument against tying up those funds in highly liquid, hence low yielding, investments.
ncbill
Thinks s/he gets paid by the post
I'm thinking of doing the "cash bucket" strategy to protect against sequence of return risk (SORR) as mentioned here:
https://earlyretirementnow.com/2018...hdrawal-rates-part-25-more-flexibility-myths/
Note that you don't refill the bucket once depleted.
Seems easier to me than other SORR mitigation strategies like a "bond tent."
https://earlyretirementnow.com/2018...hdrawal-rates-part-25-more-flexibility-myths/
Note that you don't refill the bucket once depleted.
Seems easier to me than other SORR mitigation strategies like a "bond tent."
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jollystomper
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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I went into retirement with 5 years of cash intentionally. "True" cash - savings/checking/CDs. I am willing to give up the returns on it to not be forced to sell equities at any given moment. In 2.5 years our expenses have been lower than planned. At the current rate we have more like 7 years of cash. Not a problem in my situation.
5 years of cash would be a sizable amount not earning any returns, I don't think I could do that when the markets are (currently) soaring. It is all up to how risk averse you are, and how much you need for a long retirement.
To me, when someone mentions "cash" I think of a bank checking/savings account type scenario, and cringe !
To me, when someone mentions "cash" I think of a bank checking/savings account type scenario, and cringe !
Markola
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While 5 years cash may offer a measure of SORR protection you are guaranteed to pay offsetting opportunity cost against remaining fully invested. Vanguard Total Bond Index is up an average of 4.35% over the last five years, which beats cash and a sharp stick. I prefer to avoid cash unless I have a known, specific need on the near 1-2 year horizon. YMMV.
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Gotadimple
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OP, It depends on the size of your portfolio and how volatile the 'stocks' are. And it depends on what you call cash.
Is cash, simply CDs and bank accounts? Or is cash CDs, bank accounts, short-term bond funds (or ETFs), and/or TIPS (bond fund or etf). Earnings on cash are minimal, and 5 years of expenses can be quite a lot of money that isn't covering inflation (and there will be some).
So how will your portfolio be divided between cash and stocks - in %?
- Rita
Is cash, simply CDs and bank accounts? Or is cash CDs, bank accounts, short-term bond funds (or ETFs), and/or TIPS (bond fund or etf). Earnings on cash are minimal, and 5 years of expenses can be quite a lot of money that isn't covering inflation (and there will be some).
So how will your portfolio be divided between cash and stocks - in %?
- Rita
To me, cash is just part of my AA. I view it as part of the non-equity part of my portfolio, like bonds. I also have a stable value fund that pays 3% that I view as cash to some degree, but it's a retirement fund and counts as income if I withdraw from it.
I do plan to draw more on my cash equivalents than equities or retirement funds early on in retirement because they will help keep my MAGI lower by avoiding higher capital gains and retirement distribution income and allow for an ACA subsidy. Obviously, I'm talking about prior to SS income, so that's not a factor in my situation.
I do plan to draw more on my cash equivalents than equities or retirement funds early on in retirement because they will help keep my MAGI lower by avoiding higher capital gains and retirement distribution income and allow for an ACA subsidy. Obviously, I'm talking about prior to SS income, so that's not a factor in my situation.
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audreyh1
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I think the OP is going for cash + stocks and skipping the bond portion of fixed income.
Yes, there are a few here that do it that way.
Not me, most of my fixed income is bond funds, but I do have a small amount of cash in my AA.
Yes, there are a few here that do it that way.
Not me, most of my fixed income is bond funds, but I do have a small amount of cash in my AA.
FANOFJESUS
Thinks s/he gets paid by the post
I heard a guy on youtube say 4 years of cash and the rest in a s&p 500 fund has a 98% success rate over rolling 30 years periods. That sounds about right.
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Out-to-Lunch
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The devil in bucket strategies is in the details. What are the details on his withdrawal method (and rate, for that matter)?
I mean, does this person recommend spending nothing but cash for 5 years until it is depleted, and then start withdrawing from stocks?
