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Short Term Bucket Money - part of AA?
11-22-2014, 02:17 PM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,263
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Short Term Bucket Money - part of AA?
Like many people here I have an asset allocation that I periodically adjust to keep it in the area I have chosen. Also, like many I have some buckets (CD's, MM funds, short term assets) where I keep dollars I will need in the next 3-5 years.
These bucket dollars are used to ensure that one can temporarily ride out market down turns without having to 'sell low' in order to finance one's chosen lifestyle.
My question is this - Do you include this bucket money in your AA or do you ignore it for purposes of balancing your investment AA?
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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11-22-2014, 02:29 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
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__________________
Numbers is hard
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11-22-2014, 02:29 PM
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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: Mar 2013
Location: Limerick
Posts: 5,655
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I absolutely include it as part of my asset allocation. I keep a certain percentage in cash for the same purpose as you. I currently don't own any bonds, so my cash percentage is relatively high at about 35 %, with stocks/funds and real estate making up the rest.
Sent from my iPhone using Early Retirement Forum
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11-22-2014, 02:56 PM
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#4
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Recycles dryer sheets
Join Date: Dec 2011
Location: Chicago area
Posts: 431
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It is part of my AA (a rather large part).
It is kept in CDs and a MM account.
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11-22-2014, 02:59 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Buckets are meaningless IMHO.......and AA makes them so.
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“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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11-22-2014, 03:15 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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I do not include it as my AA, because I don't use it as part of my rebalancing calculation. I also do not use it as part of my withdrawal calculation. I have assets above and beyond what is in my retirement portfolio, and none of them is included in my AA, because they aren't part of my long-term retirement investment.
There is no rule that says your entire nest egg MUST be included in your AA or withdrawal computations. Nothing wrong with using a subset - it's simply more conservative.
My retirement fund is the only portfolio that is managed as an asset allocation, and the only one rebalanced as I withdraw. It's a significant % of my investments, but not everything.
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Retired since summer 1999.
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11-22-2014, 03:40 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,263
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Perhaps I should not used the term 'bucket' because people will think I am using the bucket method advocated by some financial planners. I am not.
I simply allocated a lump of cash to be used to supplement my pension income until SS begins at age 70.
The purist in me says this money should be part of the AA regardless of what it is allocated towards. The other side says, since I plan on spending all of it over the next few years it's already earmarked and should not be considered with other investment assets. A third side says to use the variable percentage withdrawal, put any money not spent into a very safe place, and don't worry about the ups and downs of the market.
Ahh.... first world problems.
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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11-22-2014, 03:49 PM
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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: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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The way I compartmentalize my investments is by goal and time horizon and the investment strategies are different. If something is earmarked for a short term expense, then I don't think it makes sense to treat is as part of a long-term investment.
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Retired since summer 1999.
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11-22-2014, 03:50 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Jun 2010
Posts: 2,301
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Quote:
Originally Posted by Chuckanut
These bucket dollars are used to ensure that one can temporarily ride out market down turns without having to 'sell low' in order to finance one's chosen lifestyle.
My question is this - Do you include this bucket money in your AA or do you ignore it for purposes of balancing your investment AA?
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I'm not sure there's much practical difference between having an extra bucket vs just running an AA with a slightly higher percentage of (safe) fixed income. If the market tanks, your equity portion will be lower than the setpoint and you will be withdrawing from the fixed income portion anyway.
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11-22-2014, 05:06 PM
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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: Jun 2005
Posts: 10,252
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Part of AA. I also calculate portfolio performance including any and all cash sloshing around in cash sweep accounts or unused in a checking account or CD.
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11-22-2014, 06:36 PM
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#11
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Moderator Emeritus
Join Date: Aug 2007
Location: Northern Illinois
Posts: 16,600
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Part of AA here as well. I track cash like equities/bonds to provide data for rebalancing.
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11-22-2014, 06:42 PM
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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: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,370
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Part of AA here too. I tried to keep it separate when I first retired but it was more confusing than I like. So I just changed my AA from 60/40/0 to 60/34/6 (equities/fixed income/cash). The 6% of cash represents ~ 2 years pf living expenses less 2 years of taxable account dividends (which i take in cash and effectively reduce my withdrawals).
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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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11-23-2014, 04:15 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: Aug 2004
Location: Laurel, MD
Posts: 8,327
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I count this as part of AA, but I am not retired. I do think in terms of buckets because it adds a time component and sets spending priority for the AA....I'm just not quite sure how I will refill the buckets (e.g. rebalance) once I am retired.
So by my way of thinking, once you set this allocation to x-y years (as opposed to using x-y percent), it is in a bucket that you will spend down first. I then calculate the percentage required for x-y years and set my other allocations. If the percentage is more than 4%/yr, I have a problem that needs to be resolved.
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...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
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11-23-2014, 12:16 PM
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#14
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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: 17,094
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Its part of my overall AA as its part of my overall assets.
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