Bucket or Rebalance ?

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Bigfish
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Bucket or Rebalance ?

Post by Bigfish » Thu Nov 23, 2017 7:24 am

In the past I have kept two years of basic expenses (about $100K) in Vanguard's Money Market Fund. I am considering putting the money in my four fund portfolio and withdrawing my annual expenses in January by rebalancing instead of keeping that much cash. My asset allocations is 50/50. Good idea?
BF

3funder
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Re: Bucket or Rebalance ?

Post by 3funder » Thu Nov 23, 2017 7:48 am

Sure; I don't see any problem with doing so.

retiredjg
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Re: Bucket or Rebalance ?

Post by retiredjg » Thu Nov 23, 2017 8:12 am

It's not a bad idea. People have different preferences on this subject and you should do what you feel most comfortable with.

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ruralavalon
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Re: Bucket or Rebalance ?

Post by ruralavalon » Thu Nov 23, 2017 8:49 am

Bigfish wrote:
Thu Nov 23, 2017 7:24 am
In the past I have kept two years of basic expenses (about $100K) in Vanguard's Money Market Fund. I am considering putting the money in my four fund portfolio and withdrawing my annual expenses in January by rebalancing instead of keeping that much cash. My asset allocations is 50/50. Good idea?
BF
This is a matter of personal preference, do what is most comfortable to you.

We are 72, retired, with a 50/50 asset allocation. My personal preference has always been to keep just a couple of months expenses (net of Social Security) in cash, and keep everything else invested in our four fund asset allocation.
Last edited by ruralavalon on Thu Nov 23, 2017 9:01 am, edited 1 time in total.
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randomizer
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Re: Bucket or Rebalance ?

Post by randomizer » Thu Nov 23, 2017 8:54 am

Obviously it depends on your immediate need for liquidity and tolerance to bear a temporary(?) drawdown.

Personally I want as much invested in my kind-of three-fund portfolio as possible, so I have typically kept a very small emergency fund in a high-yield online bank account. When we bought a house and got a mortgage though, I found I slept better with a bigger emergency fund, so I changed.

Point is, many approaches are legit and which one works for you may change over time.

livesoft
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Re: Bucket or Rebalance ?

Post by livesoft » Thu Nov 23, 2017 8:59 am

I wonder what Richard Thaler says about a cash bucket.
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overthought
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Re: Bucket or Rebalance ?

Post by overthought » Thu Nov 23, 2017 8:59 am

I recently read an article that argues against keeping a cash cushion in the portfolio at all.

During bull markets that money is at rest and you're missing out on the main source of growth that prevents portfolio depletion in the long run. With a small/short bear market you could pull from bonds instead (essentially rebalancing into stocks, which is what you're supposed to do anyway) and if a big bear market hits, the inflation-adjusted recovery time will likely be much longer than two years anyway and you'll end up drawing down your bonds either way.

Keeping some cash for emergency fund is different, of course, so you should size that according to your needs and comfort level. It sounds like 2 years' expenses is more than you need to sleep at night (hence your question), but you may want to think carefully about what your actual need is rather than just jumping to 1 year.

dbr
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Re: Bucket or Rebalance ?

Post by dbr » Thu Nov 23, 2017 9:19 am

Considering that annual withdrawals are perhaps (roughly) 5% of current portfolio value, it is probably neither harmful nor helpful to keep that amount in cash all time. Double that amount is a pointless cash drag on returns. Anyway, if one is going to maintain such a reserve you still have to withdraw from assets sometime to fill that bucket. If you are planning to make a really big withdrawal, like half your assets or something, planning ahead might make more sense. Also short downturns are irrelevant and long term market failures are not going to be helped by keeping two years in cash.

bigskyguy
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Re: Bucket or Rebalance ?

Post by bigskyguy » Thu Nov 23, 2017 10:16 am

Now 68 and still working very part-time, I've continually come back to the concepts of Liability Matching, return of investment, and "need to take risk." Understanding one's own circumstances, intuition, as well as comfort zone is vastly more important than any advice any of us can impart. And realize that all of the advice imparted on blogs, including this one, are based upon the poster's personal circumstances and constructs, not yours. I personally find that the more I read others perspectives, the more I regress to my own.

Happy Holiday.

Joe

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WoodSpinner
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Re: Bucket or Rebalance ?

