For those who use a 2 year cash(like) buffer, how do you know when to use it?

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JoMoney
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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by JoMoney » Sun Sep 23, 2018 8:13 am

livesoft wrote:
Sun Sep 23, 2018 6:54 am
When was the last time bonds tanked 10%?
...
Broad bond market, 07/01/1979 - 03/31/1980

Corporate bonds Intermediate and longer did in 2008
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

duffer
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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by duffer » Sun Sep 23, 2018 9:03 am

rixer wrote:
Fri Sep 21, 2018 9:41 am
I've been retired for 5 years. Besides my LS holdings, I have a three year ladder of cd's for that moment when the market tanks and I don't want to sell any of my LS fund.
I haven't used them ever so I can't say for sure when I will. I keep them strictly for a meltdown. My portfolio hasn't done too well this year but I will not cash in a cd. I save that for when it's really needed.
Anyway, that's my strategy.
What are "LS holdings"? Do you mean long-short funds?

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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by duffer » Sun Sep 23, 2018 9:07 am

garlandwhizzer wrote:
Fri Sep 21, 2018 11:59 am
The main purpose of cash buffer is to avoid selling equity into market weakness. This is particularly important if you're retired and have no significant source of reliable ongoing income. Market downturns can be sudden and severe and this is when cash in a non-tax sheltered account comes in handy. You don't have to pay taxes to get money as needed and when needed. Most of these market downturns last less than 2 years before equity starts to recover again so you don't need more than 2 - 3 years of living expenses in cash to provide an adequate buffer. Cash has also outperformed bonds YTD and over one year--Vanguard's Prime MMF has outperformed all their bond funds in the current rising rate environment, so you don't lose anything at present being in cash. The other purpose of cash buffer is to have liquid funds available when very compelling investment opportunities arise but most of us are not good at pickling entry points into heavily discounted assets, so this should IMO be extremely rare. If you're Warren Buffett it works, but we aren't Warren. Hope this helps.

Garland Whizzer
This is exactly what I am planning to do and is what I am now setting up. But why not keep most of the 2-3 years of cash in treasury bills with a 3, 6, and 12 month duration? Say, keep 3 months in cash and the rest in bills?

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tuningfork
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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by tuningfork » Sun Sep 23, 2018 11:11 am

I've been in the decumulation phase for 5 years, not yet collecting social security or RMDs. I start each year with approx 2 years of anticipated expenses in cash (savings account). I spend from this account. Actually, I spend from my checking account and I have an automated monthly "paycheck" transfer from savings to checking. Any time I have an unusually large spending month (large tax payments, big home repairs, unexpected emergencies) I manually transfer the amount from savings to checking.

Throughout the year, any capital gains distributions, interest and dividends from taxable accounts, RMDs from inherited IRAs, and any other expected or unexpected lump sums are deposited into the savings account. In December, after the "big" capital gains distributions, I review my spending for the year, decide how much I expect to spend next year, and top off the savings account by selling some of my taxable investments so I start the next year with 2 years expenses in cash again. Depending on which is the most favorable tax treatment, I may sell in late December or early January.

I do not rebalance the cash account throughout the year to try to maintain a 2 year buffer at all times. I start the year at approx 2 years cash and end the year at approx 1 year cash (usually a little more since dividends etc. are being deposited throughout the year).

So essentially, my 2 year cash account funds all my expenses for the year, including a 1 year buffer for emergency or otherwise unanticipated expenses. Although it would be possible to sell equity or bond funds throughout the year as needed, it's so much easier to just make the decision of what to sell once a year. I'm not overly concerned by the relatively small amount of growth I might be missing by starting the year with 2 years of expenses out of the market. I'm also not too concerned about covering for a big crash. If a 2008-like crash happens, I'll either replenish my cash account as usual at the end of the year by selling bonds, or maybe with proceeds from tax loss harvesting, or maybe I'll wait it out for one more year and take it year by year. I'll worry about those details if/when the time comes.

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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by JBTX » Sun Sep 23, 2018 11:30 am

livesoft wrote:
Sun Sep 23, 2018 6:54 am
When was the last time bonds tanked 10%?

What if cash loses 10% of its purchasing power to inflation?
The 10 year treasury lost about 40% of its value in real dollars in a 4 year swing late 70s. That did reverse fairly quickly afterward as inflation tamed and interest rates we down early 80s.

