BHawks87 wrote: ↑Fri Jul 23, 2021 11:26 am
I am currently reading The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy and am kind of thinking about keeping some more cash and cash equivalents laying around. I currently am about 85/10/5 - Stocks/Bonds/Cash but am thinking about possibly increasing my cash allocation by about 5%. My cash allocation is in a High Yield Savings account and iBonds (I consider this cash). I am thinking about adding the next 5% into Short Term Treasuries and considering that part of my cash.
How much cash or cash equivalents does everyone else hold?
OP, in case you haven't seen it, below is a great thread about cash. I'm not suggesting you shouldn't have posted your thread. I love the cash threads and read every one (I have a love-hate relationship with cash and always want to hear others' thoughts). Thanks for posting.
7eight9 wrote: ↑Fri Jul 23, 2021 8:12 pm
Around 40%. Add in CDs, ibonds, MYGAs, stable value fund, and bank accounts and that number is closer to 84%. Every year we say that this is going to be the year when we actually do something with our cash. But the easiest thing to do is to do nothing when you don't know what to do. So here we are past the midpoint of 2021 and still sitting on cash.
I have a lot of sympathy for that situation, as I was in it for many years. What you need is a plan. Just saying, "this is the year we're going to do something with our cash" isn't an actionable plan, something that can be implemented. I don't know your situation. I don't know what investment mix would best make sense for you. That's something the members of this forum can help you with. Once you have developed a desired portfolio, the next question would be how to get there--the forum can help with this, too.
Probably much more than I/we should, having many years of forecast expenses in cash.
It's purely physiological, growing up in families in which the parents put themselves before their children, and later living many years as young married folks that didn't have much more than the basics of living, earning a fraction of the income that is frequently discussed on this board (even adjusted downward to reflect inflation over the years).
"Cash" to me is checking / savings or similar and about 10% of my overall portfolio. This includes monies I would utilize as part of an 'emergency fund'.
doobiedoo wrote: ↑Fri Jul 23, 2021 1:25 pm
I agree with tibbitts: The cash percentage doesn't mean much because it depends on individual circumstances.
When I was working, I had 6 months of expenses in cash. I never came close to needing it, but it was part of my Sleep Well At Night methodology. That 6 months of cash was 1-2% of my net worth -- the percentage got lower as my net worth went higher.
Now that I am retired, I keep 3 years of expenses in cash. This is to avoid selling equities in a down market. [You can research "Sequence of returns risk" and Harold Evensky's bucket strategy.] That works out to about 5% of my net worth in cash. Again, this is to reduce risk and sleep well at night.
So you overall allocation is 95% equity, 5% cash.
I have 75% allocation to equities, 11% to bonds, 9% to real estate & gold, 5% to cash.
I would think that only 100% equity folks would need to "avoid selling equities in a down market", so that if they keep cash or cash equivalents around, then they are not really 100% equity folks anyways. In a down market, I would think that investors would use their bond funds for rebalancing into equities. They could use their bond funds to pay expenses, too. Sure, bond funds may lose money sometimes, but if one accepts that equity funds can lose money sometimes, then I don't see a problem with bond funds losing money sometimes, too.
As for the cash we keep around, it is actually a negative percentage for us right now. That's because we have some credit card bills coming due and not enough cash to actually pay them right now. We will have to sell some investments to pay those bills. We will sell equity ETFs in our taxable account to do so. We will sell the most recently purchased shares which were purchased with dividends paid in late June. Fortunately, those shares are UP a few percent in the past month. Their annualized return blows away the non-return of cash in that time period.
And if folks are worried that we will have to pay short-term capital gains taxes when we sell shares held short-term at a gain, then I would say this: If folks had a high-yield savings account of cash that paid an annual interest rate of 35%, then I think folks would be happy about that. In our case, all realized short-term capital gains will be offset by carryover losses from tax-loss harvesting, so no taxes nor any new income to even put on our tax return.
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9-12 months off the top (12 months but I rebalance quarterly so it dwindles to 9). Of the remainder, my age-11 (%) is in fixed income. Of the fixed income, 1/8th is cash (which, to me, is anything that is not marked to market).
