Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Cash Flow - setting up
Old 10-25-2019, 03:08 PM   #1
Recycles dryer sheets
 
Join Date: Sep 2007
Posts: 155
Cash Flow - setting up

I am setting up my cash flow model, which I figure, so far, will look something like this, and was wondering if I am on the right track:

1) Checking – monthly bills

2) Cash Reserve – 2.5 years living expenses, High Yield Savings 1.9% ( 10%)

3) Tax Sheltered - divided as below

A) Fixed Income / Income Producing funds (15%)
PIMIX – Pimco Income Fund - 15%
VMMXX – Vanguard Money Market - a place for deposits of div and cg

B) Equities - Various Mutual Funds we currently own (75%)

We will probably draw somewhere between 3-4% per year from the Fixed Income. Mostly from the Money Market (where dividends and capital gains wil be deposited from the equities) and PIMIX to make up the balance.

What I haven’t figured out, is how do you handle the Fixed Income usually found in various mutual funds that will be under my Equities allocation? If you don’t have the Bonds separated out by themselves and you take a draw in a down market from your Equities portion, you are not only drawing from your bonds, but also selling some equities.

If I actually take 15% of my portfolio and put it into PIMIX, my bond allocation will be much higher due to the balance inside of the equity funds.
__________________

klucich 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 10-25-2019, 04:42 PM   #2
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: 23,927
Equity mutual funds don’t usually hold bonds and have a small and varying amount in cash.

Balanced funds do have a bond position. The % depends on the fund.

If you are using equity only mutual funds for the equities only, and if you rebalance as part of withdrawing, you really don’t have to worry about the dreaded “selling equities when they are down”.
__________________

__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 10-25-2019, 04:53 PM   #3
Recycles dryer sheets
 
Join Date: Sep 2007
Posts: 155
Quote:
Originally Posted by audreyh1 View Post
Equity mutual funds don’t usually hold bonds and have a small and varying amount in cash.

Balanced funds do have a bond position. The % depends on the fund.

If you are using equity only mutual funds for the equities only, and if you rebalance as part of withdrawing, you really don’t have to worry about the dreaded “selling equities when they are down”.
Got it, thanks. That probably means at last Wellington isn't going to have a place in my portfolio.
klucich is offline   Reply With Quote
Old 10-25-2019, 05:11 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,931
If, for some reason you had to sell Wellington, couldn't you replace the stock component by buying an equity only fund w/ the part of the sale that represented equities so you were effectively not selling in a down market?
kaneohe is offline   Reply With Quote
Old 10-25-2019, 07:26 PM   #5
Recycles dryer sheets
 
Join Date: Sep 2007
Posts: 155
Quote:
Originally Posted by kaneohe View Post
If, for some reason you had to sell Wellington, couldn't you replace the stock component by buying an equity only fund w/ the part of the sale that represented equities so you were effectively not selling in a down market?
Well that’s a thought.
klucich is offline   Reply With Quote
Old 10-25-2019, 08:03 PM   #6
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
A good dividend ETF will yield 3%+. The S&P will earn 2%+.

It may be better than high yield savings.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 10-26-2019, 10:02 AM   #7
Recycles dryer sheets
 
Join Date: Sep 2007
Posts: 155
For my reserve cash?
Don't I want something that will not waiver in a bad market?
I do have dividend mutual finds in tax sheltered accts.
klucich is offline   Reply With Quote
Old 10-26-2019, 10:40 AM   #8
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: 23,927
Quote:
Originally Posted by klucich View Post
For my reserve cash?
Don't I want something that will not waiver in a bad market?
I do have dividend mutual finds in tax sheltered accts.
For cash/stable investment that is not needed for a year or two, people often use CDs/CD ladder, but only worth it if the CDs are yielding appreciably more than money market funds or high yield savings.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 10-26-2019, 10:43 AM   #9
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
Quote:
Originally Posted by klucich View Post
For my reserve cash?
Don't I want something that will not waiver in a bad market?
I do have dividend mutual finds in tax sheltered accts.
Are you living off the dividends, or actually spending from the pile?

Dividends can be cut, so it's a risk. It also depends on you other sources of stable income.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 10-26-2019, 11:24 AM   #10
Thinks s/he gets paid by the post
Cobra9777's Avatar
 
Join Date: Jul 2012
Location: Texas
Posts: 2,057
10% sounds like a lot of cash to me. Dividends and CGs will cover much of your planned 3-4% WR, especially if you tilt slightly to high dividend funds. For the rest, just sell whatever gets you back to your target AA. If you want the security of 2.5 years in savings without having to sell anything, just hold the gap not covered by distributions. If your average WR is 3.5% and your distributions are 2.5%, then you only need 2.5% of your portfolio in cash (1% gap * 2.5 years).

