How to account for money under the mattress in PV

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MIretired
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How to account for money under the mattress in PV

Post by MIretired » Sat Feb 08, 2020 1:44 am

Is there a way to make a backtest in portfoliovisualizer that is 60% equities(36 TSM + 24 ISM) + 40% cash under the mattress?

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MIretired
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Re: How to account for money under the mattress in PV

Post by MIretired » Sat Feb 08, 2020 2:08 am

Nevermind. I think you just have to treat the 60% equity portion as the whole/100% portfolio. Then at the end of time periods, add back in the un-inflation adjusted cash. Like a 40% side contribution to an emergency fund 'under the mattress' and 60% into an equity port.

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Re: How to account for money under the mattress in PV

Post by watchnerd » Sat Feb 08, 2020 2:15 am

What in the world kind of real life situation are you trying to simulate?
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Re: How to account for money under the mattress in PV

Post by MIretired » Sat Feb 08, 2020 2:22 am

Could be to prove that plain cash diversifies a portfolio.
As in another thread here :
viewtopic.php?f=10&t=302967&p=5007204#p5007204

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Re: How to account for money under the mattress in PV

Post by watchnerd » Sat Feb 08, 2020 2:37 am

MIretired wrote:
Sat Feb 08, 2020 2:22 am
Could be to prove that plain cash diversifies a portfolio.
As in another thread here :
viewtopic.php?f=10&t=302967&p=5007204#p5007204
I understand modeling cash in a portfolio.

What I didn't understand was the under the mattress bit, or why you didn't just simulate it as 60% stocks / 40% CASHX in PV.
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MIretired
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Re: How to account for money under the mattress in PV

Post by MIretired » Sat Feb 08, 2020 3:02 am

watchnerd wrote:
Sat Feb 08, 2020 2:37 am
MIretired wrote:
Sat Feb 08, 2020 2:22 am
Could be to prove that plain cash diversifies a portfolio.
As in another thread here :
viewtopic.php?f=10&t=302967&p=5007204#p5007204
I understand modeling cash in a portfolio.

What I didn't understand was the under the mattress bit, or why you didn't just simulate it as 60% stocks / 40% CASHX in PV.
Because of the bond bull market. Which also affected Rf rate.

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Re: How to account for money under the mattress in PV

Post by Hydromod » Sat Feb 08, 2020 7:56 am

You can create an external file for an asset that has no returns and import it as your own fund.

I don’t know if imported funds will be a free option under the subscription model, probably not.

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Re: How to account for money under the mattress in PV

Post by rascott » Sat Feb 08, 2020 8:10 am

This makes no sense. When people talk cash they mean putting money in perhaps something like t bills, CDs or high yield savings or money markets....Why would you intentionally keep cash that earns 0%?

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Re: How to account for money under the mattress in PV

Post by JoeRetire » Sat Feb 08, 2020 8:14 am

If you have 40% of your portfolio under your mattress you either have a very small portfolio, or aren't sleeping very well.
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Re: How to account for money under the mattress in PV

Post by firebirdparts » Sat Feb 08, 2020 9:54 am

rascott wrote:
Sat Feb 08, 2020 8:10 am
This makes no sense. When people talk cash they mean putting money in perhaps something like t bills, CDs or high yield savings or money markets....Why would you intentionally keep cash that earns 0%?
CASHX treats cash as one particular example of "what people mean" and you can't change that. To turn that off, you have to make your own data.
A fool and your money are soon partners

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Re: How to account for money under the mattress in PV

Post by AerialWombat » Sat Feb 08, 2020 11:04 am

firebirdparts wrote:
Sat Feb 08, 2020 9:54 am
rascott wrote:
Sat Feb 08, 2020 8:10 am
This makes no sense. When people talk cash they mean putting money in perhaps something like t bills, CDs or high yield savings or money markets....Why would you intentionally keep cash that earns 0%?
CASHX treats cash as one particular example of "what people mean" and you can't change that. To turn that off, you have to make your own data.
What data set does CASHX use in PV?