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About 20%.
1. I don't plan for rainy days; I plan for monsoons. Without sacrificing anything, this is almost three years of expenses.
2. Jobs like mine are few and far between and finding a new job would take a long time.
3. In the event of job loss, I don't want to have to feel pressured to take the first job that comes around.
My high yield savings/checking/CDs total < 1.5% of my portfolio value and cover my recurring monthly expenses, but I don’t include them in my AA. I am now FIREd and in the drawdown phase. I do get a military pension that covers about 60% of our annual expenses.
Instead of a set %, imo it makes more sense to go by keeping around 3 to 5 years of living expenses in cash/bonds; the rest put it in equities.
And even then there is wiggle room; a guy with a $20mil portfolio can probably leave all his $$ in equities as long as he is not living crazy; even if his portfolio drops by 50% he is still doing ok. If you only have $500k you need to be a lot more conservative.
keke212 wrote: ↑Thu Jul 29, 2021 7:52 pm
Instead of a set %, imo it makes more sense to go by keeping around 3 to 5 years of living expenses in cash/bonds; the rest put it in equities.
And even then there is wiggle room; a guy with a $20mil portfolio can probably leave all his $$ in equities as long as he is not living crazy; even if his portfolio drops by 50% he is still doing ok. If you only have $500k you need to be a lot more conservative.
If you invested near the peak in 2007, it took more than 5 years to get back to break even. So in that sense this is not a sound strategy.
Zvi Bodie had something similar in that he said you should invest only in fixed income until with SS you can guarantee a min std of living in retirement. Only then you should invest in equities. Of course, post GFC that strategy has been almost impossible to implement and has been completely impossible post COVID.
We had planned in our early 50's to pile up enough cash to fund our living expenses when retiring at 59 to last to 65 (medicare) in order to manage our taxable income for ACA credit purposes. Both 62 now and it's working just fine ($250 mth for healthcare) We withdrawal just enough from pre tax accounts to get us to the sweet spot for taxable income/ACA credits
I'm retired, age 79. Any cash is in my local bank checking account. It seems to average something like about $20,000 and receives my monthly pension direct-deposit. I added $2,000 to my investment portfolio recently and may repeat this to prevent the cash from becoming excessive--beyond the size of a reasonable account overdraft buffer.
If I needed more cash, then I own four stock funds that I want to draw down--they're not part of my primary stock fund portfolio. Then I'd rebalance from bonds into the latter portfolio.
livesoft wrote: ↑Thu Jul 29, 2021 1:47 pm
I would think that only 100% equity folks would need to "avoid selling equities in a down market", so that if they keep cash or cash equivalents around, then they are not really 100% equity folks anyways. In a down market, I would think that investors would use their bond funds for rebalancing into equities. They could use their bond funds to pay expenses, too. Sure, bond funds may lose money sometimes, but if one accepts that equity funds can lose money sometimes, then I don't see a problem with bond funds losing money sometimes, too.
This might be a problem for someone who's contemplating holding a lot of cash.
Caduceus wrote: ↑Thu Jul 29, 2021 1:21 pm
I'm about 64% in equities and 36% in cash (which I use to sell cash-secured puts for yield instead of investing in short or intermediate term bonds).
stocks 43% bonds 31% cash 26% retired, present age 72, remembering the 10 year period after I retired in 2000. Hoping we don't have a repeat performance. Remembering that 10 year period is why I have 26% cash. I sleep good at night during present times. I would go to ~ 10% cash if the market drops 40%. Yes, you can call me a market timer. A safe one I believe.
golfer292 wrote: ↑Sat Jul 31, 2021 7:13 pm
stocks 43% bonds 31% cash 26% retired, present age 72, remembering the 10 year period after I retired in 2000. Hoping we don't have a repeat performance. Remembering that 10 year period is why I have 26% cash. I sleep good at night during present times. I would go to ~ 10% cash if the market drops 40%. Yes, you can call me a market timer. A safe one I believe.
