What percentage of your wealth is in a safe fund such as bonds or cash?

[Pointby2]

... I keep about 25% or 3 years worth of retirement income in safe funds because I figure that's what I would need to ride out a market downturn. I then have another 20% in a 2025 target date fund which, as you know is diversified. The rest (55%) I keep in an SP500 index fund.

FYI....I have a considerable amount of my wealth is in my home (paid for and worth about $800K). In a horrible situation (a LONG market downturn) I could access the equity on my home if I absolutely had to.

We are a year or two from retirement. It looks like Social Security alone could pay all or most of our bills. Interest from stocks and bonds would cover the rest. We could ride out just about anything, so I haven't looked at it from that angle. In any case we have about 45% in cash/savings, CD's and bonds.

 

[pb4uski]

Yep!! In reality I'm a white haired old lady. My avatar photo was taken when I was a teenager, back in Hawaii.

Danged cute.
Thought it was Dawn Wells from Gilligan's Island!

+1 The photo must have been taking while you were taking a much needed rest from having boys chase you.

 

[SecondCor521]

If you are retired and 3 years spending is 25% of your total stash that equals an 8 percent plus withdrawal rate!?

Did I misunderstand the metrics of your post?

You assume OP is retired because they are asking a question of retirees. I think it is more likely that OP is a few years away from retirement.

The actual percentage in my case is probably less interesting than how I arrived at my answer.

What I do is track my spending in Quicken which tells me how much it costs me to live. Call this $X.

I then use life expectancy information and my current age to decide how much longer I think I will live (I just use 50th percentile numbers here). Currently I am 50 and use 40 years.

I think the future will be somewhat better than the past, so I assume a 95% historically safe SWR.

I plug my statistics and 40 years into FIREcalc and then use the investigate tab to adjust the spending level to 95% historically safe levels. This is much higher than $X, by the way.

I then look at the asset allocation sensitivity at that level of spending. I pick the AA with the highest historically safe success rate. If there are ties, I'll pick the highest stock allocation among those ties. This is because I have a fairly high risk tolerance and I am an optimist and I have kids.

At this point I have answered the question, "If I took my current situation and ratcheted my spending up to the most that I would feel safe doing, what should I then set my AA to in order to be most safe, from a historical perspective, over my remaining lifetime?"

For me currently, that answer is 10% bonds.

I then take my current spending and multiply it by 1/4.08% to see what portion of my portfolio is "mine". Anything above that amount will be my kids' money, so that is 100% stocks as I think they will inherit in 30 years or more, and again, I'm an optimist.

Of "my" portion of the portfolio, I multiply that by the bond ratio in the AA above (10%) to see what amount I should have in bonds.

Since I am currently spending 0.41% of my FIRE portfolio, this means my target is 0.41% * 10% / 4.08% = 1.01% in bonds. If my spending were to increase, as it might, I would consequently allocate more to bonds. As I age and my plan duration years lessen, the historically safe AA to bonds would increase somewhat, so that would also have me put more in bonds.

Currently I'm actually at 6.53% bonds. I also have a few months expenses in checking/saving.

When the stock market next goes south, as it inevitably will, my plan is to rebalance occasionally, withdraw as needed, and plan on history being no worse than the past (probably better - I'm an optimist). I expect I will naturally become a little nervous and cut back some, like everyone else.

In 20 years I'll get Social Security. 60% of my Social Security will basically cover my current expenses. (I derate SS to 60% of my actual benefit.)

Single. Paid off house. Kids' college covered. No large expenses on the horizon. Theoretically willing to work a job if needed to keep the lights on. Have a number of contingency plans both on the income and expense side.

 

[Golden sunsets]

49% safe funds in a combination of cash, CD ladder and individual bonds or bond funds. Next year that % will increase to 50% and stay there indefinitely.

 

[swakyaby]

28% bonds, 9% money markets

 

[PoorOldCountryBoy]

For retirees only?
Just wondering......Right now I keep about 25% or 3 years worth of retirement income in safe funds because I figure that's what I would need to ride out a market downturn. I then have another 20% in a 2025 target date fund which, as you know is diversified. The rest (55%) I keep in an SP500 index fund.