While cash also lost real value, short term money market returns went up with inflation to double digit rates to compensate - less tax effect of interest of course.

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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by JBTX » Sun Sep 23, 2018 11:39 am

bradpevans wrote:
Sun Sep 23, 2018 8:06 am
JBTX wrote:
Sat Sep 22, 2018 11:21 am
marcopolo wrote:
Sat Sep 22, 2018 8:33 am
JBTX wrote:
Fri Sep 21, 2018 11:56 pm

I think the best way to make my point is look at the article and you see that the 100% equity glide path almost does as well as the upward sloping glide paths.
I get a very different takeaway from the article. Maybe it depends on your definition of "almost does as well".

If you look at the table just before his conclusions, he presents the 3 worst starting years for retirement outcomes (1929, 1966, 2000). In most years, the AA, glide path, etc, only affects how much money you leave on the table. It is these problematic scenarios that drive SWR limits. For all three years, the rising glide path provided better SWR than 100% equities. In 2 of the 3 cases it was significantly higher, 4.2% vs 2.6% in 1929, and 3.99% vs. 3.1% in 2000.
That wasn't really my point.

Why start with retirement? Why not develop a lifelong glide path starting when you start investing? I am going to guess if you look at historical outcomes, starting in your 20s and contributing every year until you retire, then using a SWR, that 100% equities the entire time will give the optimum result. But most people here don't follow that.

The reason is these backward looking glide paths in retirement don't take into account the dynamic nature of your risk aversion as you age. While it may be true looking forward when you are 65 that a 30 year glide path that puts you at 100% stocks when you are 85 years old looks the best. However once you actually get 85 years old 100% stocks is not the allocation that optimizes your outcome.
The bond tent is aimed at sequence of return risk, not investor risk aversion that might change with age
In accumulation phase, the sequence of returns is irrelevant, you just keep adding to your investments

In the spend-down phase you are removing money, so the order matters

As your portfolio size decreases (right side of the plot), the “portfolio effect” is smaller, so the equity percentages can go back up without the huge swings in value that might occur when the portfolio is largest (middle of the plot)
I understand the math of sequence of returns. As to a bond tent, it really depends what the allocation is at the right side of the tent. If you end up with a high allocation then I have the same issue with it.

Again, all of these theoretical models are based upon probabilities and outcomes at the beginning of retirement, a static point. Downward sloping glidepaths aren't necessarily meant to optimize statistical outcomes at a fixed point at the start of retirement. They downward slope to reflect the fact that your investment horizon is decreasing, and typical risk aversion models decrease portfolio risk as the duration of investment life decreases.

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Watty
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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by Watty » Sun Sep 23, 2018 12:18 pm

FrankLUSMC wrote:
Fri Sep 21, 2018 9:25 am
I'm still in accumulation phase but thinking about the cash buffer/bucket for a market downturn.
I might have missed it in all the posts but if you are talking about not wanting to sell your stocks "cheap" when the stock market is down then that is not a big concern unless the bond market happens to be down even more at the same time.

The reason is that when the stock market is way down you would be selling bonds and buying stocks to get back to your target asset allocation. If you needed to make a withdraw at the same time then you would also be selling bonds, not stocks, to pay for the withdrawal.

For example of you had a million dollar portfolio that started out with 40% stocks and 60% bonds and the stocks went down 25% then you would have $300K in stocks and $600K in bonds. If you wanted to make a $40K withdrawal for your living expenses then you would sell $40K in bonds because the bonds would be overweight compared to your target asset allocation of 40/60. You would then sell some more bonds and buy more stocks to get back to a 40/60 asset allocation.

It would take a pretty extreme situation to cause you to sell stocks when the stock market is down a lot.

That is part of the beauty of using a simple set asset allocation, it tends to automatically make you sell high and buy low.

That is a bit different then the sequence of returns risk but since there are a lot more bonds in a 40/60 portfolio you should be more concerned about how your bonds are performing relative to inflation when you are early in your retirement.