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...ignoring other questions about bond types, of course. But even so, a possible too-low duration might not hurt the overall performance enough to matter in your particular case, depending on personal longevity and portfolio size.
pascalwager wrote: ↑Sat Jul 31, 2021 10:56 pm
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...
I have always struggled to get my head around this. I use mostly total bond funds. The Fidelity US Bond Fund, FXNAX, for example, has a duration of 6.37 years. But my investment horizon is much longer than that, hopefully 25-30 years or so (I am about five years from retirement).
Does the above mean that my fixed income duration is much too short?
I'm 73 and keep about 25% in FDIC products and money markets, 25% in short term bond funds and the rest of my fixed income in intermediate bonds mostly part of 2 balanced funds but also the inflation protection Securities fund.
pascalwager wrote: ↑Sat Jul 31, 2021 10:56 pm
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...
I have always struggled to get my head around this. I use mostly total bond funds. The Fidelity US Bond Fund, FXNAX, for example, has a duration of 6.37 years. But my investment horizon is much longer than that, hopefully 25-30 years or so (I am about five years from retirement).
Does the above mean that my fixed income duration is much too short?
Yeah, I also wonder about that. If you look at the Vanguard Target Retirement 2065 Fund, for instance, it does not own a long-term bond fund that a duration matching glide path calls for. See link
Nisiprius did address the question, "For Young Investors, Why Not Long Term Bonds?" in a post worth checking out. link
pascalwager wrote: ↑Sat Jul 31, 2021 10:56 pm
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...
I have always struggled to get my head around this. I use mostly total bond funds. The Fidelity US Bond Fund, FXNAX, for example, has a duration of 6.37 years. But my investment horizon is much longer than that, hopefully 25-30 years or so (I am about five years from retirement).
Does the above mean that my fixed income duration is much too short?
Let's say you're 60 and plan to retire at 65 and live until 100. Then your investment horizon = 5 + (100 -65)/2 = 22.5 years. That's your optimal bond duration at age 60, but decreasing steadily as time passes. Just select a combination of bond funds to achieve this duration and adjust every year.
pascalwager wrote: ↑Sat Jul 31, 2021 10:56 pm
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...
I have always struggled to get my head around this. I use mostly total bond funds. The Fidelity US Bond Fund, FXNAX, for example, has a duration of 6.37 years. But my investment horizon is much longer than that, hopefully 25-30 years or so (I am about five years from retirement).
Does the above mean that my fixed income duration is much too short?
Let's say you're 60 and plan to retire at 65 and live until 100. Then your investment horizon = 5 + (100 -65)/2 = 22.5 years. That's your optimal bond duration at age 60, but decreasing steadily as time passes. Just select a combination of bond funds to achieve this duration and adjust every year.
Okay thanks. But, what if that's too time consuming or complicated for a simpleton like me? Is a total bond fund with an intermediate duration "good enough"?
Dandy wrote: ↑Sun Aug 01, 2021 7:03 am
I'm 73 and keep about 25% in FDIC products and money markets, 25% in short term bond funds and the rest of my fixed income in intermediate bonds mostly part of 2 balanced funds but also the inflation protection Securities fund.
At age 73 and retired: (100 - 73) / 2 = 13.5 years investment horizon and also optimal bonds duration. Or you can just use the life-expectancy on the SS tables for duration, which is what I do.
pascalwager wrote: ↑Sat Jul 31, 2021 10:56 pm
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...
I have always struggled to get my head around this. I use mostly total bond funds. The Fidelity US Bond Fund, FXNAX, for example, has a duration of 6.37 years. But my investment horizon is much longer than that, hopefully 25-30 years or so (I am about five years from retirement).
Does the above mean that my fixed income duration is much too short?
Yeah, I also wonder about that. If you look at the Vanguard Target Retirement 2065 Fund, for instance, it does not own a long-term bond fund that a duration matching glide path calls for. See link
Nisiprius did address the question, "For Young Investors, Why Not Long Term Bonds?" in a post worth checking out. link
I'd avoid the duration-matching issue by not including any bonds in a 2065 TRF.