We cover roughly 70% of spending with two small pensions, taxable dividends, and some rental income. For the rest, we sell equities in our taxable account and rebalance, if needed, in tax-deferred. We are both 58, still reinvesting in tax-deferred, with SS and RMDs way off in the future. For this stage of ER, we typically hold about 2-3% cash, which is enough for 1.5 years of gap spending, and I'm comfortable with that.
__________________
Retired at 52 in July 2013. On to better things...
AA: 55% stock, 15% real estate, 27% bonds, 3% cash
WR: 2.7% SI: 2 pensions, some rental income, SS later
Cobra9777 is offline   Reply With Quote
Old 10-26-2019, 01:26 PM   #11
Dryer sheet wannabe
 
Join Date: Jun 2019
Posts: 21
Quote:
Originally Posted by klucich View Post
3) Tax Sheltered - divided as below

A) Fixed Income / Income Producing funds (15%)
PIMIX – Pimco Income Fund - 15%
VMMXX – Vanguard Money Market - a place for deposits of div and cg

B) Equities - Various Mutual Funds we currently own (75%)

We will probably draw somewhere between 3-4% per year from the Fixed Income. Mostly from the Money Market (where dividends and capital gains wil be deposited from the equities) and PIMIX to make up the balance.
Your post is very helpful for considering our coming retirement in a year or so at age 60 (DW at 59), and I want to see if this would work for us with the following assumptions: $2,100,000 available not including house worth >$1M (can be allocated/reallocated as necessary) and estimated yearly expenses including taxes of $60,000.

If I read your model correctly, 15% of $2,100,000 ($315,000) would be generating income, which at say 7% is only $22,050, requiring roughly $38k to be drawn down. The "fixed income" portion seems to require refreshing in a few years in that scenario from the other fund.

Have I missed something, or are you savings/expenses figures significantly different ratio-wise?

Thank you very much.
stevemac is offline   Reply With Quote
Old 10-26-2019, 02:29 PM   #12
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,068
A couple of thoughts:

1) What is the purpose of the "cash reserve?" Given your AA to fixed income, which is easy to turn into cash, why do you need any other cash reserve? If it is just something you want but do not expect to actually use, then there is no need to keep it ultra-short/ultra-low interest. Maybe put it into a treasury note for a little more yield but still essentially risk-free? Or in a TIPS? Either of those is easy to liquidate with little pain in the unlikely event that you do have an emergency that requires dipping into your separate pot.

2) You point out one of several reasons I don't like blended funds. My main objection is that I can't benchmark the two pieces separately. But both your and my problem is solved by simply not buying them. You want 60/40 or whatever? Buy single-purpose funds accordingly.

(Edit) One more: From the OP I get the idea that you have a number of different mutual funds. Really, only three or four ought to do it. Keep life simple. We have 90% of our equity position in just 3 funds and I will be almost certainly trimming that back to one (VTWAX) after we do our annual portfolio review this winter.
OldShooter is offline   Reply With Quote
Old 10-26-2019, 03:27 PM   #13
Recycles dryer sheets
 
Join Date: Dec 2016
Posts: 321
Quote:
Originally Posted by klucich View Post
What I haven’t figured out, is how do you handle the Fixed Income usually found in various mutual funds that will be under my Equities allocation? If you don’t have the Bonds separated out by themselves and you take a draw in a down market from your Equities portion, you are not only drawing from your bonds, but also selling some equities.

If I actually take 15% of my portfolio and put it into PIMIX, my bond allocation will be much higher due to the balance inside of the equity funds.
It sounds like you are trying to aggregate your bond ownership in a way that includes bonds held in mutual funds. Yours seems to be a mixed strategy where you hold funds - that have a investment and risk profile of their own - but want to manage your re-balancing using a more traditional view of asset allocation that looks at the percentage of each type of holding.

Obviously stocks are stocks and bonds are bonds, and they each offer their own standalone strategies that require specialized knowledge to navigate. I like to look at mutual funds separately; as their own simplified risk buckets that have a particular investment objective.