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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by JBTX » Sun Sep 23, 2018 12:31 pm

marcopolo wrote:
Fri Sep 21, 2018 8:45 pm
willthrill81 wrote:
Fri Sep 21, 2018 7:34 pm
David Jay wrote:
Fri Sep 21, 2018 6:29 pm
willthrill81 wrote:
Fri Sep 21, 2018 5:23 pm
David Jay wrote:
Fri Sep 21, 2018 9:53 am
I expect to retire next year. In my IPS, I call for an increasing equity glideslope (I built a "bond tent" for my early retirement years) of 2% per year.

This takes care of both situations: a downturn or good times because I "pay myself first" (i.e I withdraw expenses as the first re-balance step). In the event of a downturn, I sell more bonds (or even all bonds) because of the need to re-balance to equities. In a good year for stocks, I sell stocks to keep the asset allocation from becoming too stock heavy.

Simplicity.
I would assume that with such a strategy, it would likely be a long time before you would ever sell equities.
No, if the market is up then I will sell equities for living expenses. But because I will be moving the AA towards equities it does bias towards spending bonds.

For example, if equities are up 13% in a year and bonds are up 3%, we have a 10 point gap in return. At 50/50, equity percentage will be up 5% (using round numbers) and bond percentage down 5%. In order to limit the growth in equities to 2%, I must sell some equities to keep equities from exceeding the planned AA.

I should mention that the withdrawals are much higher (as a percentage of portfolio) before filing for SS benefits than they will be after age 70.
That makes sense, but 50/50 isn't much of a 'bond tent' strategy. Kitces' example was much more bond heavy at the point of retirement.
While Kitces has written several posts of rising equity glide paths and "bond tents", I am not sure i have seen a specific starting AA recommended by him for the bond tent.

ERN did a pretty thorough historical analysis of rising equity glide paths (essentially the same as bond tent once retirement starts), and he found that a fairly high (60%) starting allocation followed by a ramp up to close to 100% equity performed the best, historically.

https://earlyretirementnow.com/2017/09/ ... lidepaths/
Maybe a different way for me to say it is this is a mean reversion strategy. You are counting on mean reversion of returns. Thus you increase your equity allocation because historically the market reverts to the mean. The ern article also discusses PE10 as an effective strategy too. Do you buy into that? Again, mean reversion over typical age appropriate asset allocation.

If mean reversion strategies are appropriate, then why only use them in retirement?

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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by OffGridder » Sun Sep 23, 2018 1:38 pm

tuningfork wrote:
Sun Sep 23, 2018 11:11 am
I've been in the decumulation phase for 5 years, not yet collecting social security or RMDs. I start each year with approx 2 years of anticipated expenses in cash (savings account). I spend from this account. Actually, I spend from my checking account and I have an automated monthly "paycheck" transfer from savings to checking. Any time I have an unusually large spending month (large tax payments, big home repairs, unexpected emergencies) I manually transfer the amount from savings to checking.

Throughout the year, any capital gains distributions, interest and dividends from taxable accounts, RMDs from inherited IRAs, and any other expected or unexpected lump sums are deposited into the savings account. In December, after the "big" capital gains distributions, I review my spending for the year, decide how much I expect to spend next year, and top off the savings account by selling some of my taxable investments so I start the next year with 2 years expenses in cash again. Depending on which is the most favorable tax treatment, I may sell in late December or early January.

I do not rebalance the cash account throughout the year to try to maintain a 2 year buffer at all times. I start the year at approx 2 years cash and end the year at approx 1 year cash (usually a little more since dividends etc. are being deposited throughout the year).

So essentially, my 2 year cash account funds all my expenses for the year, including a 1 year buffer for emergency or otherwise unanticipated expenses. Although it would be possible to sell equity or bond funds throughout the year as needed, it's so much easier to just make the decision of what to sell once a year. I'm not overly concerned by the relatively small amount of growth I might be missing by starting the year with 2 years of expenses out of the market. I'm also not too concerned about covering for a big crash. If a 2008-like crash happens, I'll either replenish my cash account as usual at the end of the year by selling bonds, or maybe with proceeds from tax loss harvesting, or maybe I'll wait it out for one more year and take it year by year. I'll worry about those details if/when the time comes.
This is what I do too, except I start the year
with 18 months cash. I also exclude that amount from my Asset Allocation rebalance calculation.
Last edited by OffGridder on Sun Sep 23, 2018 2:00 pm, edited 1 time in total.
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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by bikechuck » Sun Sep 23, 2018 1:39 pm

rixer wrote:
Fri Sep 21, 2018 9:41 am
I've been retired for 5 years. Besides my LS holdings, I have a three year ladder of cd's for that moment when the market tanks and I don't want to sell any of my LS fund.
I haven't used them ever so I can't say for sure when I will. I keep them strictly for a meltdown. My portfolio hasn't done too well this year but I will not cash in a cd. I save that for when it's really needed.
Anyway, that's my strategy.
What are LS holdings and what is a LS fund?

