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Too heavy in cash

Posted: Mon Mar 04, 2013 1:51 pm
by Ski5222
I need some Boglehead advice: Here is the situation:
Age 60, plan on working until 65 current retirement portfolio 1.1 million consisting of trad. IRS's, Roth's and 401-K's

46% in stocks with:

24% large cap
6% small cap
14% International
2% Real Estate ( Vanguard ETF)

Here is the question...where should I invest the remaining. Ultimately I would like to be 55% Stock and 45% Income

The current remaining 54% is:
8% VBTIX
8% VIPSX
1% BSV
37% in cash

any thoughts how to juggle this.....I'm not sure where to put all this cash, over $400,000 especially with the indexes so high right now.

Re: Too heavy in cash

Posted: Mon Mar 04, 2013 2:05 pm
by Call_Me_Op
What's wrong with sitting on a mountain of cash right now? The opportunity cost, at most, is not very great.

Re: Too heavy in cash

Posted: Mon Mar 04, 2013 4:19 pm
by Scooter57
Check out local jumbo cd rates at credit unions that serve your region. Competitive with short-term bond funds with no principal exposure. If rates go up, you can break the cd and only lose some interest. I got 2.07% on a 5 year last mo, w/ a sic month interest loss if I break it after a year.

Re: Too heavy in cash

Posted: Mon Mar 04, 2013 4:22 pm
by Grt2bOutdoors
We've reached a top in the market when I hear someone 5 years away from retirement say they are "too heavy in cash".
Now is not the time to be taking excessive risk - that is what your equity portfolio is for.

Re: Too heavy in cash

Posted: Mon Mar 04, 2013 5:03 pm
by reggiesimpson
I read once that sitting on cash is just timing the market? Hmmmmm? I prefer the other point of view.........Cash is King. Sit back and count it. Its fun!

Re: Too heavy in cash

Posted: Mon Mar 04, 2013 5:16 pm
by ResNullius
I'd move $300K to Vanguard short-term investment grade bond fund. If taxes are a concern, then go with the tax-exempt version. Just my two cents.

Re: Too heavy in cash

Posted: Mon Mar 04, 2013 5:26 pm
by Default User BR
Call_Me_Op wrote:What's wrong with sitting on a mountain of cash right now? The opportunity cost, at most, is not very great.
I've had some cash that I've been needing to get into stocks in taxable, and then switch stocks to the bond fund in the 401(k). I've been dilly-dallying since December. I checked the return on the bond fund today, I've actually made a few bucks[1] by procrastinating.


1. However, NEVER confuse results with strategy.

Brian

Re: Too heavy in cash

Posted: Mon Mar 04, 2013 6:33 pm
by TT

Too heavy in cash


That's a good thing!

Re: Too heavy in cash

Posted: Tue Mar 05, 2013 9:53 am
by john94549
Seems to me a person five years away from retirement and age 60 should be getting more conservative, not less.

That said, there's nothing wrong with cash that's "working". Fixed-income yields are fairly pathetic right now, but even a paltry 1.5% is better than zero. Lotsa threads on fixed-income alternatives.

Re: Too heavy in cash

Posted: Tue Mar 05, 2013 12:18 pm
by MN Finance
IMO, liquidity is king, not cash. Cash has long term 2.5% expected return and right now it's zero. If you have an allocation plan, you need to set up a strategy to shift into the plan over a time frame that's comfortable (it doesn't need to happen in any particular time frame, but a plan at least needs to be in place.) It's not helpful to look at one investment (say cash) and weight it against a specific alternative to that investment alone (like short term bonds, munis, CDs, etc) because we can always find fault with any investment and find a reason why it might not be better. The individual investment decision needs to be made in context of the entire portfolio. For ex: Conceptually someone might easily agree that long term their plan should be about half stocks and half bonds. When looking at the overall plan, it's easy to see a gap if they're not already at 50/50. But it's much harder to say, take cash and put into investment X or Y because if that investment is stocks, you could say, "ya but the market is such and such," or if it's bonds, you could say, "ya, but bonds are this and that..." It's entirely different to look at your cash reserve and say, I'm getting 1% here, but there's 2% somewhere else, because that's truly analyzing what yield you can obtain and preserve capital with the money that will be in cash forever. That logic fails the long term portfolio plan. Investors said several years ago "I can't go into bonds because rates have no place to go but up; I'm better in cash" (for ex.) We'll that may have felt as true as it does today, but that logic was flawed, and still is. Bonds could have double digit returns again in 2013. They certainly might not, of course, but the point is that we have no idea. Now, granted, the downside of failing to implement your plan is not mission critical in the near term, but at some point it needs to happen. If you want to find a better time to invest in a particular investment, that time might be a decade away and you've lost the opportunity cost of investing the money the way it should be. All this said, I agree entirely with the arguments that say future bond returns will be far below historical averages, but we have no way to predict this. If we did have any reasonable ability to make judgments about he markets, our investments would be 100% in the investment we knew to be best this year and diversification would be non-existent.

