BlueberryPie
Recycles dryer sheets
- Joined
- Feb 17, 2021
- Messages
- 268
I'm 10 years from retirement. Current AA is 60/38.5/1.5, the 1.5% cash being frictional cash in my various accounts (brokerage, IRA, 401(k)...)
The 1.5% is mostly left from working with an advisor that would automatically assign 1.5-2%% of each account to cash.
I have a separate 6-month income replacement emergency fund (so more than 6 months living expenses if you tighten the belt). That is sitting in I-Bonds (all liquid because they are more than a year old).
I hear that as people are getting closer to retirement they keep 1-3 years in cash so they dont have to dip in their portfolio during down markets. The down side is that 1-3 years of cash can create a pretty significant drag. For example 3 years of cash would be 15% of my portfolio today.
I'm wondering if I should start building that cash reserve slowly over 10 years, and one way to do that would be to buy I-Bonds, it has a natural max yearly limit, and is at least guaranteed to keep up with inflation. On the other hand if I buy $20k I-Bonds every year, it's money I'm not investing in my 60/40 portfolio, so I am missing the returns on that instead.
To be clear, i would still max out my 401(k) and HSA. But I am proposing i would take the money i invest in my taxable account (about $20K/year) and buy I-Bonds instead.
I would keep very little cash in the retirement account or brokerage to reduce the drag on those (less than 1%)
I am no longer working with an advisor, so not sure if it's a wise choice.
Portfolio (not NW) in the low 6-figures if it matters...
The 1.5% is mostly left from working with an advisor that would automatically assign 1.5-2%% of each account to cash.
I have a separate 6-month income replacement emergency fund (so more than 6 months living expenses if you tighten the belt). That is sitting in I-Bonds (all liquid because they are more than a year old).
I hear that as people are getting closer to retirement they keep 1-3 years in cash so they dont have to dip in their portfolio during down markets. The down side is that 1-3 years of cash can create a pretty significant drag. For example 3 years of cash would be 15% of my portfolio today.
I'm wondering if I should start building that cash reserve slowly over 10 years, and one way to do that would be to buy I-Bonds, it has a natural max yearly limit, and is at least guaranteed to keep up with inflation. On the other hand if I buy $20k I-Bonds every year, it's money I'm not investing in my 60/40 portfolio, so I am missing the returns on that instead.
To be clear, i would still max out my 401(k) and HSA. But I am proposing i would take the money i invest in my taxable account (about $20K/year) and buy I-Bonds instead.
I would keep very little cash in the retirement account or brokerage to reduce the drag on those (less than 1%)
I am no longer working with an advisor, so not sure if it's a wise choice.
Portfolio (not NW) in the low 6-figures if it matters...
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