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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by jclear » Sun Sep 23, 2018 1:53 pm

The increasing equity glide paths are a little weird. Fundamentally they don't make sense in a vacuum for an early retiree. If you have 5 so-so years after you FIRE, you're in nearly the same position and your stock allocation shouldn't increase by much (still an early retiree). On ERN there's talk about trying to leave a legacy of 50% or 100% of the starting portfolio. A simple glide path doesn't make sense. It's better to increase the bond allocation late in the retirement period to help preserve the inheritance. This is similar to creating another bond tent in preparation for one's heirs. I prefer to just use an ordinary portfolio suitable to my risks, and make early bequests when I can, so there might not be much in the way of final bequests if I live long.

As to OP's question. I'm very risk indifferent, so I use a standard mean-variance formulation. But I considered a bucket strategy at the time I retired. For risk aware people buckets can be more comfortable. The buckets I was looking at were 3 years in cash, 7 years in bonds, and the rest in equities. The plan was to take the annual spend out of cash at the beginning of the year [if there's not enough in cash, take some from bonds], and use simple rules for replenishing [at the end of the year], something like (in order):
0. Note what the Ratio of stocks:bonds was at the beginning of the [yearplan].
0a. Set new values for the annual spend due to inflation increase.
1. If stocks are up (beyond inflation), replenish cash+bond (moving into bond) [up to the stock excess return beyond inflation], but don't overflow cash+bonds past 10 years.
2. Replenish cash from the excess in bonds (beyond 7 years), but don't overflow cash past 3 years.
3. Rebalance stocks and bonds to Ratio, but only if this means moving from bonds into stocks.
4. Optionally, if stock allocation is running way ahead, consider giving self a pay raise and balancing to a new 3+7+extra, or making bequests.
I used to have a spreadsheet that followed these rules and ran scenarios for different returns/risks, but that was over a decade ago and it's long gone.
Last edited by jclear on Sun Sep 23, 2018 11:44 pm, edited 3 times in total.

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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by catalina355 » Sun Sep 23, 2018 2:07 pm

Watty wrote:
Sun Sep 23, 2018 12:18 pm
FrankLUSMC wrote:
Fri Sep 21, 2018 9:25 am
I'm still in accumulation phase but thinking about the cash buffer/bucket for a market downturn.
I might have missed it in all the posts but if you are talking about not wanting to sell your stocks "cheap" when the stock market is down then that is not a big concern unless the bond market happens to be down even more at the same time.

The reason is that when the stock market is way down you would be selling bonds and buying stocks to get back to your target asset allocation. If you needed to make a withdraw at the same time then you would also be selling bonds, not stocks, to pay for the withdrawal.

For example of you had a million dollar portfolio that started out with 40% stocks and 60% bonds and the stocks went down 25% then you would have $300K in stocks and $600K in bonds. If you wanted to make a $40K withdrawal for your living expenses then you would sell $40K in bonds because the bonds would be overweight compared to your target asset allocation of 40/60. You would then sell some more bonds and buy more stocks to get back to a 40/60 asset allocation.

It would take a pretty extreme situation to cause you to sell stocks when the stock market is down a lot.

That is part of the beauty of using a simple set asset allocation, it tends to automatically make you sell high and buy low.

That is a bit different then the sequence of returns risk but since there are a lot more bonds in a 40/60 portfolio you should be more concerned about how your bonds are performing relative to inflation when you are early in your retirement.
This is a very helpful summary.

In the decumulation phase how would you allocate the fixed income? My concern is the -1.78% return for Total Bond year to date and it may well be lower over the next year or so. Not as bad as a serous decline in stocks but nonetheless an issue if one no longer has an income. In my case I am 60/40 so still have a lot of bonds.

