Cash in Portfolio

[FANOFJESUS]

2-5 years is very commen.

 

[CyclingInvestor]

Each quarter I convert my accumulated IRA dividends to my Roth, keep enough in cash to cover 3 months + 10k (moving $ over to checking as needed), and reinvest the excess, so an average of 99.5% stocks / 0.5% cash overall.

I do tend to round to 100% stocks in asset allocation discussions.

 

[audreyh1]

I justify that rate by knowing that money is not at risk, or at least only a tiny risk.

Definitely!

 

[Car-Guy]

Since retiring, I've kept 2+m in cash (CD/Fixed Income investments). a.k.a. "my won the game bucket" or as I call it, bucket #1"... Bucket #2 is for everything else.... Investing, living expenses, travel, hobbies, etc.

 

[Badger]

I have the dividends from IRAs swept into a MM account. I use that money for my RMD and don't touch the original investments. I am also accumulating cash the same way from the dividends of my taxable accounts. Everything is on autopilot to simplify. I guess that means I am in the "Buy and Hold" group. I may not be rich but I have enough to comfortably see me through to the end with a nice amount for inheritance. I don't need to complicate my investments any more than necessary now that I am on the backside of life.


Cheers1

 

[mrfeh]

Just consider CDs/MM as part of your portfolio; it's fixed income.

 

[pb4uski]

I consider CDs that will mature within ~12 months to be cash.... further out to be bonds.

I picked up some one-year 1.35% CDs in May 2021 and some 17-month 2.25% CDs that mature in Aug 2021 in Mar 2020... I'm not looking forward to reinvesting the proceeds from those CDs at much lower rates.

I still have a bunch of 3.0-3.5% CDs maturing in 2023-2024.

 

[FreeBear]

After I retire, I'm not sure under what conditions would I spend this cash? I could see myself spending all the cash the first couple years, while I don't touch stocks/bonds (except for dividends) until the money is gone. Or, I could see myself holding the $100k forever, untouched -- but why? The answer must be somewhere in-between.

/QUOTE]


In retirement, we are holding 1-2 year's worth in "normal" expenses. Every 6 months or so we sell stock or bond funds if we start getting down to only a year of cash. I don't like holding over 2 year's in cash because I hate "lazy" money.

 

[deserat]

According to my spreadsheet, I have a significant cash position (5%). I still work, however, not for long and that cash will probably be used to pay for a house. That large cash was the proceeds from selling a house a year ago. Since my time frame is uncertain with regard to 'working', I have opted for flexibility over return (it's sitting in MM) and risk. Moreover, I will have from 1.5-2.5 years I will be funding my lifestyle from my portfolio, so the cash position allows my investments to remain invested while I draw down the cash position.

The reason for having cash depends on your situation. In my case, the situation is variable income-wise, location-wise and time-wise.

When I had more stability, my cash position was one tenth of what it is now.

When my pension starts in 3 years, I will have less cash in my portfolio - perhaps 0.5-1%.

 

[Finance Dave]

If by "cash" you include CDs and MM funds, then I hold a LOT of cash. I am very conservative in my investments (now that I'm FIREd), so we have about 1/3 our money in those types of things. If you mean simply cash like in a checking account, we only keep about 6 months living expenses...but our CD ladder matures a CD every 6 months so we constantly have new cash coming into our AA mix. If a CD matures and puts us over about 2 years of living expenses, then we reinvest that into the long arm of the ladder.

Overall we're about 20% equities, 25% real estate (rentals), 20% bonds, and 35% "cash" (CD ladder mostly). For most investors, this low equity position concerns them because of inflation worries...but what we did was got to a "number" where we could use an anticipated 2.5% return rather than something much higher and still have our portfolio last 35 years or so. Plus, we have a large portion of our expenses as discretionary, so if things go south we just skip a vacation or that expensive woodworking tool I was going to buy lol.

 

[Fleur58]

I've got 100K in a Capital One MM account. I simply don't want to invest it. I've got the cash for whatever I need whenever Everything else I have is invested and diversified, and I am still working in an un-retirement job and adding to my investments.

 

[slowsaver]

I have been categorizing "cash" to include CD, MM, and savings accounts that pay some interest. Since my CDs are 3 year, I may recategorize them as bonds starting in 2021. I keep renewing them anyway.

Thanks for all the inputs. I like the sound of those responses where people keep 2-3 years expenses in cash, and sell when that bucket gets low.

 

[RobLJ]

A bit embarrassed but I'm at 19% cash, almost double my allocation target.

A variety of reasons
1) The online half-time job modification ended in May and I'm pulling at the top of the 12% tax limit from only my account in January (DW's roll-over IRAs will be available for withdrawal in 2022).

2) In preparation, in late 2018-early 2020 I reduced stock allocation gradually to 40-45% temporarily from 55-60%, just in time for the COVID crash. I reinvested some in March & April since I had gone below 40% stock, then scraped some rapid gains in June/July.
Bonds aren't very attractive, so I stashed some in very short-term bonds and left the rest in cash.
3) I am 6% low in international funds and they look attractive (particularly Asia and EM), so I am beginning to redeploy some of the cash, and monthly average to increase small cap US.
4) I'll start increasing the stock allocation up to 50% by the end of 2022 and to 55-60% in four years when I start drawing SS.

5) Cash gives optionality during crashes, helping avoid selling at lows and allowing purchases. The March crash and recovery was so rapid that I only redeployed about 1/2 of what I intended to reinvest, but I'm OK with the cash for now. Despite starting to make withdrawals 3 years ago and the lowered stock allocation, the portfolio has increased steadily each year. So I see a much diminished SORR from what I anticipated 3 years ago. I see 2021 and 2022 as the highest remaining risk, since I can always take SS a year or two early if necessary.
The cash does allow sleeping well at night, even during the March crash.