As little as possible. Cash isn't an investment, and in a world where the Federal Reserve's explicit policy is to devalue your cash by 2% per year on average, it isn't even a store of value. That translates into an emergency fund for younger individuals (longer of 6 months or the average duration of unemployment), and grows larger at/near retirement. I'm currently inclined towards a 1 year cash reserve of annual expenses, and a short/intermediate term treasury/TIPS ladder with maturations annually at Y2/Y3/Y4/Y5 in the amount of your estimated annual expenses, with a side pot for emergency medical expenses for your maximum annual deductible and the remainder in equities. In a good year, sell the equities and reinvest the maturing treasury principle into a new treasury w/ 4 years until maturation. In a bad equity year, keep the maturing principle and don't sell equities. Obviously, this doesn't work if an equity recovery takes longer than 5 years, but you can extend the number of years in which you hold treasuries/TIPS to 7 or 10 years (or shrink to 3 years), depending upon your need to continue to maximize your ROI to support your retirement lifestyle, your ability and willingness to reduce expenses in down years, and your personal preference to reduce your own risk vs. maximizing an inheritance for children/grandchildren.
Last edited by TurtleBeatsHare on Sun Aug 01, 2021 1:32 pm, edited 1 time in total.
2 plus years of expenses. I don't have good reasons for this. Between severance and unemployment alone, 3-6 months would be OK for me. In fact, I'm going to rethink today. Thanks.
2 plus years of expenses. I don't have good reasons for this. Between severance and unemployment alone, 3-6 months would be OK for me. In fact, I'm going to rethink today. Thanks.
pascalwager wrote: ↑Sat Jul 31, 2021 10:56 pm
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...
I have always struggled to get my head around this. I use mostly total bond funds. The Fidelity US Bond Fund, FXNAX, for example, has a duration of 6.37 years. But my investment horizon is much longer than that, hopefully 25-30 years or so (I am about five years from retirement).
Does the above mean that my fixed income duration is much too short?
Let's say you're 60 and plan to retire at 65 and live until 100. Then your investment horizon = 5 + (100 -65)/2 = 22.5 years. That's your optimal bond duration at age 60, but decreasing steadily as time passes. Just select a combination of bond funds to achieve this duration and adjust every year.
Okay thanks. But, what if that's too time consuming or complicated for a simpleton like me? Is a total bond fund with an intermediate duration "good enough"?
Probably good enough. Lower price risk and inflation risk, but greater reinvestment risk.
My portfolio has been roughly 60/40 for a long time. As interest rates have dropped I have have gone to 60/20/20. So 60% stocks, 20% bonds (mix of total bond, Muni funds and TIP funds) and 20% cash. I view cash as a part of my fixed income allocation. I also only rebalance with "new" money. So bonuses go to the most under allocated categories.
pascalwager wrote: ↑Sun Aug 01, 2021 1:01 pmLet's say you're 60 and plan to retire at 65 and live until 100. Then your investment horizon = 5 + (100 -65)/2 = 22.5 years.
60, should have been dead at 50 ... shorting bonds
Kidding. Or maybe not. Many firms issue Corporate Bonds so stock exposure provides some element of short bonds exposure. Could lower the portfolio volatility by also buying those bonds, but that's just tying up capital to borrow/lend from/to myself - unproductive.
I keep 10 t0 20K real cash under the mattress incase I run into a real bargain that requires immediate cash. Over the years I have used it for purchasing a vehicle to bailing a friend out of jail.
golfer292 wrote: ↑Sat Jul 31, 2021 7:13 pm
stocks 43% bonds 31% cash 26% retired, present age 72, remembering the 10 year period after I retired in 2000. Hoping we don't have a repeat performance. Remembering that 10 year period is why I have 26% cash. I sleep good at night during present times. I would go to ~ 10% cash if the market drops 40%. Yes, you can call me a market timer. A safe one I believe.
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...ignoring other questions about bond types, of course. But even so, a possible too-low duration might not hurt the overall performance enough to matter in your particular case, depending on personal longevity and portfolio size.
Useful comment...thanks! I'm not there but I need to go there!
Comment Stolen from pascalwager: "If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid."
Last edited by hudson on Tue Aug 03, 2021 10:05 am, edited 1 time in total.