FYI....I have a considerable amount of my wealth is in my home (paid for and worth about $800K). In a horrible situation (a LONG market downturn) I could access the equity on my home if I absolutely had to.

What say you guys?

Run simulations through 1929-1939 and see how you do
1941
-17.86% 1940 -15.29% 1939 -5.45% 1938 25.21% 1937 -38.59% 1936 27.92% 1935 41.37% 1934 -5.94% 1933 46.59% 1932 -15.15% 1931 -47.07% 1930 -28.48% 1929 -11.91%

 

[friar1610]

Age 74 with good pension that will diminish significantly if I'm the first to go. (SBP = about 35% of current pension). Therefore AA is premised on having enough in safe fixed vehicles (bond funds, CDs, I-Bonds, cash) to provide 20 years of supplemental income for my wife regardless of what happens to equities. This works out to about 50/50. I'm a couple of percentage points off at the moment but very close.

 

[stephenson]

Taxable - maybe 4% in cash, 10% in short bond funds.

Military pension, megacorp pension, rentals income, taking dividends from taxable in cash now, SS to start at 70 in 4 years.

tIRA and rIRA when I have to.

I have spent my entire life trying to be smart about saving and investing - it is truly hard to stop saving and start spending. I'm working on it.

 

[iloveyoga]

I'm different too, 65% bonds and cash.

 

[finster869]

Excluding debt free real estate: 25% cash; 25% bonds; 25% stock; 25% gold. Without factoring in interest, the 25% cash and 25% bonds covers about 12 years of spending.

 

[Out_the_Door]

I'm currently 60% stocks/20% bonds/20% cash (mm,CDs etc). The 20% bonds covers about 10 years of expenses which will overlap with a pension and SS. Although when pension arrives in five years I will be 70%/20%/10% and I'll probably stay that way even after SS kicks in at FRA

 

[Rustic23]

Now 50%

20% bonds, and 30% cash equivalent.

 

[Digger1000]

$2600 in checking. Rest in index stock funds.

Retired 3 years ago at 51.

Current annual spending % of net worth is 1.5%. If stock market goes down 67% my annual spending % of net worth would be 4.6%.

 

[jkern]

40% Stocks/ 40% Bonds/ 20% Cash

 

[skipro33]

75% Dow/S&P index funds, 25% cash, savings @1.25% past 12 months in my IRA core position of FIDELITY GOVERNMENT MONEY MARKET (SPAXX)

 

[gerntz]

Around 30%.

 

[Golfquest20]

This thread is really interesting. I’m surprised, actually. We’ve dialed it back quite a bit over the last 5 years, to the point we feel too conservative. As of today 44 stock/56 bonds and cash. Some mention pensions, wonder how many of total responders so far have them. Us...only a very small pension.

Not retired yet, but soon

 

[fishvt]

This thread is really interesting. I’m surprised, actually. We’ve dialed it back quite a bit over the last 5 years, to the point we feel too conservative. As of today 44 stock/56 bonds and cash. Some mention pensions, wonder how many of total responders so far have them. Us...only a very small pension.



Not retired yet, but soon

We are at about 50% in a stable value fund(within our 401k) paying 3%.
The rest is 40% VINIX, 15% VIEIX, 5% VTIAX.

We have non COLA pensions to cover about 60% of our spending.

We are in our first year of retirement, so we are still trying to figure out this retirement phase! [emoji1]

 

[razztazz]

This thread is really interesting. I’m surprised, actually. We’ve dialed it back quite a bit over the last 5 years, to the point we feel too conservative. As of today 44 stock/56 bonds and cash. Some mention pensions, wonder how many of total responders so far have them. Us...only a very small pension.

Not retired yet, but soon

I have a very small pension but it comes with a cola

 

[CyclingInvestor]

61, retired 13 years, no SS (yet) or pension.