Or is this person always keeping 5 years cash on hand (which effectively means drawing from stocks on day 1).
Or does this person recommend trying to time market ups and downs in some fashion?
idledancer
Dryer sheet aficionado
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We keep 60% in equities, 35% bonds and 5% cash. That 5% ends up being 3-5 years of expenses depending on how much of our discretionary budget gets spent. Could I be making more on the money? Probably, but I'm pleased with our strategy and don't need to chase gains in retirement.
FANOFJESUS
Thinks s/he gets paid by the post
The devil in bucket strategies is in the details. What are the details on his withdrawal method (and rate, for that matter)?
I mean, does this person recommend spending nothing but cash for 5 years until it is depleted, and then start withdrawing from stocks?
Or is this person always keeping 5 years cash on hand (which effectively means drawing from stocks on day 1).
Or does this person recommend trying to time market ups and downs in some fashion?
He pulls from cash in down years.
FANOFJESUS
Thinks s/he gets paid by the post
How much of your month expenses are you paying with your portfolio what percent?
I will try to keep 3-4 years of cash (after-tax) if I retire at 58-59 yrs old, which will get me to 62 years old - when I and DW can claim social security. Not planning to withdraw 401K until 62 yrs old. My 403b allows me to put cash that earning 3% and I can take it out.
*** I realize this is my 1,000 post here ****
*** I realize this is my 1,000 post here ****
LXEX55
Recycles dryer sheets
I have five years of cash in savings and checking. The rest is in an IRA with Vanguard. 2/3 in Wellesley, and 1/3 in Wellington.
Out-to-Lunch
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So, he is a market timer. Nothing wrong with that, but does he give clear rules about how to time the market? Or are you supposed to just wing it?
I have 2 MYGA that were funded with cash. I annuitized the first one and getting $5k per month. Its paying like 3%. I just renew my second one back in july for 5 years @ 3.92%. these were to take care of what i needed with SS to get me by for 10 years. Every month i dont need all i am getting and re-invest the extra in my Fido account or discover banking. I had a 3rd varible index annuity funded with IRA money. i just surendered it was not making any money. It cost me $3500 to surrended it and transfered it to my Fido IRA. This has worked very good so far. Before long i will have to worry about my SS and RMD on my IRA.
The Cosmic Avenger
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Doesn't sound like much of anything to me unless we know how much this guy has overall, what his yearly expenses are, and how much of a percentage of the pot those 4 years in cash make up. But in general, it sounds like an OK plan, since IMO if you don't have any bonds to rebalance or spend when the market is way down, you'd need to compensate by keeping more cash.
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
@Out-to-Lunch, you seem to be a little tense on this subject. Comments:
Virtually every time we decide to make a trade we are market timing to some extent. The extreme is someone who is trying to call tops and bottoms, but that is widely understood to be impossible. IOW, market timing is not a black/white situation.
Academics who have no axes to grind and who aren't selling anything have concluded that the market is best approximated as a random process with a slight upward bias and a distribution with fat tails. There are no rules that are applicable to a random process except "Wait and see." Backtesting results are useless as well. Really, the idea of trading rules is a variation on technical analysis, which is widely thought to be a joke.
Rules or no, each decision to make a trade/refill the bucket is "winging it." But that doesn't imply calling tops and bottoms; it is mostly a recognition that at least since the 1929 crash recoveries have always followed bottoms. So with a bucket view, I can decide to not sell equities after the market has taken a hit and then expect that if I wait a while (maybe even a few years) before selling equities again I will be ahead of the game. Is that timing? Sure, but so what? Would some kind of rule(s) help? No.
Out-to-Lunch
Thinks s/he gets paid by the post
I was just pointing out that the various "bucket strategies" often gloss over real-world problems in implementation. One oft-overlooked flaw (IMHO) is the need to decide how/when to change your AA based on market conditions. So bucket strategies are not the panacea that their proponents often tout.
(I note that the only part of my post that you omitted was "Nothing wrong with that.")
