Length of cash buffer for ER's

[mathjak107]

Its all a matter of convience as its all a means to an end. I like the 3 buckets .. The reason i like doing it that way is i subscribe to 2 newsletters,fidelity insight and fidelity monitor.

By using a dedicated very diversified mix utilizing their model portfolios im able to use fidelity insights growth mix for bucket 3, i use fidelity monitors income and preservation model for bucket 2 and their growth and income model for bucket 3 . nice and simple with a well concieved plan for each time frame. When i want to make a change as instructed by the newsletters its easy to adjust.

Its easy to see the returns on each time frame to make sure you are at goal.

No point counting my cash in bucket 1 which is for eating now and the next few years and counting that into how i invest bucket 3 which is for eating in 30 years. Ones a short term liability the other a long term one.

At this point my investments are all very easy to manage as far as anything i need to do or think about. we have a few fine tune trades a year which the newsletters do but pretty much the course is set and full steam ahead.

I like to think of it as clothes, if you get a job that requires you to wear suits to work you need to count how many suits you have, the fact that you have a crap load of jeans and tee shirts and they are all called clothes dosnt really matter, you need to know only about your suit part of the "clothes you own"

If you need more suits you buy the required amount of suits you own regardless of all the other clothes you have.

[Mysto]

Just for the record. In keeping with the subject of this thread and in recognizing all of the disdain for buck*ts - I now have a buffer. (Besides I'm not doing it like Mr. Lucia and I wouldn't want to be sued.)

In answer to early questions about the difference of a separate buffer from one single portfolio - the answer would be in rebalancing. Normally you rebalance your entire portfolio - in buffer theory because the buffer is a separate piece it would not rebalance so your cash/bonds ratio could change during time as opposed to remaining a fixed total ratio. So there is a difference.

I am not arguing merits just explaining one difference.

[mathjak107]

thats exactley the idea!.... by having dedicated models for short meduim and long term investments you can balance independently.

why do i find that better ?

as an example the growth model for bucket 3 right now has a fund called fidelity strategic real return. its made up of tips,real estate,floating rate loans and commodities. normally that would be a bucket 2 investment as its basically a bond /income fund geared for a higher inflation enviornment.

However its used right now in the growth model more as a storage place for extra money and inflation protection should they be wrong about the other 75% of the portfolio investments which count on lower inflation. this money will eventually end up as all stock funds in the growth model when the newsletter feels the inflation threat has subsided somewhat and we can get a little less defensive.

I can keep this totaly seperate from my bond/income bucket with out effecting my safety net in bucket 2.

[audreyh1]

Yes, I think that's what it comes down to. If you are running more than one investment model, then you need a separate bu***t for each one since you can't very well commingle investment models.

I would claim that normal withdrawal requires at least two. You have to take that annual withdrawal and put it somewhere to spend it. Even if it goes to 0 after one year, it's separate from the investment portfolio. Some of us have just padded that annual one so that it covers more than one year at a time and call it a "buffer".

Audrey

[youbet]

Quote:

Originally Posted by Mysto Normally you rebalance your entire portfolio - in buffer theory because the buffer is a separate piece it would not rebalance so your cash/bonds ratio could change during time as opposed to remaining a fixed total ratio. So there is a difference..

No, not necessarily. I rebalance between asset classes on a personal judgement basis, no firm timelines or rules. I have some general goal levels (which will change from time to time) and try to strategize moves over time to meet these goals within varying market conditions. Besides, your "separate" buffer isn't really all that separate. You flow dollars from your portfolio to that buffer to refill it from time to time!

Apparently, Ray fans refer to cash buffers or reserves as "bucket 1." I refer to them as "cash/near-cash assets" in my portfolio. Ray fans think of bucket 1 as "separate." I choose not to as I have my cash allocation linked to the other allocations and money flows between them from time to time.

I think this is mostly semantics. Labeling my cash/near-cash assests as "seperate" would not cause any difference in the way I manage my portfolio or, specifically, handle rebalancing.

I have no problem with the Ray Lucia jargon. My only regret about it is that all the things people say they are doing with the so-called "bucket system," could be done without the jargon. Therefore, the new jargon just seems to add a layer of complexity to discussions.

Again, as mentioned in an earlier post, I do not include DW's quilting supply stash of $$$ in the portfolio. This would get me involved in the "financial impact of divorce" thread which is going on concurrently!

Additionally, DW hasn't always been all that interested in managing our finances but, nevertheless, I keep her well informed. I've explained what the different classes of assets are, why we need a diversity of asset classes and the pros and cons and risks and rewards of our current allocation. Going back and relabeling cash as bucket one, fixed as bucket two and equity as bucket three just ain't gonna happen!

[rs0460a]

Quote:

Originally Posted by youbet I think this is mostly semantics. Labeling my cash/near-cash assests as "seperate" would not cause any difference in the way I manage my portfolio or, specifically, handle rebalancing.... Going back and relabeling cash as bucket one, fixed as bucket two and equity as bucket three just ain't gonna happen!

Agreed... I just finished Ray's book and I can't believe I spent time reading 298 pages that describes what I already do, although not in the "copyrighted terms"... :P

- Ron

[audreyh1]

Well I never read Ray's book either and had my two-tier system with no idea about his particular terms.

But assuming that all cash/near-cash is one "bucket" is not a correct assumption. I have cash in each of two bu***ts and they have entirely different roles. The cash allocation in my main portfolio is there for rebalancing the portfolio. The cash in my short-term account is for spending, not investing. They don't mix.

Sure money is withdrawn from the investment portfolio from time to time since I am in the drawdown part of my life, but it doesn't flow the other way! So the fact that it "moves" in one particular direction from one account to the other because it happens to be withdrawn is a non-issue.

Audrey

[astromeria]

kinda like...pouring money...from...a bucket...<where's that innocently whistling smilie?>

[bosco]

I heard his next book is coming out with a 4th bucket...

it's called the f**kit bucket....

I just call it "mad money"....