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Re: How to account for money under the mattress in PV

Post by nisiprius » Sat Feb 08, 2020 11:39 am

Why not try contacting PortfolioVisualizer and asking? To my knowledge at least two Bogleheads posters have reported having PortfolioVisualizer implement requested features: 1) inflation-adjusted option in the "backtest portfolio" section; 2) the "chart from origin" option in efficient frontier charts.
AerialWombat wrote:
Sat Feb 08, 2020 11:04 am
firebirdparts wrote:
Sat Feb 08, 2020 9:54 am
rascott wrote:
Sat Feb 08, 2020 8:10 am
This makes no sense. When people talk cash they mean putting money in perhaps something like t bills, CDs or high yield savings or money markets....Why would you intentionally keep cash that earns 0%?
CASHX treats cash as one particular example of "what people mean" and you can't change that. To turn that off, you have to make your own data.
What data set does CASHX use in PV?
PortfolioVisualizer is admirably open about its data sources; see, for example, https://www.portfoliovisualizer.com/faq .
Treasury Bills / Cash - Risk Free Return Benchmark
3-month Treasury Bills (FRED Data) 1972+
There are a couple of motivations for wanting a non-interest-paying cash option in PV.

First, "cash" is often used as a strawman by people trying to make the case for investing in securities--that is, convincing people to take their money out of the bank and put it into a brokerage or advisory account. Statements suggesting that you will be savaged by inflation, for example, are only valid if you assume that "cash" means zero interest, or at any rate not normal, competitive interest.

Second, some people do hold physical currency, or have money in checkings and savings account so lousy that the interest rate is effectively zero. There are a variety of reasons for doing this. For example, the same "survivalist" considerations that lead to holding physical gold might suggest holding some physical currency; it all depends on the imagined crisis.

Third, there's a range of reasonable assumptions under which the future returns of T-bills are unknown, but the future returns of physical cash are known--0.000%. In evaluating a "worst-case scenario" or being "prudently pessimistic," one might prefer to look at 0.000% return rather than using an estimate for T-bills that might be overoptimistic.
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Re: How to account for money under the mattress in PV

Post by kim.gold » Sat Feb 08, 2020 11:49 am

CASHX which was suggested above pays LIBOR rate interest, so it is not really "money under the mattress".

Read "Importing Custom Data Series and Benchmarks" in https://www.portfoliovisualizer.com/faq. Once you have a PV account, you can actually create a CASHZERO return series and import it. It will behave like a pure zero return security and you can use it anywhere.

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Re: How to account for money under the mattress in PV

Post by watchnerd » Sat Feb 08, 2020 4:02 pm

MIretired wrote:
Sat Feb 08, 2020 3:02 am


Because of the bond bull market. Which also affected Rf rate.
I don't get why you'd bother.

Actual physical cash at 40%?

Who does this and why bother simulating it?
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Re: How to account for money under the mattress in PV

Post by LiveSimple » Sat Feb 08, 2020 4:04 pm

80% equities and 20% bonds
Your money your calculations and your asset allocation, enjoy !!!!

Or 70% equities and 30% bond

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Re: How to account for money under the mattress in PV

Post by watchnerd » Sat Feb 08, 2020 4:09 pm

LiveSimple wrote:
Sat Feb 08, 2020 4:04 pm
80% equities and 20% bonds
Your money your calculations and your asset allocation, enjoy !!!!

Or 70% equities and 30% bond
?????

I have no idea what you mean by this....
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Re: How to account for money under the mattress in PV

Post by MotoTrojan » Sat Feb 08, 2020 4:17 pm

MIretired wrote:
Sat Feb 08, 2020 3:02 am
watchnerd wrote:
Sat Feb 08, 2020 2:37 am

I understand modeling cash in a portfolio.

What I didn't understand was the under the mattress bit, or why you didn't just simulate it as 60% stocks / 40% CASHX in PV.
Because of the bond bull market. Which also affected Rf rate.
You think that money market funds or savings accounts are going to start costing negative interest rates?

If you really want to model cash under the mattress, but include rebalancing and contributions, you can make your own data file quite easily in PV and just have 0% return for every month. Then you could back-test a life of accumulating funds and maintaining a 60/40 allocation.

Again though, I think you may be confused about CASHX; there is no way it underperforms mattress cash.

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Re: How to account for money under the mattress in PV

Post by dekecarver » Sat Feb 08, 2020 4:52 pm

In regards to keeping money under the mattress; if its cash earned that was not taxed then it serves as peace of mind for various reasons and a certain amount of inflation built in depending on length of time kept under mattress; just ask some of the older generations that saw what happened to their cash held by institutions and or some foreign govt.