Dandy wrote: ↑Sun Aug 01, 2021 7:03 am
I'm 73 and keep about 25% in FDIC products and money markets, 25% in short term bond funds and the rest of my fixed income in intermediate bonds mostly part of 2 balanced funds but also the inflation protection Securities fund.
At age 73 and retired: (100 - 73) / 2 = 13.5 years investment horizon and also optimal bonds duration. Or you can just use the life-expectancy on the SS tables for duration, which is what I do.
golfer292 wrote: ↑Sat Jul 31, 2021 7:13 pm
stocks 43% bonds 31% cash 26% retired, present age 72, remembering the 10 year period after I retired in 2000. Hoping we don't have a repeat performance. Remembering that 10 year period is why I have 26% cash. I sleep good at night during present times. I would go to ~ 10% cash if the market drops 40%. Yes, you can call me a market timer. A safe one I believe.
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...ignoring other questions about bond types, of course. But even so, a possible too-low duration might not hurt the overall performance enough to matter in your particular case, depending on personal longevity and portfolio size.
Useful comment...thanks! I'm not there but I need to go there!
I increased my average duration via 30-year TIPS. They are going on auction on the 19th. link
golfer292 wrote: ↑Sat Jul 31, 2021 7:13 pm
stocks 43% bonds 31% cash 26% retired, present age 72, remembering the 10 year period after I retired in 2000. Hoping we don't have a repeat performance. Remembering that 10 year period is why I have 26% cash. I sleep good at night during present times. I would go to ~ 10% cash if the market drops 40%. Yes, you can call me a market timer. A safe one I believe.
If the overall duration of your bonds + cash matches your investment horizon (duration matching), then you're rock solid ...ignoring other questions about bond types, of course. But even so, a possible too-low duration might not hurt the overall performance enough to matter in your particular case, depending on personal longevity and portfolio size.
Useful comment...thanks! I'm not there but I need to go there!
I increased my average duration via 30-year TIPS. They are going on auction on the 19th. link
Thanks for the link! Bookmarked. I'll make my move to TIPS beginning January 2024.
I don't hold cash in my investment accounts, except perhaps as a very short-term station for money that I just received via a sale or transfer. My cash-cash is held at my credit union (my bank), which is also where my monthly paychecks were sent (now my Social Security is sent there) and where I also maintain a line of credit (a HELOC). I have a $60K HELOC. That money is immediately accessible, say in an emergency or if I just need immediate cash to cover a transaction of some sort (e.g., one of my kids needs cash quick). I don't have any long-term or short-term debt (no mortgage at present), except for what I might purchase on my credit cards but which I never carry over from month to month.
Added: I do have a Money Market Account (MMA) in my main investment (retirement) account. At present it's 3.7% of my total account value. But it could go to zero, as far as I'm concerned. It's just a depository for small change, available to be reinvested.
Just an update to my earlier post in this thread. I sold some equity ETF shares at a loss in my taxable account in order raise cash to pay a credit card bill. The shares were purchased in late June with quarterly dividends paid by other things in my taxable account. Many folks would not have invested the money originally knowing that a bill was coming due in a few weeks.
I actually came out ahead by selling shares at a loss: I get the tax benefit of tax-loss harvesting, but I exchanged a similar amount of money from a bond ETF to an equity ETF in my tax-deferred account that is substantially similar to the ETF that I sold for a loss in my taxable account. Today the new ETF shares are worth MORE than the shares I sold would have been if I had not sold them.
Win! Win! Of course, it didn't have to work out this way, but generally selling losers has never been a problem for me.
And I didn't even hold the losing shares for 30 days before I sold them and I did not create a wash sale despite having purchased the shares less than 30 days before selling them.
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25% cash here. 5% is emergency fund for 2 years expenses so it's really 20% that I could use to invest more.
However, if stocks went down 40-50% (very possible), I would not feel comfortable being 'all-in' - so it is down to my risk tolerance. If market went down that much, or had a worse decline, I would not have to sell anything or even be tempted to. Guess that is my reason for holding so much cash. Also I'm already well ahead on retirement goals so I do not really care about missing more gains either.