The fund's focus, historical performance and risk profile is more relevant to my rebalancing strategy than the underlying choices of stocks and bonds the fund holds at any given moment. I might argue that simply knowing which fund type or industry to focus on at the right time is 90% of the battle. I like to think of Mutual fund decisions as mirroring/reinforcing the same decisions I would have made in the market.

Whether it's a 2035 Retirement fund or a spydr or a dividend fund; whatever type it is, they are all ingredients in my basket of mutual funds that I hold for different purposes. But the total returns are ultimately blended and are just one piece of our overall financial plan [that includes the bulk of assets we own].
Starsky is offline   Reply With Quote
Old 10-26-2019, 06:49 PM   #14
Recycles dryer sheets
 
Join Date: Sep 2007
Posts: 155
So maybe I should reduce my cash reserve to 5% in the brokerage. I was wanting a couple of years of income and some emergency cash available in the high yield savings account. This will be making the monthly deposit into the checking account.

We will have two SS checks and a pension to provide 85+% or so of our income. I just figured my draw would be mostly dividends with a little kicked in from PIMIX to make up the difference. Maybe I should eliminate the money market entirely and just reinvest the dividends and capital gains into PIMIX? That would pay more than the money market.

I am trying to lean toward dividend producing funds and figure they will provide about 75% of my annual draw. As far as the various other mutual funds, they range from VTSAX-Total Market, VFIAX-500 Index, VMVFX-Global Min Volatility, VDIGX-Dividend Growth fund, some small cap, VBTLX-Bonds, VWELX-Wellington and MGK-Mega cap. Am in the process of consolidating from 4 to 3 accounts, which is where I will have to stay for the next year or so as one is employer held. Yes I do need to reduce the number of funds I have but I am not afraid to hold higher risk, quality growth funds.
klucich is offline   Reply With Quote
Old 10-27-2019, 10:44 AM   #15
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,068
Quote:
Originally Posted by klucich View Post
... various other mutual funds, they range from VTSAX--Total Market, VFIAX-500 Index, VMVFX-Global Min Volatility, VDIGX-Dividend Growth fund, some small cap, VBTLX-Bonds, VWELX-Wellington and MGK-Mega cap ...
Hmmm. Without numbers it is a little hard to know what you have, but VFIAX is 100% duplicated in VTSAX and almost certainly MGK is 100% duplicated in VFIAX . So just with those you may have a huge tilt towards US large caps. VWELX probably just adds to the pile. That tilt is maybe OK, maybe not. Your call.

Quote:
Originally Posted by klucich View Post
... I am not afraid to hold higher risk, quality growth funds.
Well, you do know that only a single-digit percentage of this type of fund outperforms a fund like VTSAX over 5- and 10- year periods, don't you? It is also true that there is no way to predict which of the funds will be in that tiny percentage. So really there's no risk; for a long term investor underperformance is almost certain. For shorter periods it's more of a crap shoot. About 1/3 of stock picker funds typically outperform their benchmarks over one year but about 7% of them go out of business during the year due to bad performance. Again, no way to identify the winners ahead of time.
OldShooter is offline   Reply With Quote
Old 10-27-2019, 11:25 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Jan 2018
Location: NE Ohio
Posts: 1,248
If you have enough passive income from your dividends/interest to account for the other 15% income you need, then you don't need to concern yourself with principal draw downs. Figure out the $$$ you need to cover the 15% gap. As another poster mentioned, you can get 3% on some dividend stock funds. I invest in a long term corporate bond ETF that's paying just under 4%, and a couple of high dividend stock ETFs paying over 4%, and I have some ETFs that pay more. Do a search of all your options at your financial firm. Sort by SEC yield. Don't just jump at the highest you see. Stay within your comfort zone. If you're comfortable enough with what you already use, then just put more into the higher yielding options until you get to that 15% you need.
gwraigty is offline   Reply With Quote
Old 10-27-2019, 12:57 PM   #17
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,068
Quote:
Originally Posted by gwraigty View Post
... Do a search of all your options at your financial firm. ...
Yes. This.

But don't forget that your options include buying treasury bills, notes, and bond plus TIPS. All of these can be bought individually with very low fees. IMO there is absolutely no reason to be paying a fund manager to buy zero-risk assets like these. Also, avoid TreasuryDirect. There is also IMO no reason to be keeping track of one more investment account and fooling around with transferring money when you can just buy the bonds directly in your account. Best to buy "on the auction" if timing allows; this gets you the best current interest rate and your only cost is if your broker has a small fee for this.