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Re: How to account for money under the mattress in PV

Post by watchnerd » Sat Feb 08, 2020 5:04 pm

dekecarver wrote:
Sat Feb 08, 2020 4:52 pm
In regards to keeping money under the mattress; if its cash earned that was not taxed then it serves as peace of mind for various reasons and a certain amount of inflation built in depending on length of time kept under mattress; just ask some of the older generations that saw what happened to their cash held by institutions and or some foreign govt.
So tax cheating and/or money laundering?
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Re: How to account for money under the mattress in PV

Post by TropikThunder » Sat Feb 08, 2020 6:34 pm

I think this is the weirdest thread on BH I've ever read (but I've only been on here since 2016, so .......

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Re: How to account for money under the mattress in PV

Post by MIretired » Sat Feb 08, 2020 9:48 pm

Hydromod wrote:
Sat Feb 08, 2020 7:56 am
You can create an external file for an asset that has no returns and import it as your own fund.

I don’t know if imported funds will be a free option under the subscription model, probably not.
That would have been the best way.It didn't occur to me, though.
I could then have the ability to easily vary the AA.
I had a pretty good way to get the correct result. But, I ended up conflating the result because I didn't follow through with accounting for inflation in the two separate portfolios.

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Re: How to account for money under the mattress in PV

Post by Hydromod » Sat Feb 08, 2020 11:07 pm

MIretired wrote:
Sat Feb 08, 2020 9:48 pm
Hydromod wrote:
Sat Feb 08, 2020 7:56 am
You can create an external file for an asset that has no returns and import it as your own fund.

I don’t know if imported funds will be a free option under the subscription model, probably not.
That would have been the best way.It didn't occur to me, though.
I could then have the ability to easily vary the AA.
I had a pretty good way to get the correct result. But, I ended up conflating the result because I didn't follow through with accounting for inflation in the two separate portfolios.
Wasn’t mine either, just passing along the trick. Lots of smart people here.

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Re: How to account for money under the mattress in PV

Post by dekecarver » Sun Feb 09, 2020 9:05 am

watchnerd wrote:
Sat Feb 08, 2020 5:04 pm
dekecarver wrote:
Sat Feb 08, 2020 4:52 pm
In regards to keeping money under the mattress; if its cash earned that was not taxed then it serves as peace of mind for various reasons and a certain amount of inflation built in depending on length of time kept under mattress; just ask some of the older generations that saw what happened to their cash held by institutions and or some foreign govt.
So tax cheating and/or money laundering?
Call it what you want, bottom line is, that is what some folks (individuals and business owners) have done for years whether it be selling hay bales for cash, cutting firewood for sell, or pocketing every third/fourth cash receipt from the restaurant till. Tax cheating and/or money laundering; I guess it depends on how you look at. Does the $ amount make a difference of whether it is or isn't?

On another note, it could be post tax cash that is kept under the mattress, some folks still don't trust putting all their $$ in financial institutions. When fixed rates pay nothing, whats to lose by keeping cash under the mattress aside from potential gains from investing in other investments?

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Re: How to account for money under the mattress in PV

Post by watchnerd » Sun Feb 09, 2020 11:27 am

dekecarver wrote:
Sun Feb 09, 2020 9:05 am

Call it what you want, bottom line is, that is what some folks (individuals and business owners) have done for years whether it be selling hay bales for cash, cutting firewood for sell, or pocketing every third/fourth cash receipt from the restaurant till. Tax cheating and/or money laundering; I guess it depends on how you look at. Does the $ amount make a difference of whether it is or isn't?
Yeah, that's flat out tax cheating on a big scale....every third or fourth receipt is 25-33% of the sales.

So now Bogleheads can have tax-deferred, taxable, and tax-cheat asset allocations.... :shock: :confused
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Re: How to account for money under the mattress in PV

Post by retire2022 » Sun Feb 09, 2020 11:31 am

MIretired wrote:
Sat Feb 08, 2020 1:44 am
Is there a way to make a backtest in portfoliovisualizer that is 60% equities(36 TSM + 24 ISM) + 40% cash under the mattress?
money market in https://investor.vanguard.com/mutual-fu ... file/VMMXX

see the Twilight Zone story on bank robbers in a time machine :mrgreen: :moneybag

https://en.wikipedia.org/wiki/The_Rip_Van_Winkle_Caper

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Re: How to account for money under the mattress in PV

Post by afan » Sun Feb 09, 2020 1:58 pm

Or, depending on circumstances, a tax exempt money market fund.
Or in normal times, a short term treasury or tax exempt bond fund.
I don't know why one would model a portfolio with 40% in an asset with zero nominal return.
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Re: How to account for money under the mattress in PV

Post by watchnerd » Sun Feb 09, 2020 2:14 pm

afan wrote:
Sun Feb 09, 2020 1:58 pm
Or, depending on circumstances, a tax exempt money market fund.
Or in normal times, a short term treasury or tax exempt bond fund.
I don't know why one would model a portfolio with 40% in an asset with zero nominal return.
Me, neither.