Post by WoodSpinner » Thu Nov 23, 2017 11:00 am

Bigfish wrote:
Thu Nov 23, 2017 7:24 am
In the past I have kept two years of basic expenses (about $100K) in Vanguard's Money Market Fund. I am considering putting the money in my four fund portfolio and withdrawing my annual expenses in January by rebalancing instead of keeping that much cash. My asset allocations is 50/50. Good idea?
BF
One thing you might consider is a bit of a laddered approach for the Fixed Income side to match your expected needs. For instance:

Cash (CD, MM etc.) - 1 year
Short Term Bond Fund , 1-2 year duration (BSV, VCSH, etc.)
Intermediate Bonds (BND, BIV etc.).

This gives you some flexibility beyond simple rebalancing.

Good luck 8-)

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cfs
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Re: Bucket or Rebalance ?

Post by cfs » Thu Nov 23, 2017 12:51 pm

I know it is tempting after the pre/post-election market rallies, but if things are working then I would NOT change a thing. Have a Happy Thanksgiving, Merry Christmas, and thanks for reading.
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dwickenh
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Re: Bucket or Rebalance ?

Post by dwickenh » Thu Nov 23, 2017 1:18 pm

WoodSpinner wrote:
Thu Nov 23, 2017 11:00 am
Bigfish wrote:
Thu Nov 23, 2017 7:24 am
In the past I have kept two years of basic expenses (about $100K) in Vanguard's Money Market Fund. I am considering putting the money in my four fund portfolio and withdrawing my annual expenses in January by rebalancing instead of keeping that much cash. My asset allocations is 50/50. Good idea?
BF
One thing you might consider is a bit of a laddered approach for the Fixed Income side to match your expected needs. For instance:

Cash (CD, MM etc.) - 1 year
Short Term Bond Fund , 1-2 year duration (BSV, VCSH, etc.)
Intermediate Bonds (BND, BIV etc.).

This gives you some flexibility beyond simple rebalancing.

Good luck 8-)
+1, this is my method also. Not saying it is better, but it works for me so far.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

mmcmonster
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Re: Bucket or Rebalance ?

Post by mmcmonster » Thu Nov 23, 2017 2:05 pm

Bigfish wrote:
Thu Nov 23, 2017 7:24 am
In the past I have kept two years of basic expenses (about $100K) in Vanguard's Money Market Fund. I am considering putting the money in my four fund portfolio and withdrawing my annual expenses in January by rebalancing instead of keeping that much cash. My asset allocations is 50/50. Good idea?
BF
There was a series of posts on the forum from one of the regulars. It was during the 2008 crash and he was withdrawing money to live on and he was panicking and contemplating liquidating his assets.

In retrospect it looked like he would have (psychologically) fared better if he had a year's cushion and just not looked at his investments.

Just a point of view.

sandramjet
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Re: Bucket or Rebalance ?

Post by sandramjet » Thu Nov 23, 2017 2:59 pm

livesoft wrote:
Thu Nov 23, 2017 8:59 am
I wonder what Richard Thaler says about a cash bucket.
Why should we care what he (or anyone else) says about it? I get that it might not be some theoretical best practice, but as someone else says "there are many roads to Dublin".

livesoft
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Re: Bucket or Rebalance ?

Post by livesoft » Thu Nov 23, 2017 3:02 pm

^There are more than 2000 discussions at bogleheads.org that have the word "best" in the thread title. Somebody does care about best things, but I don't disagree with you.
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Bigfish
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Re: Bucket or Rebalance ?

Post by Bigfish » Thu Nov 23, 2017 7:18 pm

Thank you for all the various thoughts regarding my post. Again this is the reason I rely on Bogleheads for making some of my financial decisions and gleaning other information from the various forums. Helpful, pertinent, and expert advice. Oh yeah and its free. :)
Happy Holiday.
BF
Last edited by Bigfish on Thu Nov 23, 2017 8:59 pm, edited 1 time in total.

flyingaway
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Re: Bucket or Rebalance ?

Post by flyingaway » Thu Nov 23, 2017 7:43 pm

Bigfish wrote:
Thu Nov 23, 2017 7:24 am
In the past I have kept two years of basic expenses (about $100K) in Vanguard's Money Market Fund. I am considering putting the money in my four fund portfolio and withdrawing my annual expenses in January by rebalancing instead of keeping that much cash. My asset allocations is 50/50. Good idea?
BF
If your allocation is 50/50, it does not matter that much.

dbr
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Re: Bucket or Rebalance ?

Post by dbr » Fri Nov 24, 2017 9:26 am

livesoft wrote:
Thu Nov 23, 2017 3:02 pm
^There are more than 2000 discussions at bogleheads.org that have the word "best" in the thread title. Somebody does care about best things, but I don't disagree with you.
"Best" is a word used like "safe" and "risk." It doesn't mean anything and is really just a syntactical construction used to form a question. What the poster really wants to know often takes some effort to tease out.

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