Cash as part of AA

[WyomingLife]

I’m at 65/30/5, where the 5 is cash.

A reputable firm just suggested to me that, when assessing AA, cash not be included. They think I need to be 50/50 (for a variety of relevant life considerations), not including cash. So I am being advised that 65/30/5 is fairly aggressive for my situation.

So is cash included or not in AA? I am confused.

(This Q has likely been asked and answered 10,000 times here already, so apologies in advance for this post.)

 

[Rianne]

I definitely consider cash as part of AA for several reasons.

1. To stay within the ACA subsidy guidelines, we use cash to offset income.
2. Cash/CD's as emergency funds or living should we decide not to sell or take CG or dividends.
3. If there's a big downturn, to further invest in stock index funds.
Cash is approx 12% of our portfolio.
We've always considered cash as part of AA. Cash is an asset, right?

 

[Dtail]

I definitely consider cash as part of AA for several reasons.

1. To stay within the ACA subsidy guidelines, we use cash to offset income.
2. Cash/CD's as emergency funds or living should we decide not to sell or take CG or dividends.
3. If there's a big downturn, to further invest in stock index funds.
Cash is approx 12% of our portfolio.
We've always considered cash as part of AA. Cash is an asset, right?

+1

 

[Golden sunsets]

We do not include our emergency fund($100,000+), in our AA. We also categorize our CD's some of which mature within a year, as FI. Also even though we have bonds some of which mature within 1 year and short term bond funds with a duration of less than 1 year we categorize all of those funds as FI. So we have a 0 cash allocation, however between our large emergency fund and liquid bonds/CD's/short duration bond funds, we do have access to cash whenever needed.

We generally don't withdraw from our Assets.

 

[OldShooter]

I don't know what "cash" beyond the currency that is in my wallet. Our "safe" side (aka Fixed Income, Bonds, etc.) is invested in instruments of varying maturity and varying liquidity. Some is invested in SWVXX "retail money market fund" where I can sell on one day and get settlement the next. Some is invested in TIPS with a maturity date of 2026 but those can also be sold easily with IIRC next day settlement. Is any of that "cash?" Is all of it "cash?" I don't know of any definitive way to separate "cash" from the other investments on my safe AA side.

All of it, with the exception of my wallet, is in my AA calculations.

 

[CardsFan]

I consider cash as part of the AA. All cash. Everything, including emergency funds.

We sometimes argue here about the difference between cash and fixed income (are CD's cash?). So I don't separate them. Everything not equity is fixed income (bank accounts, MM accounts, CD's, and bonds).

 

[NW-Bound]

I currently have a 7-figure holding in cash, and if I do not count it in my AA, then where do I count it?

I call cash the fixed-income investments such as CD, money market fund, I bonds, etc... Their principal value does not go up/down daily like that of bonds. If the interest rate rises, they do not crash. Conversely, if the interest rate drops, they do not appreciate. And that's why I call them cash, because they do not behave like bonds.

 

[Ronstar]

I consider cash in AA. All cash to include checking but not what is in my wallet

 

[pb4uski]

+1

+2 if you're only going to use two numbers, then cash is part of fixed income.

 

[jimbee]

So is cash included or not in AA?

Yes.

 

[davebarnes]

A reputable firm just suggested to me that, when assessing AA, cash not be included.

I would say not reputable.
Of course cash is an asset. Even money under the mattress.

 

[ER2B]

I consider cash in AA. All cash to include checking but not what is in my wallet

Same here

 

[NW-Bound]

I would say not reputable.
Of course cash is an asset. Even money under the mattress.

+1

Unless the cash is so small, such as a few $K in the checking account which will be spent soon, cash is an asset. Whether it should be counted or not depends on how large a portion of your liquid net worth it represents.

And even a mattress would be a valuable asset to someone who is down-and-out. You don't think so? What effort would it take to walk all over town to find a discarded mattress, then drag it all the way to the freeway overpass of your choice?

Again, it all depends on how big that cash holding is, with respect to your net worth.

 

[WyomingLife]

Thank you so very much. The wisdom of this board is greatly appreciated. I am indebted to you all.