You don't need to model it to know that having 40% in zero nominal returns is a goofy thing to do.
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Re: How to account for money under the mattress in PV

Post by Vegomatic » Sun Feb 09, 2020 2:25 pm

If you do a [BackTest Portfolio], where one portfolio = CASHX @ 100% you will see that it looks like 'CASHX' is earning a short term interest rate.

In 2019, this rate was 2.13%. This looks like something like the average one year UST, more or less. (Couldn't find an explanation for 'CASHX', but doesn't mean that it wasn't there.)

For what it's worth, the return on the VG Prime Money Market [VMMXX] in 2019 was 2.23%.


PortfolioVisualizer 2019 CASHX @ 2.13%
https://www.portfoliovisualizer.com/bac ... ion1_1=100

One Year Treasury Yields 2019 Average @ 2.05%
https://www.macrotrends.net/2492/1-year ... ield-chart

Vanguard Money Market 2019 at 2.23%
https://institutional.vanguard.com/iippdf/pdfs/FS30.pdf

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Re: How to account for money under the mattress in PV

Post by mattsmith321 » Thu Feb 13, 2020 12:47 pm

watchnerd wrote:
Sat Feb 08, 2020 4:02 pm
I don't get why you'd bother.

Actual physical cash at 40%?

Who does this and why bother simulating it?
Not the OP and don't have any insight into specifically why they would want to do it. However, I am one of five siblings and I have recently taken over managing my mom's financial affairs. When I took things over, there was literally a large chunk of cash sitting in a no interest checking account. Given my position and authority, it was fairly easy to make changes to get that money into something earning interest. If I didn't have the authority and were needing to make a case to my mom or siblings, it would be more convenient to use PV to model that specific scenario of no interest checking versus CASHX. Using CASHX would paint a slightly more positive picture than what I would want to help make the justification to move into something else.

From our perspective it is easy to think that no one would ever just leave money in the bank and not earn anything. However, we haven't walked in everyone's shoes. In my dad's case, he accumulated a lot of stock in the company he retired from. That stock served him well over the years and actually made him feel quite wealthy at one point. And then in the late 90's it dropped 75% in a matter of months. He eventually got something out and probably realized the error of his lack of diversification, but I can guarantee you it left a mark. Granted, the answer isn't to go completely the opposite extreme, but who are we to judge?

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Re: How to account for money under the mattress in PV

Post by mattsmith321 » Thu Feb 13, 2020 1:21 pm

mattsmith321 wrote:
Thu Feb 13, 2020 12:47 pm
Not the OP and don't have any insight into specifically why they would want to do it. However, I am one of five siblings and I have recently taken over managing my mom's financial affairs. When I took things over, there was literally a large chunk of cash sitting in a no interest checking account. Given my position and authority, it was fairly easy to make changes to get that money into something earning interest. If I didn't have the authority and were needing to make a case to my mom or siblings, it would be more convenient to use PV to model that specific scenario of no interest checking versus CASHX. Using CASHX would paint a slightly more positive picture than what I would want to help make the justification to move into something else.

From our perspective it is easy to think that no one would ever just leave money in the bank and not earn anything. However, we haven't walked in everyone's shoes. In my dad's case, he accumulated a lot of stock in the company he retired from. That stock served him well over the years and actually made him feel quite wealthy at one point. And then in the late 90's it dropped 75% in a matter of months. He eventually got something out and probably realized the error of his lack of diversification, but I can guarantee you it left a mark. Granted, the answer isn't to go completely the opposite extreme, but who are we to judge?
To follow this up a little bit, a 100% CASHX portfolio from 1985 to 2020 has a CAGR of 3.37% and Final Balance of $32,007. Inflation adjusted the Final Balance is $13,115 which is still a net gain. That chart would not help me very much if I were trying to explain to someone how inflation eats away at the purchasing power of your money even if it is sitting in a bank.