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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by bradpevans » Sun Sep 23, 2018 4:12 pm

JBTX wrote:
Sun Sep 23, 2018 11:39 am
bradpevans wrote:
Sun Sep 23, 2018 8:06 am
JBTX wrote:
Sat Sep 22, 2018 11:21 am
marcopolo wrote:
Sat Sep 22, 2018 8:33 am
JBTX wrote:
Fri Sep 21, 2018 11:56 pm

I think the best way to make my point is look at the article and you see that the 100% equity glide path almost does as well as the upward sloping glide paths.
I get a very different takeaway from the article. Maybe it depends on your definition of "almost does as well".

If you look at the table just before his conclusions, he presents the 3 worst starting years for retirement outcomes (1929, 1966, 2000). In most years, the AA, glide path, etc, only affects how much money you leave on the table. It is these problematic scenarios that drive SWR limits. For all three years, the rising glide path provided better SWR than 100% equities. In 2 of the 3 cases it was significantly higher, 4.2% vs 2.6% in 1929, and 3.99% vs. 3.1% in 2000.
That wasn't really my point.

Why start with retirement? Why not develop a lifelong glide path starting when you start investing? I am going to guess if you look at historical outcomes, starting in your 20s and contributing every year until you retire, then using a SWR, that 100% equities the entire time will give the optimum result. But most people here don't follow that.

The reason is these backward looking glide paths in retirement don't take into account the dynamic nature of your risk aversion as you age. While it may be true looking forward when you are 65 that a 30 year glide path that puts you at 100% stocks when you are 85 years old looks the best. However once you actually get 85 years old 100% stocks is not the allocation that optimizes your outcome.
The bond tent is aimed at sequence of return risk, not investor risk aversion that might change with age
In accumulation phase, the sequence of returns is irrelevant, you just keep adding to your investments

In the spend-down phase you are removing money, so the order matters

As your portfolio size decreases (right side of the plot), the “portfolio effect” is smaller, so the equity percentages can go back up without the huge swings in value that might occur when the portfolio is largest (middle of the plot)
I understand the math of sequence of returns. As to a bond tent, it really depends what the allocation is at the right side of the tent. If you end up with a high allocation then I have the same issue with it.

Again, all of these theoretical models are based upon probabilities and outcomes at the beginning of retirement, a static point. Downward sloping glidepaths aren't necessarily meant to optimize statistical outcomes at a fixed point at the start of retirement. They downward slope to reflect the fact that your investment horizon is decreasing, and typical risk aversion models decrease portfolio risk as the duration of investment life decreases.
I think what you are describing as risk aversion later in life the graphic posted is calling portfolio effect

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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by JBTX » Sun Sep 23, 2018 4:19 pm

bradpevans wrote:
Sun Sep 23, 2018 4:12 pm
JBTX wrote:
Sun Sep 23, 2018 11:39 am
bradpevans wrote:
Sun Sep 23, 2018 8:06 am
JBTX wrote:
Sat Sep 22, 2018 11:21 am
marcopolo wrote:
Sat Sep 22, 2018 8:33 am


I get a very different takeaway from the article. Maybe it depends on your definition of "almost does as well".

If you look at the table just before his conclusions, he presents the 3 worst starting years for retirement outcomes (1929, 1966, 2000). In most years, the AA, glide path, etc, only affects how much money you leave on the table. It is these problematic scenarios that drive SWR limits. For all three years, the rising glide path provided better SWR than 100% equities. In 2 of the 3 cases it was significantly higher, 4.2% vs 2.6% in 1929, and 3.99% vs. 3.1% in 2000.
That wasn't really my point.

Why start with retirement? Why not develop a lifelong glide path starting when you start investing? I am going to guess if you look at historical outcomes, starting in your 20s and contributing every year until you retire, then using a SWR, that 100% equities the entire time will give the optimum result. But most people here don't follow that.

