Perspective on AA with Significant Cash Holdings

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bhwabeck3533
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Location: Baldwin County, AL

Perspective on AA with Significant Cash Holdings

Post by bhwabeck3533 »

First, allow me state that I enjoyed the recent post ("How to communicate with wife?! [about investing]") as it relates to the issue I now raise.

In 2014, I transferred all my retirement assets into a Vanguard IRA and the advisor recommended an asset allocation of 60% equities (two index funds) and 40% bonds (four index funds). Over the last seven years there have been market fluctuations and withdrawals taken from the various funds. Most significantly, about 18 months ago I took a strong cash position (two years living expenses in the Vanguard IRA) to allow my wife to sleep more peacefully.

Yesterday, I felt it was time to rebalance my portfolio back to the original 60:40 ratio. Excluding the cash, my current AA is 65% equities, 35% bonds. Cash component represents 13% of the cash + equities + bonds total.

Without advising a very low or non-cash strategy (see "How to communicate with wife?! [about investing]"), what AA is recommended for the non-cash currently invested?
jebmke
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Location: Delmarva Peninsula

Re: Perspective on AA with Significant Cash Holdings

Post by jebmke »

The equity, bond mix is something only you can decide. As for investments, I’d use a three fund portfolio or even a Target fund of some kind.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Sandtrap
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Re: Perspective on AA with Significant Cash Holdings

Post by Sandtrap »

The ratio is personal because it involves percentage cash as a "sleep factor" and only you can know that.
Look at your allocation as having a cash percentage built in, so at least mentaly, it makes a comfort zone.
For example.
equity/bond or bond like/cash or cash like
55/35/10
or
???

The other way to ensure a "sleep factor" is "simplification".
1. Minimize the number of funds. . or
2. Use a "self balancing" fund or "self balancing fund of funds".

Perhaps you need to revise your IPS and allocation.
Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement
IPS Statement Worksheet PDF at Morningstar
http://news.morningstar.com/pdfs/inves ... pr2016.pdf
Risk Tolerance (what is your "sleep factor"?)
https://www.bogleheads.org/wiki/Risk_tolerance
Asset Allocation (what is right for you?)
https://www.bogleheads.org/wiki/Asset_allocation
VANGUARD PORTFOLIO ALLOCATION MODELS
https://personal.vanguard.com/us/insig ... locations

j :D
Last edited by Sandtrap on Sat Dec 04, 2021 6:59 am, edited 1 time in total.
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dbr
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Re: Perspective on AA with Significant Cash Holdings

Post by dbr »

The recommendation is that cash and bonds are all fixed income, usually referred to as "bonds". In other words, for stock/bond asset allocation you include the cash as a "bond." The essence of it is to put low risk, usually debt, instruments in one allocation and high risk, meaning equities, in another. I would do this even when the cash is actually an emergency fund.

If you want a further breakdown, you can divide the fixed income "bonds" into actual bonds, cash, stable value funds, MYGAs, or whatever. Stocks are often divided into US and International and/or into total market and small cap value tilt, or whatever.
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