Re: Too heavy in cash

Posted: Tue Mar 05, 2013 1:05 pm
by Dandy
I think most people are concerned about bonds and interest rate risks. No one knows the "right" answer. Many say stay the course i.d. stick with your target bond fund like Total bond fund and when interest rates rise the fund will gradually recover by buying higher yielding bonds and having the lower yielding bonds mature.

I have divided my fixed income allocation almost equally between 1. CDs, EE/HH/Ibonds, Money Mkts (i.e no risk to investment vehicles) 2. short term bond funds 3. Intermediate bond funds and Inflation Protection fund. So, 2/3 is relatively safe and 1/3 with moderate risk. That is giving up some yield and avoiding some pain if/when interest rates rise. So far I am comfortable - I am looking for my fixed income allocation more for stability than for yield.

Re: Too heavy in cash

Posted: Tue Mar 05, 2013 1:19 pm
by hsv_climber
Grt2bOutdoors wrote:We've reached a top in the market when I hear someone 5 years away from retirement say they are "too heavy in cash".
Now is not the time to be taking excessive risk - that is what your equity portfolio is for.

Cramer is saying that NOW is an excellent time to buy...:
http://finance.yahoo.com/news/cramer-de ... 07338.html

Re: Too heavy in cash

Posted: Tue Mar 05, 2013 1:22 pm
by Blues
Dandy wrote:I have divided my fixed income allocation almost equally between 1. CDs, EE/HH/Ibonds, Money Mkts (i.e no risk to investment vehicles) 2. short term bond funds 3. Intermediate bond funds and Inflation Protection fund. So, 2/3 is relatively safe and 1/3 with moderate risk. That is giving up some yield and avoiding some pain if/when interest rates rise. So far I am comfortable - I am looking for my fixed income allocation more for stability than for yield.
We have a similar take to yours, Dandy, if implemented slightly differently:

1. TSP "G" Fund, CD's, Money Market ~ 50 %
2. Short-Term Bond Fund ~ 30%
3. Total Bond Market Fund ~ 20%

Since my pension more than covers our monthly expenses and allows for further saving / investment, we are comfortable with that allocation to our "fixed income" investments and cap our equity investments at 25% of the overall portfolio.
(We will most likely employ Larry Swedroe's "asymmetrical balancing" method when equities exceed their upper limit but not necessarily rebalance into equities should they fall below the threshold our IPS allotted.)

Re: Too heavy in cash

Posted: Tue Mar 05, 2013 1:40 pm
by Grt2bOutdoors
hsv_climber wrote:
Grt2bOutdoors wrote:We've reached a top in the market when I hear someone 5 years away from retirement say they are "too heavy in cash".
Now is not the time to be taking excessive risk - that is what your equity portfolio is for.

Cramer is saying that NOW is an excellent time to buy...:
http://finance.yahoo.com/news/cramer-de ... 07338.html
Buffett says "be fearful when others are greedy". I think I'm getting close to reaching a re-balancing band. Will check after tonight's close.

Re: Too heavy in cash

Posted: Tue Mar 05, 2013 1:58 pm
by WolfpackFan
hsv_climber wrote:
Grt2bOutdoors wrote:We've reached a top in the market when I hear someone 5 years away from retirement say they are "too heavy in cash".
Now is not the time to be taking excessive risk - that is what your equity portfolio is for.

Cramer is saying that NOW is an excellent time to buy...:
http://finance.yahoo.com/news/cramer-de ... 07338.html
I dunno... we better wait for it to go just a bit higher just to be sure

Re: Too heavy in cash

Posted: Tue Mar 05, 2013 2:12 pm
by Grt2bOutdoors
WolfpackFan wrote:
hsv_climber wrote:
Grt2bOutdoors wrote:We've reached a top in the market when I hear someone 5 years away from retirement say they are "too heavy in cash".
Now is not the time to be taking excessive risk - that is what your equity portfolio is for.

Cramer is saying that NOW is an excellent time to buy...:
http://finance.yahoo.com/news/cramer-de ... 07338.html
I dunno... we better wait for it to go just a bit higher just to be sure
Bulls and bears make money, pigs get slaughtered.