The reason is these backward looking glide paths in retirement don't take into account the dynamic nature of your risk aversion as you age. While it may be true looking forward when you are 65 that a 30 year glide path that puts you at 100% stocks when you are 85 years old looks the best. However once you actually get 85 years old 100% stocks is not the allocation that optimizes your outcome.
The bond tent is aimed at sequence of return risk, not investor risk aversion that might change with age
In accumulation phase, the sequence of returns is irrelevant, you just keep adding to your investments

In the spend-down phase you are removing money, so the order matters

As your portfolio size decreases (right side of the plot), the “portfolio effect” is smaller, so the equity percentages can go back up without the huge swings in value that might occur when the portfolio is largest (middle of the plot)
I understand the math of sequence of returns. As to a bond tent, it really depends what the allocation is at the right side of the tent. If you end up with a high allocation then I have the same issue with it.

Again, all of these theoretical models are based upon probabilities and outcomes at the beginning of retirement, a static point. Downward sloping glidepaths aren't necessarily meant to optimize statistical outcomes at a fixed point at the start of retirement. They downward slope to reflect the fact that your investment horizon is decreasing, and typical risk aversion models decrease portfolio risk as the duration of investment life decreases.
I think what you are describing as risk aversion later in life the graphic posted is calling portfolio effect
I guess the question is, if we typically don't think it is appropriate to allocate 60% -100% stocks with a 5-10 year horizon, perhaps for house down payment, or maybe college, etc, why would it ever be appropriate for an 85 year old retirement savings to be 60-100% stocks (assuming the amount is needed for retirement, and not necessarily needed for legacy/estate planning purposes)

rixer
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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by rixer » Sun Sep 23, 2018 5:24 pm

bikechuck wrote:
Sun Sep 23, 2018 1:39 pm
rixer wrote:
Fri Sep 21, 2018 9:41 am
I've been retired for 5 years. Besides my LS holdings, I have a three year ladder of cd's for that moment when the market tanks and I don't want to sell any of my LS fund.
I haven't used them ever so I can't say for sure when I will. I keep them strictly for a meltdown. My portfolio hasn't done too well this year but I will not cash in a cd. I save that for when it's really needed.
Anyway, that's my strategy.
What are LS holdings and what is a LS fund?
It's the Vanguard Lifestrategy Fund. It's a balanced fund of 4 index funds.

rixer
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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by rixer » Sun Sep 23, 2018 5:25 pm

duffer wrote:
Sun Sep 23, 2018 9:03 am
rixer wrote:
Fri Sep 21, 2018 9:41 am
I've been retired for 5 years. Besides my LS holdings, I have a three year ladder of cd's for that moment when the market tanks and I don't want to sell any of my LS fund.
I haven't used them ever so I can't say for sure when I will. I keep them strictly for a meltdown. My portfolio hasn't done too well this year but I will not cash in a cd. I save that for when it's really needed.
Anyway, that's my strategy.
What are "LS holdings"? Do you mean long-short funds?
Sorry. I should have said Vanguard Lifestrategy Fund.

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Watty
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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by Watty » Sun Sep 23, 2018 8:20 pm

catalina355 wrote:
Sun Sep 23, 2018 2:07 pm
.....
.....
This is a very helpful summary.

In the decumulation phase how would you allocate the fixed income? My concern is the -1.78% return for Total Bond year to date and it may well be lower over the next year or so. Not as bad as a serous decline in stocks but nonetheless an issue if one no longer has an income. In my case I am 60/40 so still have a lot of bonds.
For the most part I just put most my money into a target date fund and let them manage it.

You need to remember that having some bad, or occasionally terrible years is inevitable but the 4% safe withdrawal rate studies were over a lot of bad and terrible years too.

catalina355
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Re: For those who use a 2 year cash(like) buffer, how do you know when to use it?

Post by catalina355 » Mon Sep 24, 2018 12:01 am

Watty wrote:
Sun Sep 23, 2018 8:20 pm
catalina355 wrote:
Sun Sep 23, 2018 2:07 pm
.....
.....
This is a very helpful summary.

In the decumulation phase how would you allocate the fixed income? My concern is the -1.78% return for Total Bond year to date and it may well be lower over the next year or so. Not as bad as a serous decline in stocks but nonetheless an issue if one no longer has an income. In my case I am 60/40 so still have a lot of bonds.
For the most part I just put most my money into a target date fund and let them manage it.

You need to remember that having some bad, or occasionally terrible years is inevitable but the 4% safe withdrawal rate studies were over a lot of bad and terrible years too.
I agree that 4% safe withdrawal rate should work well going forward. I'm using a three fund portfolio so I can't use target date funds now.

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