 

[camfused]

^^^^ Give us some cash.

 

[Fermion]

Cash is just a 0% bond with very short duration.

 

[Al in Ohio]

We do not include our emergency fund($100,000+), in our AA. We also categorize our CD's some of which mature within a year, as FI. Also even though we have bonds some of which mature within 1 year and short term bond funds with a duration of less than 1 year we categorize all of those funds as FI. So we have a 0 cash allocation, however between our large emergency fund and liquid bonds/CD's/short duration bond funds, we do have access to cash whenever needed.

We generally don't withdraw from our Assets.

Cash is an asset!

 

[NW-Bound]

^^^^ Give us some cash.

Good luck with that, now that the OP recognizes his cash as an asset, not something to give out willy nilly.

Cash is just a 0% bond with very short duration.

0%? What I call my cash is I bond which pays me more than 2.5%, and money market which pays as much as 2%.

 

[GravitySucks]

I count the cash in the brokerage MM fund as part of the fixed income side. Cash in checking I consider already spent.
Considering you're in your 50s and still working, I'd worry about that "reputable" firm telling you you need to be 50/50 - Unless you've expressed some worry about being 65/35. Only you know what your risk profile is.

 

[Fermion]

Good luck with that, now that the OP recognizes his cash as an asset, not something to give out willy nilly.




0%? What I call my cash is I bond which pays me more than 2.5%, and money market which pays as much as 2%.

Eh that is not what I call cash. To me cash is settled money in my brokerage account that can be used in seconds to purchase stocks during a flash crash event.

 

[NW-Bound]

It is true that it takes a couple of days to move money out from a money market fund at my brokerage to buy a stock. In that sense, it is not as liquid as settled cash that allows me to buy some stock shares right now.

However, I can still buy shares without the "real" cash in a margin account, and move the money later to pay for it. In before-tax accounts, I can use the money market funds as collateral to sell cash-covered puts, which has the same effect as buying the stock shares. Bonds cannot be used to back cash-covered puts.

And I do keep a couple percent in "real" cash, which pays a lousy 0.05% interest.

 

[audreyh1]

I’m at 65/30/5, where the 5 is cash.

A reputable firm just suggested to me that, when assessing AA, cash not be included. They think I need to be 50/50 (for a variety of relevant life considerations), not including cash. So I am being advised that 65/30/5 is fairly aggressive for my situation.

So is cash included or not in AA? I am confused.

(This Q has likely been asked and answered 10,000 times here already, so apologies in advance for this post.)

I deliberately hold cash as part of my AA. It’s a key piece of my diversification. In some analyses I lump it in with my fixed income which holds some short-term and mostly intermediate term bond funds. So within fixed income I’ve made sure to have some diversification across maturities including 0 duration. But on the other hand, cash behaves differently from bonds under various conditions, so it can be useful as a diversifier against bonds as well as stocks.

 

[jazz4cash]

Fidelity is a "reputable" firm. Here's their take on asset allocation vs. risk. (Spoiler: They count cash).

https://www.fidelity.com/viewpoints/retirement/successful-saving

 

[mrfeh]

I’m at 65/30/5, where the 5 is cash.

A reputable firm just suggested to me that, when assessing AA, cash not be included. They think I need to be 50/50 (for a variety of relevant life considerations), not including cash. So I am being advised that 65/30/5 is fairly aggressive for my situation.

So is cash included or not in AA? I am confused.

(This Q has likely been asked and answered 10,000 times here already, so apologies in advance for this post.)

I consider cash to be part of my fixed income. And when I say cash, I mean cash literally (savings and MM accounts). While CDs and I Bonds are also FI, I do not consider them cash.

Keep it simple. Anything that isn't a hard asset or equity is fixed income.

 

[Jerry1]

As others have said, to me there are equities and then everything else. I’m at 60/40, no third number. Cash is definitely included in the 40. In that 40, there is some real cash but mostly, there is about two years worth of living expenses in pretty liquid investments - 3 month CD’s.

I look at the percentages as risk/very limited risk. Currently @ almost 59 yrs old and three years into retirement, I’m comfortable having 60% subject to the riskier investments.