When I upload a CASHZERO data series with 0.00% return for every month, the inflation adjusted results for 100% CASHZERO from 1985 through 2018 has a Final Balance of $4,191. That picture would really help me move someone off their position of keeping money in a no-interest checking account or under their mattress.

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Re: How to account for money under the mattress in PV

Post by Trader Joe » Thu Feb 13, 2020 1:28 pm

MIretired wrote:
Sat Feb 08, 2020 1:44 am
Is there a way to make a backtest in portfoliovisualizer that is 60% equities(36 TSM + 24 ISM) + 40% cash under the mattress?
I highly recommend not keeping cash under the mattress.

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Re: How to account for money under the mattress in PV

Post by watchnerd » Thu Feb 13, 2020 2:09 pm

mattsmith321 wrote:
Thu Feb 13, 2020 1:21 pm
mattsmith321 wrote:
Thu Feb 13, 2020 12:47 pm
Not the OP and don't have any insight into specifically why they would want to do it. However, I am one of five siblings and I have recently taken over managing my mom's financial affairs. When I took things over, there was literally a large chunk of cash sitting in a no interest checking account. Given my position and authority, it was fairly easy to make changes to get that money into something earning interest. If I didn't have the authority and were needing to make a case to my mom or siblings, it would be more convenient to use PV to model that specific scenario of no interest checking versus CASHX. Using CASHX would paint a slightly more positive picture than what I would want to help make the justification to move into something else.

From our perspective it is easy to think that no one would ever just leave money in the bank and not earn anything. However, we haven't walked in everyone's shoes. In my dad's case, he accumulated a lot of stock in the company he retired from. That stock served him well over the years and actually made him feel quite wealthy at one point. And then in the late 90's it dropped 75% in a matter of months. He eventually got something out and probably realized the error of his lack of diversification, but I can guarantee you it left a mark. Granted, the answer isn't to go completely the opposite extreme, but who are we to judge?
To follow this up a little bit, a 100% CASHX portfolio from 1985 to 2020 has a CAGR of 3.37% and Final Balance of $32,007. Inflation adjusted the Final Balance is $13,115 which is still a net gain. That chart would not help me very much if I were trying to explain to someone how inflation eats away at the purchasing power of your money even if it is sitting in a bank.

When I upload a CASHZERO data series with 0.00% return for every month, the inflation adjusted results for 100% CASHZERO from 1985 through 2018 has a Final Balance of $4,191. That picture would really help me move someone off their position of keeping money in a no-interest checking account or under their mattress.
mattsmith321 wrote:
Thu Feb 13, 2020 12:47 pm
watchnerd wrote:
Sat Feb 08, 2020 4:02 pm
I don't get why you'd bother.

Actual physical cash at 40%?

Who does this and why bother simulating it?
Not the OP and don't have any insight into specifically why they would want to do it. However, I am one of five siblings and I have recently taken over managing my mom's financial affairs. When I took things over, there was literally a large chunk of cash sitting in a no interest checking account. Given my position and authority, it was fairly easy to make changes to get that money into something earning interest. If I didn't have the authority and were needing to make a case to my mom or siblings, it would be more convenient to use PV to model that specific scenario of no interest checking versus CASHX. Using CASHX would paint a slightly more positive picture than what I would want to help make the justification to move into something else.

From our perspective it is easy to think that no one would ever just leave money in the bank and not earn anything. However, we haven't walked in everyone's shoes. In my dad's case, he accumulated a lot of stock in the company he retired from. That stock served him well over the years and actually made him feel quite wealthy at one point. And then in the late 90's it dropped 75% in a matter of months. He eventually got something out and probably realized the error of his lack of diversification, but I can guarantee you it left a mark. Granted, the answer isn't to go completely the opposite extreme, but who are we to judge?

Isn't easier and simpler to just use one of the inflation calculators that already exist online?

Pick backwards or forwards, flat or CPI:

https://www.calculator.net/inflation-calculator.html
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Re: How to account for money under the mattress in PV

Post by Unladen_Swallow » Thu Feb 13, 2020 3:39 pm

JoeRetire wrote:
Sat Feb 08, 2020 8:14 am
If you have 40% of your portfolio under your mattress you either have a very small portfolio, or aren't sleeping very well.
:D :D
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