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Question about Asset Allocation-Cash
09-16-2019, 04:38 AM
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#1
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Dryer sheet aficionado
Join Date: May 2019
Location: Harrison Township
Posts: 36
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Question about Asset Allocation-Cash
I am wondering should I include cash and savings into my asset allocation, or just investments?
My investment asset allocation is
Stock-53%
Bond- 34%
Cash- 8%
Other- 5%
Overall Asset allocation (including savings) is
Stock-43%
Bond- 27%
Cash- 26%
Other- 4%
What I am trying to understand is, say I want my allocation to be 55% stock, am I 2% light or 12% light?
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09-16-2019, 04:42 AM
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#2
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gone traveling
Join Date: Mar 2015
Posts: 3,508
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Quote:
Originally Posted by downrod
I am wondering should I include cash and savings into my asset allocation, or just investments?
My investment asset allocation is
Stock-53%
Bond- 34%
Cash- 8%
Other- 5%
Overall Asset allocation (including savings) is
Stock-43%
Bond- 27%
Cash- 26%
Other- 4%
What I am trying to understand is, say I want my allocation to be 55% stock, am I 2% light or 12% light?
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You are 12% light. Mentally setting aside your cash for some reason doesn't change your actual portfolio.
But if you are happy with the way things are now, why change?
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09-16-2019, 05:34 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,363
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12% light
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-16-2019, 09:02 AM
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#4
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Dryer sheet aficionado
Join Date: May 2019
Location: Harrison Township
Posts: 36
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hmmm. Wasn't the answer that I was expecting. So when my Vanguard PAS said that based upon my age, my allocation should be 55% stock and 45% bonds, he thought that I should have no cash? He set up my Vanguard portfolio to match that 55/45 asset allocation, but the Vanguard portion is only approx half of my overall retirement savings
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09-16-2019, 09:48 AM
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#5
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Full time employment: Posting here.
Join Date: Aug 2019
Posts: 691
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Did the Vanguard PAS know that your Vanguard portfolio is only half of your retirement savings? That would probably affect how s/he answers your questions.
I really like the idea of being fully invested (no or minimal cash) until its time to make withdrawals, and more heavily in stocks than the standard recommendation. Then have 2-3 years cash reserves so that you're buffered for the stock correction.
__________________
--At what age does spending less now in order to have more later stop making sense?
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09-16-2019, 10:06 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,043
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Quote:
Originally Posted by SnowballCamper
Did the Vanguard PAS know that your Vanguard portfolio is only half of your retirement savings? That would probably affect how s/he answers your questions.
I really like the idea of being fully invested (no or minimal cash) until its time to make withdrawals, and more heavily in stocks than the standard recommendation. Then have 2-3 years cash reserves so that you're buffered for the stock correction.
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SO that when the market corrects, and everyone sells in fear and panic, which they will eventually...you have the cash to hold you over until the assets recover close to highs, THEN you sell and replenish cash. Tada!
__________________
Time > $$$ ~ 100% equities ~ FIRE @2031
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09-16-2019, 10:11 AM
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#7
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Dryer sheet aficionado
Join Date: May 2019
Location: Harrison Township
Posts: 36
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Quote:
Originally Posted by SnowballCamper
Did the Vanguard PAS know that your Vanguard portfolio is only half of your retirement savings? That would probably affect how s/he answers your questions.
I really like the idea of being fully invested (no or minimal cash) until its time to make withdrawals, and more heavily in stocks than the standard recommendation. Then have 2-3 years cash reserves so that you're buffered for the stock correction.
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Yes the Vanguard PAS knew about my entire savings, but I dont see how he could have done things any different. You mention 2-3 years of cash as a buffer. Thats about where I am now. I am 3.5 yrs away from planned retirement
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09-16-2019, 10:15 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 17,093
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in my mind: Bonds = cash (since the cash in invested in CDs)
__________________
Fortune favors the prepared mind. ... Louis Pasteur
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09-16-2019, 10:17 AM
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#9
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gone traveling
Join Date: Mar 2015
Posts: 3,508
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Quote:
Originally Posted by downrod
So when my Vanguard PAS said that based upon my age, my allocation should be 55% stock and 45% bonds, he thought that I should have no cash? He set up my Vanguard portfolio to match that 55/45 asset allocation, but the Vanguard portion is only approx half of my overall retirement savings
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If he knew that the Vanguard portion is only half of your retirement savings, and he knew what was contained in the other half, perhaps he took all of that into account when he proposed his 55%/45% allocation for the Vanguard portfolio.
You'll only know by asking him.
So are you pleased with the overall allocation of both halves? If so, no need to change anything.
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09-16-2019, 10:47 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2017
Location: City
Posts: 10,351
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I think of AA as allocation of investable assets into two piles: higher risk and lower risk. The higher risk assets for us now are equity mutual funds, though in the past we have had private placements, leveraged purchases of contracts-for-deed, etc. The lower risk assets are typically TIPS, CDs etc.
The idea of "cash" mystifies me because I know that virtually none of the "cash" tranches of people's AA are actually bank notes. It is always some kind of somewhat liquid debt, like t-bills, MM funds, etc. Never actually cash. So why would you call it something that it is not? Just based on the term of the loan?
