More rookie cash questions

[bluedog]

Hi,

What is meant by "deep cash"?

Anyone else overweight in cash?

Been easing into the PP and still have considerable cash:  35% with 15% in Intermediate govt bonds, 3% ST Treasuries (ZFS) and the rest 17% in un-deployed cash.

Understand the interest rate risk of the intermediate bonds, but YTD performance is 6.79% vs 1.7% for the ST Treasuries.

In the withdrawal phase (RRIF is 28% of total portfolio) and must draw down 3.57% of that acct this Dec.

Also and live in Canada, so different options from US posters.

Have 26% LTS (ZFL) and 25% gold (MNT).

Obviously shy on stocks with 14%, for me, the least liked asset and would be buying near the top.

Most accounts are tax sheltered (RRSPs) which we are gradually transferring over to TFSA (Tax free savings accounts) by early withdrawal ie. pre-71 yrs because of our high retirement income and tax rate.

Note the investment portfolio is not required for retirement income/expenses and we are no longer in the accumulation phase.

Any suggestions would be appreciated.

Thx, Bluedog

[sophie]

Welcome, and there's no such thing as a stupid question!

"Deep" cash is the portion of your cash allocation that you don't expect to have to draw on to rebalance.  For this portion you can invest in things like I bonds or 3 year treasuries that would be unpleasant to have to sell before maturity.

"overweight" cash is a relative term related to your comfort zone.  If you would like to put more of your money into volatile assets, you can do so as long as you a) have enough cash in your emergency fund, whether it's inside or outside the PP, and b) have at least 15% of your PP as cash (else that would trigger a rebalance).

Don't confuse cash with bonds.  The high "YTD performance" of intermediate bond funds reflects increasing bond prices which results from decreased yield.  If the yield went in the other direction, performance of an intermediate bond fund could go negative.  For cash, you want the value of your assets to be maintained.  This is why Harry Browne recommended Treasury bills or a Treasury money market fund - it's by far the safest place to put your cash.  You sacrifice some return to get that safety, but cash isn't about return.  It's about the safety.

Cash is especially important when you get into the withdrawal phase.  Having that reservoir of cash as a portion of your portfolio helps protect your portfolio's value as the volatile assets go up and down.  There are some threads where the role of cash was explored in some detail, if you want to look those up.  Bottom line, a 4% withdrawal rate is fairly safe with the PP, but depending on your start date could get you in trouble with a standard 50/50 Boglehead portfolio.

Part of the problem of jumping into the PP is fear of buying those assets that everyone thinks are overpriced or in the doghouse (which describes pretty much everything right now :-).  As HB once said, nothing is priced so high it can't go higher, and nothing is priced so low it can't go lower.  In other words, you can't predict the future.  Just buy the assets, make sure you keep that 25% in cash, and try not to look at the portfolio too often.

[barrett]

Note the investment portfolio is not required for retirement income/expenses and we are no longer in the accumulation phase.

Any suggestions would be appreciated.

Bluedog, You have obviously done some things really right to be in such an enviable position. Maybe we should be taking suggestions from you!

Sounds like your gradual RRSP to TFSA transfer is the Canadian equivalent of a backdoor Roth down here in the US. I may do the same in a few years if the number make sense.

[bluedog]

Thanks Sophie and Barrett.

Sophie, thanks for your expertise.
Sorry, still muddled with this cash thing.
What do you mean, "don't confuse cash with bonds"?
Are you saying short term Treasuries are not bonds in the PP perspective?
We do not have I bonds/equivalent in Canada, at least what I am aware of.
Should I be having 25% deep cash/short term Treasuries for the cash portion?

We already have an emergency fund outside the PP.

What is the downside to being overweight in cash?

Barrett, thanks for you kind words.
The annual minimal withdrawal schedule for RRIFs (registered retirement income funds) in Canada is brutal.
That's why I figured it was better to do a gradual draw down before my husband reaches 71 (mandatory age) as his retirement income remains in a high tax bracket despite pension splitting between us.
At 71, the minimal withdrawal is 7.38% (and continues a dramatic climb to 12.71% by 89 yrs of age) vs 3.57% this year when he is 62.
Getting the funds transferred to the TFSAs (tax free savings acct) will be far more tax efficient for us.

[stuper1]

Short-term Treasury bonds are considered cash.  Some people consider bonds as long as 3-year bonds as "deep cash", but some people keep all ST bonds under one year.

Intermediate bonds should not be considered as cash.  The PP doesn't hold intermediate bonds.