100% individual stocks (all dividend growth) since 1993. Dividend flow is considerably more than spending, so I am still buying more.

 

[GreenEggs]

About 1/2 of my NW is in real estate (approx 33% our primary home & vacation place, the other 66% is for sale).
About 66% of the other 1/2 is in index funds and the rest is in a money market fund.

That's been way too much cash sitting in the MM fund, so I'm planning to put about half of it into index funds too. That will leave enough cash for 4-5 years of a safety net if the market has a major correction.

As the real estate sells I plan to put most of it into index funds, but may make adjustments depending on market conditions and whatever opportunities may come up by then.

So, I guess roughly about it's been about 12-14% in cash. But, I am planning to adjust that down to about 6-7%.

 

[Retired Expat]

Was discussing this cash allocation question with my FA and I said minimum 100-150k in cash (money market or short term CD’s. All of which pay little to nothing

He reminded me that I have a million dollar no cost credit line for real emergencies and in 10 years have never drawn out more 25k at any one time except when I bought a house which would have exceeded any cash held anyway. So he wanted to know why so much cash? (3 years withdrawal rate based on other income)

Furthermore during the 3 year period there are always bonds coming due in my bond ladder for cash if needs be.

Starting to think it is just insecurity and that we are used to having a 100 k “in the bank”. As it were separate from investments.

Is my thinking outdated?

 

[BeachOrCity]

I think the bonds vs cash debate is a bit outdated. IMHO alot of it comes from the fact that brokers sold bonds, but not cash. So cash was a waste.

I think bonds and cash should be one category where people just evaluate yield, term, and risk. My strategy in this category is to ensure I get a sufficient term premium and risk premium.

Right now, there is hardly any difference in rates for BBB vs AAA. So I take the low risk stuff. There is also no real term premium so i keep term short.

In this category I find that CU CD's have the lowest risk and highest yield so I buy those.

For my stocks bonds and cash I am 55/45 where bonds and cash are lumped together. But I have a fair amount of real estate / alternatives so when you lump it all together I am closer to 33/33/33 (about a 1/3 in each give or take).

Was discussing this cash allocation question with my FA and I said minimum 100-150k in cash (money market or short term CD’s. All of which pay little to nothing

He reminded me that I have a million dollar no cost credit line for real emergencies and in 10 years have never drawn out more 25k at any one time except when I bought a house which would have exceeded any cash held anyway. So he wanted to know why so much cash? (3 years withdrawal rate based on other income)

Furthermore during the 3 year period there are always bonds coming due in my bond ladder for cash if needs be.

Starting to think it is just insecurity and that we are used to having a 100 k “in the bank”. As it were separate from investments.

Is my thinking outdated?

 

[audreyh1]

Was discussing this cash allocation question with my FA and I said minimum 100-150k in cash (money market or short term CD’s. All of which pay little to nothing

He reminded me that I have a million dollar no cost credit line for real emergencies and in 10 years have never drawn out more 25k at any one time except when I bought a house which would have exceeded any cash held anyway. So he wanted to know why so much cash? (3 years withdrawal rate based on other income)

Furthermore during the 3 year period there are always bonds coming due in my bond ladder for cash if needs be.

Starting to think it is just insecurity and that we are used to having a 100 k “in the bank”. As it were separate from investments.

Is my thinking outdated?

What do you consider little paying little to nothing?

In Jan I always put a year’s worth of spending in high yield savings and short-term no penalty CDs, or CDs that will mature within the year. I’m happy with 1.7%-2.0% on highly liquid funds right now.

 

[audreyh1]

I think the bonds vs cash debate is a bit outdated. IMHO alot of it comes from the fact that brokers sold bonds, but not cash. So cash was a waste.

I think bonds and cash should be one category where people just evaluate yield, term, and risk. My strategy in this category is to ensure I get a sufficient term premium and risk premium.

Right now, there is hardly any difference in rates for BBB vs AAA. So I take the low risk stuff. There is also no real term premium so i keep term short.

In this category I find that CU CD's have the lowest risk and highest yield so I buy those.

Yep.