I have been categorizing "cash" to include CD, MM, and savings accounts that pay some interest. Since my CDs are 3 year, I may recategorize them as bonds starting in 2021. I keep renewing them anyway.

Thanks for all the inputs. I like the sound of those responses where people keep 2-3 years expenses in cash, and sell when that bucket gets low.

 

[Green Papaya]

I am already retired and still have 4 more years under ACA, with neither pension nor SS yet. My cash portion (savings and MM accounts) is sufficient for 1 to 1-1/2 years spending. The rest of my holdings are in bonds and equities. We plan to sell whichever mutual fund is currently high or least losses (in a down market), with eyes on ACA cliff, to replenish cash portion toward end of each year.

 

[pn3069]

I've been all over the map on this issue. Essentially 0% cash while working and first year of retirement. Then changed AA to include 5% cash... good enough for a few years of expenses when combned with taxable account income and my small pension.

With the decline in interest rates I decided to get rid of the cash allocation and used it to pay off our mortgage and a small car loan balance... so back to 0% cash.

Then the 2020 spring covid crash came along and I went into capital preservation mode so currently lots of cash equivalents parked awaiting reinvestment if the stock market ever comes to its senses (not sure if that will ever happen but if not I'm a-ok staying on the sidelines.

I am cash heavy too. With very little (less than 20% of investable cash) in the market. I am absolutely fine waiting for an opportunity in the market although I am not sure I would know it when it arrives

 

[cyber888]

I had about 2.5 years of expenses in cash, when CDs were earning above 2%+. With CD rates so low , I'm down to 1.5 years of expenses in cash and paid 50% of my remaining mortgage and got a HELOC instead. I shifted to a HELOC with 2.24% rate, so even if I sink more and more $cash into my house, I can still get it back if I need to.

 

[Starsky]

You will find a use for it.

Cash is nice to have so that you can avoid creating taxable events when you need extra money - whether via IRA withdrawals or capital gains. In retirement, raising your income can cost things like ACA subsidies and other benefits, so there is an even higher incentive to keep your taxable income low and adequate cash-on-hand. We keep at least $50K accessible for bills and a sizable amount more in our safe for if it gets shiity. We use about $25-30K/yr. on top of our other income, somewhat less this year.

Your cash can help fill in the unexpected gaps each month/year. It's nice when that cash can come from investments that aren't working that hard for you anyway - like your cash reserve. There's usually something in the portfolio that you're not depending on for regular income. When you need to replenish your cash, that will be the first investment to go, and you can rebalance.

I always pay attention to the timing of our retirement withdrawals, and how they will impact us at the end of the year tax-wise. We try to dedicate our IRA to pay for unexpected repairs and maintenance on our rentals so that we can deduct the expenses and wash out the tax effect.

 

[SecondCor521]

I keep between 0 and 6 months cash on hand. The next month or so of expenses is in the checking account. Anything beyond that sits in a HYSA earning 0.55% APY ("not nothing" as someone said above). Everything else is in the portfolio at a target AA of 96/4. When I get low on cash I refill from taxable.

Simple. Easy. Boring. Works.

 

[Katsmeow]

In general I don't keep much cash. As a practical matter I usually would want at least 2 months of regular expenses that I have in the bank. Rarely does it go below that. Right now I have more as I had some cash earlier in the year that I was going to use for some new furniture and window coverings after a home remodel. Covid delayed it all so that money is just sitting there.

In the portfolio for a few years I did keep something that was near cash. But, a few years ago I got rid of that and usually when I need money I will rebalance and then take any excess I need out of whatever is doing the best. As a practical matter I can usually take it from bond funds with no difficulty.

 

[dixter]

If you keep cash and you feel bad about it not gathering interest or dividends and you might like to travel sometime in the future when its safe again then you can open a savings account at a bank called Bask Bank and they at least give you airline miles... with $100K you get 100K miles the first year and a few more for the sign up bonus.... you can do a lot of traveling with 100K miles a year... or gift a trip for someone you like... https://www.baskbank.com/

 

[schellem]

This is a pretty important point I had not thought of. In order to avoid the ACA 'cliff,' you'd want to stockpile enough cash to not generate too much income.

Am figuring out now that if you also want to do ROTH conversions you should have even more cash on hand.

 

[PointBreeze]

I keep enough cash to supplement my guaranteed sources of income to met my living expense for 3 years. I've seen many downturns over the years and figure 3 years worth of cash should get me through a bear market without selling equities.


If my guaranteed fixed income (pension, SS..) met my living expense I would only keep an emergency fund of cash. Enough to cover unexpected repairs and emergencies. The rest would be fully invested to my asset allocation.

+1

 

[gayl]

My pension covers my day-to-day expenses so I only have 3% emergency cash, 5% cash, 5% bonds, rest equities. No idea why I have cash

Bottom line: whatever let's you sleep well at night

 

[Al in Ohio]

I'm age 58 and wrapping up year 2 in retirement and I'm still sitting on somewhere between 18 months and 3 years of cash. The range is because it depends on how much I use dividends from my taxable account to supplement the cash. I'll probably burn that down for 2021 before selling anything to replenish it. When I do sell, I will likely sell enough for 18 months to 2 years of living expenses.



In 2019 and part of 2020, I used the dividends to supplement my spending. But when the COVID downturn started in Spring 2020, I turned on the reinvesting of my dividends to buy cheaper stocks. I just turned that back off and will start taking dividends again to augment spending needs.



I'm constantly adjusting my approach based on life's cards that are dealt.

Similar here. Just remember that cash is as useful as Roth to live off until Medicare kicks in while lowering your MAGI.