How many years of expenses in cash

[Rich_by_the_Bay]

For those in or near FIRE (say, within 3 years).

By near-cash I mean MMF, CD's, short-term treasuries, immediate annuities -- stuff you virtually KNOW won't decrease in value.

 

[haha]

My cash allocation varies dynamically with my appraisal of risk in more speculative investments. Right now I have > 40 years worth!

Since I have been retired I have varied from the above 40 years on the high side, to a negative cash position on the low side. However, I was younger, and keeping the pedal to the metal- I wouldn't go back there. I think my floor now, regardless of how attractive non-cash investments might be, would be about 3 years. It is just more comfortable.

Still, you never know. I might become uncomfortable with being comfortable. 

Ha

 

[Rich_by_the_Bay]

My cash allocation varies dynamically with my appraisal of risk in more speculative investments. Right now I have > 40 years worth!

Wow. Nice going (unless of course, you only need $5K per year to live off ).

 

[Cut-Throat]

My cash allocation varies dynamically with my appraisal of risk in more speculative investments. Right now I have > 40 years worth!

Since I have been retired I have varied from the above 40 years on the high side, to a negative cash position on the low side. However, I was younger, and keeping the pedal to the metal- I wouldn't go back there. I think my floor now, regardless of how attractive non-cash investments might be, would be about 3 years. It is just more comfortable.

Still, you never know. I might become uncomfortable with being comfortable.

Ha

So Mikey, with 40 years of Cash, why would you bother investing in anything other than Treasuries? - I think you know that you have less than a 1% Chance of living more than 40 years. Why even sweat the investing.

 

[haha]

So Mikey, with 40 years of Cash, why would you bother investing in anything other than Treasuries?  - I think you know that you have less than a 1% Chance of living more than 40 years. Why even sweat the investing.

A few reasons really, Cut-throat-

!) Habit
2) I didn't adjust for inflation in the 40 years figure- I just took my last years expenses and divided into my current cash allocation.
3) I might like to upgrade my standard of living if I feel comfortable with doing so.
4) I am not comfortable with a liquidating scenario. Even if I only planned to live for 5 years, I don't like run-off.
5) I enjoy speculating.

I might be able to think of more, but you get the picture I am sure.   

Ha

 

[Mwsinron]

1 to 2 years cash. Frankly if the market bombs so bad that I lose everything I got bigger things to worry about than that. IE start stacking water/food and ammo up in the mountains.

 

[Dawg52]

I will be almost 53 when I retire so I plan to keep 9 years worth. Enough to get me to 62 and social security. I will evaluate my cash needs again at that time.

 

[Rich_by_the_Bay]

I will be almost 53 when I retire so I plan to keep 9 years worth. Enough to get me to 62 and social security. I will evaluate my cash needs again at that time.

Does the loss of investment growth opportunity on that much cash concern you? Or maybe you have enough that the opportunity cost is not important.

For me, that's the tradeoff - xx years sitting around at 4% when the market is doing its 10% thing.

 

[Dawg52]

Does the loss of investment growth opportunity on that much cash concern you?

Nah, will sleep better knowing I have those years secured. It makes up about 20% of my portfolio. The rest will be invested in a balanced mix of funds.

 

[Rich_by_the_Bay]

Nah, will sleep better knowing I have those years secured. It makes up about 20% of my portfolio.

Nice. Well done.

 

[Dawg52]

Nice. Well done.

Well I'm single, so I don't have the budget requirements as most on here. Not sure how much I would have in cash if I had a wife and traveled all over the world. Of course I wouldn't be able to retire early either. 

 

[Mwsinron]

Well I'm single, so I don't have the budget requirements as most on here. Not sure how much I would have in cash if I had a wife and traveled all over the world. Of course I wouldn't be able to retire early either. 

Golf is your mistress!

 

[Rich_by_the_Bay]

1 to 2 years cash. Frankly if the market bombs so bad that I lose everything I got bigger things to worry about than that. IE start stacking water/food and ammo up in the mountains.

I can see off-the-grid, ammo, mountain gear in the case of, say, a 10 year slide. But 2-3 years seems a bit too "not unlikely" over 35 years to switch into survival mode for me.

Is that what you mean? Or do your after-cash reserves buy you enough additional time to sit out almost any reasonable prolonged, negative market scenario?

