Probably true, but overall AA is relevant to determine if 5 years in cash makes sense.OP told us that 5 years of expenses in cash is 10% of the portfolio, meaning portfolio is 50x expenses. At that level asset allocation is irrelevant to success.
That was my exact thought. My take is what we have on hand/in pocket right now. Generally have $100 or so on me unless traveling. 3-4 K of paper and metal in the safe. In the bank we have several different stashes that can easily become tax free cash, Savings, Roth, HSA if needed (and accessible) or about 15% of our nest egg.Depends somewhat on what each of us define as cash.
To put it little differently: Inflation causes permanent loss of portfolio whereas downturn cause temporary loss of portfolio.FireCalc says that the worse failures occurred due to inflation rather than market downturns which I've always found very interesting.
Absolutely, it's just been "transitory", so far.To put it little differently: Inflation causes permanent loss of portfolio whereas downturn cause temporary loss of portfolio.
You could incur a wash sale based on what you describe.No need to hold cash in a taxable account if you have cash or bonds in a tax deferred account. 100 stocks in taxable works. You can sell them even when they are down, and replace them the same day in your tax deferred account. That way you still have your allocation and have actually sold bonds in your tax deferred account to raise the cash, without the ordinary tax rate of your tax deferred account.
OP told us that 5 years of expenses in cash is 10% of the portfolio, meaning portfolio is 50x expenses. At that level asset allocation is irrelevant to success.
Presently I have a cash account that will last me almost 5 years in such case as there were a market downturn. All the rest of my investments are 90% stocks.
We're usually about 1 year at start of year (RMD+).I start the year with 2 years of spending cash, then refill in Dec.
I was surprised, but what FIRECalc showed me when I tried a bunch of what-ifs was that the smaller your portfolio is relative to your needs, the more you need to have in stocks and the less you should keep in fixed income assets.Doesn't it depend on how much total savings (investable assets) you have? If you have barely enough to qualify for FI then you need more cash and if you have many times FI then you can afford to take more risk and hold less percentage in cash. Seems like a combination of risk tolerance coupled to how far into FI you are to make that call.
Sure, because equities return more and are better against inflation.I was surprised, but what FIRECalc showed me when I tried a bunch of what-ifs was that the smaller your portfolio is relative to your needs, the more you need to have in stocks and the less you should keep in fixed income assets.
Wow, does Japan have a worse 40- or 30-year series than anything in the FIRECalc record?Sure, because equities return more and are better against inflation.
Of course, that assumes one doesn't panic sell, and that what happened in Japan doesn't happen in the US.
Go look at a history of the Nikkei index from 1989 to today.Wow, does Japan have a worse 40- or 30-year series than anything in the FIRECalc record?
It's 37,677 today vs 38,275 at the peak in late 1989.Go look at a history of the Nikkei index from 1989 to today.
To me, it doesn't sound safe to be 80% in CDs.I'm the other way. 80% of my funds are in insured CD's and the rest is invested with UBS. Gambling performance has been spotty, even in the up market and their 1.5% house 'vig' takes a righteous bite out of the 5% gains.
I don't like the idea of gambling with a higher percentage of my savings. What it took to earn that money was an excessive number of hours, putting up with zero support and tons of hard physical work. Put another way, very little of my life so far, has been mine. Retirement is glorious.
I guess my life long aviation career has my Safety Consciousness trickling down into my money management.
A lesson learned in 70’s and 80’s but forgotten by many. Called recency bias. Sigh, wish I were not influenced like that, but my first thought last couple years was wow, 4% yield, I gotta lock that in. Now 5% or more doesn’t seem like that much, 1% more but 5% is 25% more.To me, it doesn't sound safe to be 80% in CDs.
Interest earnings are eaten up by inflation most years.
All true, but still - absolute value is about the same as it was 35 years ago. Folks talk about the "lost decade" in the US from 2000-10, and with Japan we're talking about "lost 35 years".It's 37,677 today vs 38,275 at the peak in late 1989.
OTOH, it looks like inflation has been pretty minimal over the same time frame - one 1989 yen is only worth 1.28 yen today. And I'm not sure how to look up the dividend history but I assume there's been a more-or-less steady dividend stream from the stocks in that index...
I'm currently reading Wade Pfau's Retirement Planning Guidebook. His suggestion for using this kind of "buffer asset" to manage SORR is - IF the nominal value of the portfolio is larger than at the start of retirement (the buffer asset is not included in the portfolio value) THEN draw from the portfolio ELSE draw from the buffer asset.
IF the portfolio later recovers to larger than starting amount THEN you have discretion on whether to refill the buffer asset.