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09-16-2019, 11:08 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,327
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I view my AA as everything that isn't in the checking account for the next couple of month's consumption. Cash (money market funds in our case) are part of the AA. I toss those in with bonds for a 60/40 AA but you could be more fine grained and describe it as 37% bonds and 3% cash or whatever.
__________________
Idleness is fatal only to the mediocre -- Albert Camus
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09-16-2019, 11:16 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
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Because a lot of people call it cash. I've got both CDs and MM funds. I see no need to say that I'm X% of one, y% of the other. I'm X+Y% cash.
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09-16-2019, 11:17 AM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
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And I would definitely count the cash in my AA. I have a goal of equities vs. non-equities, so my cash equivalents are lumped in with bonds for my AA balancing.
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09-16-2019, 11:24 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Jun 2004
Location: Diablo Valley (SF Bay Area)
Posts: 2,705
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I think I'm doing it wrong too! I subtract my cash in USAA and only think about my allocation in Schwab when reviewing my allocation. FWIW I also subtract the amount allocated to paying off half S's student loans the day he graduates. He's only earning $22hr × 20hrs so that'll be enough of a hand up.
Basically (yes I'm doing a rough categorization):
Inc USAA:
Stocks & equity EFTs 76%
Cash, CDs, Bonds 24%
W/o USAA:
Stocks, equity ETFs 79%
Cash, CDs, Bonds 21%
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09-16-2019, 11:25 AM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,363
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Quote:
Originally Posted by donheff
I view my AA as everything that isn't in the checking account for the next couple of month's consumption. Cash (money market funds in our case) are part of the AA. I toss those in with bonds for a 60/40 AA but you could be more fine grained and describe it as 37% bonds and 3% cash or whatever.
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+1 Our retirement savings are all financial assets other than a local credit union checking and savings account that we use to pay bills and do occasional ATM withdrawals. While that total varies it is usually $5-15k.
Our target AA of for our retirement savings is 60/35/5.... the 5% cash is in an online savings account that earns 1.9% and varies between 3-5% depending on when I last rebalanced. At one point I was 60/40, then 60/34/6 and then scaled back the cash to 60/35/5... I may scale back the cash again in the future.
Considering what we receive in taxable account dividends and capital gains distributions that 5% could last 2-3 years if we chose to not rebalance in a bad time.
A decent argument could be made that there is no need for a cash component, but I find it easier for me... the online savings account is the "gatekeeper" between the retirement portfolio and the local credit union accounts that we use to pay our bills. At 1.9% yield and only 3-5% of the portfolio, the cost is modest compared to the convenience and peace of mind it gives me. The inflows to the cash component are taxable account dividends and capital gains distributions and rebalang and the outflows are a monthly automated transfer to our spending accounts and occasional special transfers as needed.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-16-2019, 11:43 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,043
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Reasons I thought I could potential NEED immediate cash but didn't:
New Washer
New Dryer
New kids bed
*Used 0% CC although we have cash in MM to pay for this stuff
Reasons I thought I need cash and DID:
New Tires
DW New Tires
Airline tix (need to use delta to get companion, pay immediately)
Taxes
Insurance
Bills
Things we THINK we will need cash for:
A new car in a couple years
A new air conditioner within the next 2 years
little extra for DW reduced paycheck (birth) but offset with less tax, but offset with higher Roth conversion *likely
We don't really plan more than 2 years out, and our cash is enough to last 1 year. Still accumulating and paying lots of expenses, daycare, mortgage income tax....
Our cash pile is .5%, we have some in MM and some in checking. We are 99.5% invested into equities via ETF and an Index and 3 individuals . This works for us and we sleep well. Planning is stressful with a small family, but we make it work.
__________________
Time > $$$ ~ 100% equities ~ FIRE @2031
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09-16-2019, 01:58 PM
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#17
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Dryer sheet aficionado
Join Date: May 2019
Location: Harrison Township
Posts: 36
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Great information and thanks everyone for the replies! There is so much to learn from this site!
I have recently eliminated my PAS arrangement with Vanguard and I am self managing at this point. I want to make sure that my overall asset allocation is appropriate for my age and situation.
I am 61 yrs old and my wife is 54. Our plan is to retire in 3.5 years. No pensions.
Overall portfolio including cash - 1.3M
I am wondering what recommendations would be for an appropriate asset allocation and cash reserve bucket?
Thanks
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09-16-2019, 02:18 PM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,363
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A lot of it is a matter of personal preference.... the success rate between 40/60 and 80/20 are very similar.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-16-2019, 05:48 PM
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#19
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Full time employment: Posting here.
Join Date: Mar 2010
Posts: 889
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downrod,
This is subjective, but in my opinion yes, you should include the cash.
I would also lump your 401k, Roth, taxable, etc all together and see what the entire portfolio looks like together.
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09-16-2019, 05:52 PM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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If one is retired, then I think that any cash should be part of your fixed income allocation which includes then bonds, savings accounts, cash, T-bills, etc.
I personally don't hold any cash if I can help it. I have some cash in my checking account which is enough to pay next week's bills. Otherwise, if I need money, then I am selling investments just-in-time to pay bills. That is, I am essentially living paycheck-to-paycheck where "paycheck" means selling shares of an equity or bond fund.
And if you are going to ask me, "What about an emergency fund?", then I will say I have credit cards and can get any needed cash in a couple days by selling shares. I don't have a job to lose, so I don't need an emergency fund in case I lose my job.
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