 

[Mwsinron]

Im just not counting on more than a 1 to 2 year heavy slide. IE I dont have enough saved Was a slight joke...Ill be more clear next time. My DW and I have a good amount saved plus a place to lived paid for. However we have 7yr to ER . I suppose if things were bad enough we could do it now but would not be the ideal circumstance for us at the moment.

 

[haha]

For me, that's the tradeoff - xx years sitting around at 4% when the market is doing its 10% thing.

With 13 and 26 week T bills now at or above 5%. and TIPS of various maturities  around 2.5% real,  the competing fixed return assets look better than they did even a few months ago. So right away that trims opportunity cost. Also, I think calling the hoped for total return of an equity portfolio an opportunity cost is not quite kosher. An opportunity cost is forgone interest on risk free assets. I think it can be confusing to call total return a yield, except in retrospect.

Treasury yields are definite, while the 10% from equities is a projection from the past. Maybe a good guess, but not in the same class as the pledge of the US government to pay timely interest and principle on its obligations.

And, there can be zero investment costs associated with a program of investing in treasury obligations. Thsi is one the brokers will really hate!

TIPS could easily get cheaper, so I wouldn’t want to tie up money in them that I didn't have a strong expectation of being able to leave until maturity. But if you can live on $50,000 today, and you have $2,000,000 to invest, therein lies a plan, no matter how long you might live. Obviously there would be re-investment risk along the way. The only way I know of to avoid that is an annuity. But I don't know of any annuities being offered that don't cap the inflation adjustment, whereas TIPS just key off CPI. This could be a very favorable feature to the TIPS.

Ha

 

[youbet]

Just started RE about a week ago. Have about 3 years of total expenses in cash or near-cash.  That's about 5 years of net expenses after DBP pension and SS.  Who knows if the pension and SS would still be there, so let's say somewhere between 3 and 5 years.

After the near-cash, there's a tax free mid-term bond fund that shows a lot of stability (+- 15%) historically.  That would do us another few years even if it's NAV dropped significantly.  I think its portfolio of AAA municipals would hold up somewhat during a crash, although no doubt there would be some defaults.  Could we call it a crash if NYC didn't threaten to go belly-up unless bailed out?

After that?  Hey, I could always burn the worthless equity certificates, that make up 60% of my total portfolio, in my wood stove!

 

[donheff]

Nah, will sleep better knowing I have those years secured. It makes up about 20% of my portfolio. The rest will be invested in a balanced mix of funds.

Good grief Ha Ha, you must be as rich as Croessus (sp?). 40 years cash = 20% - wow! That cash equivalent isn't by any chance a pension, is it?

 

[donheff]

Good grief Ha Ha, you must be as rich as Croessus (sp?). 40 years cash = 20% - wow! That cash equivalent isn't by any chance a pension, is it?

Sorry, I didn't read that one correctly. I thought the quote was from Ha Ha but it was from Dog51.

 

[kcowan]

Pure equity is 33% of total net worth. Most of the rest is in bonds (laddered). Siiting on about 10 months worth of cash primarily because of profit-taking and positioning for buying opportunities. Been retired four years. So far so good...

 

[SteveR]

On market days like this one (down >100 pts. so far) I do think about having a lot more in cash.

 

[REWahoo]

On market days like this one (down >100 pts. so far) I do think about having a lot more in cash.

Look at it in a more positive light, Doc. On days like today you do have more in cash...at least as a percentage of your portfolio.

 

[SteveR]

Look at it in a more positive light, Doc.  On days like today you do have more in cash...at least as a percentage of your portfolio.

Geee, I feel better already.

 

[aaronc879]

I'm only in my 20's and have never had more than one years worth in cash. My bank says i'm insured for up to 100k. For those of you with much more than 100k, where do you keep it so it's insured?

 

[d]

I think calling the hoped for total return of an equity portfolio an opportunity cost is not quite kosher.

it's kosher, but one should realize that a propsective opportunity cost could be either positive or negative.

 

[d]

where do you keep it so it's insured?

 there are various ways of increasing the total amount insured (different titles, different banks, credit unions etc) but why must it be insured? treasuries are virtually "insured" and money market accounts are damn close to it ...