Brokered CDs are also an option, though IMO you should be sure that you will not have to withdraw early. Reports here are that brokered CDs offered by a bank are often higher yield than the ones they advertise to their own customers. I'm not enough of a CD buyer to have an independent opinion on this.

Buying corporates is an option, especially if you stick to investment grade. The question is diversification. I am on the investment committee for a nonprofit. We have about $2.5M in investment grade corporates with almost all positions at $10K. So that is a couple of hundred issues -- more an an individual will want to deal with. So that is an argument for low-fee bond funds as long as you understand the term "duration" and that you can lose some of your principal investment if rates change against you/go higher.

Junk and international bonds IMO have little or no place in the "fixed" aka conservative side of a portfolio. If you just can't stay out of that jungle, make sure your native guide (aka manager) is a good one. But why go there?

Schawab? Fido? Vanguard? The Bond Desk is your friend. Call early and often with questions and work with them to look at options. Compare to fund options. There is no universally right answer for everyone. Probably some mix of individual bonds, bond funds, and a good MMF is where you will end up.
OldShooter is offline   Reply With Quote
Old 10-27-2019, 01:35 PM   #18
Recycles dryer sheets
 
Join Date: Sep 2007
Posts: 155
Quote:
Originally Posted by gwraigty View Post
If you have enough passive income from your dividends/interest to account for the other 15% income you need, then you don't need to concern yourself with principal draw downs. Figure out the $$$ you need to cover the 15% gap. As another poster mentioned, you can get 3% on some dividend stock funds. I invest in a long term corporate bond ETF that's paying just under 4%, and a couple of high dividend stock ETFs paying over 4%, and I have some ETFs that pay more. Do a search of all your options at your financial firm. Sort by SEC yield. Don't just jump at the highest you see. Stay within your comfort zone. If you're comfortable enough with what you already use, then just put more into the higher yielding options until you get to that 15% you need.
Where are you holding the higher dividend paying stock funds, ETF's and Corporate bonds? In your taxable or tax sheltered accounts? I want my cash reserve to be easily accessible and using CitiCard high yield savings, puts it at my fingertips. Can be transferred into checking in a day or so.

Ok so is this better:

1) Checking – monthly bills
2) Cash Reserve – 1 year living expenses - "monthly paycheck" to savings (high yield savings 1.9%, or would PIMIX be appropriate here at ~5%?)

3) Tax Sheltered - divided as below
A) 25-30% Fixed Income / Income Producing funds (15%) PIMIX – Pimco Income Fund currently paying ~5% Div
B) 70-75% Equities - Various Mutual Funds we currently own, working to simplify and focus on dividend producing stock funds. ~3% Div

Goal is to have dividends fund 100% of annual draw. If PIMIX is paying such a high dividend, maybe I should increase allocation to maybe 30% here?
Where should I have my dividend and capital gains deposited into when building up for next year's draw? PIMIX in tax sheltered?
klucich is offline   Reply With Quote
Old 10-27-2019, 03:10 PM   #19
Thinks s/he gets paid by the post
 
Join Date: Jan 2018
Location: NE Ohio
Posts: 1,248
Quote:
Originally Posted by OldShooter View Post
Brokered CDs are also an option, though IMO you should be sure that you will not have to withdraw early. Reports here are that brokered CDs offered by a bank are often higher yield than the ones they advertise to their own customers. I'm not enough of a CD buyer to have an independent opinion on this.
You made me look.

Fidelity is showing 2.5% for 10 year CDs. I wouldn't bother with those rates.
gwraigty is offline   Reply With Quote
Old 10-27-2019, 03:33 PM   #20
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,068
Quote:
Originally Posted by gwraigty View Post
... Fidelity is showing 2.5% for 10 year CDs. I wouldn't bother with those rates.
I didn't look. The point is that these should be on the list of things to consider, not whether they are a good buy on any particular day.
__________________

OldShooter 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
Rental Property: Buy for cash flow, or for appreciation? bearkeley FIRE and Money 8 04-20-2006 03:23 PM
Cash Flow (Spendable Income) in Retirement robert FIRE and Money 15 11-21-2005 08:26 AM
retiree cash flow managment Martha FIRE and Money 15 08-04-2005 10:22 PM
Re: Cash Flow After Expenses & Investment eryx Young Dreamers 8 11-09-2004 08:33 PM
Funding your cash flow WilliamG FIRE and Money 1 04-15-2004 08:05 AM

» Quick Links

 
All times are GMT -6. The time now is 08:27 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×