Is all cash on hand considered part of the PP

[ppnewbie]

I am trying to figure out if, during retirement, all of your cash is considered part of your PP? And you just happen to spending some of your PP cash for daily expenditures. Or is it viewed as a completely seperate asset in the PP that you do not draw down on daily needs. Reading Craig and J.M.'s book and it seems like it is a fluid definition based on need, like in a tight money recession.

ps. The book "The Permanent Portfolio" Craig Rowland and J.M. Lawson is excellent.

[sophie]

Good question that it just so happens I've been thinking about lately.

There is sort of a lifecycle to growing a PP with assets in taxable:

1) before you start setting up a PP, build up an emergency fund (EF).

2) Until your PP exceeds ~6-8 times your EF, keep your EF separate.

3) Once your PP exceeds that size, you can incorporate your EF into the PP. Just add it to the cash allocation and rebalance as indicated. .

I went through steps 1-3 already. Now, I'm wondering about a potential step 4. I've got various pots of savings for things like vacations, non-routine vet/medical and other big but not specifically planned-for expenses. When the PP gets to a certain size, even a large-ish withdrawal won't move the allocation needle much. So I'm thinking about simplifying to just a fixed buffer (like $10-15K), throwing the rest of the savings into the PP, and using the PP's cash allocation to replenish the buffer if a major expense happens, whether it's an emergency or not. Nice and simple!

[Tortoise]

Agree with Sophie. The PP’s cash component can be used for emergencies and daily expenditures if doing so wouldn’t throw the portfolio too far out of balance (i.e., beyond the rebalance bands), otherwise those expenditures should probably come from a separate cash fund.

[jhogue]

I have been retired for several years and I consider all cash to be part of my PP. The lone exception is US savings bonds under a year. When they reach one year, I move them from VP to PP.

My Cash quadrant currently consists of:

-10% money market funds (& physical cash)
-50% Short Term Treasury bills (all under 1 year)
-40% US Savings Bonds (“Deep Cash”)

Every HBPP investor has a built-in tension between a preference for the liquidity that only cash provides and a natural impulse for higher investment yield. Therefore, your solution will be different than mine, based on your age, monthly budget, designated expenses, etc. I think that safety and liquidity come before yield, which is why I prefer Treasury-issued bills and savings bonds rather than FDIC bank accounts or CDs whenever practicable. I have a high degree of confidence that I could liquidate over 90% of my Cash assets in 24-48 hours, or conduct a large rebalance if needed.

One last factor to consider is simplicity. Over time, I plan to reduce the number of my Cash accounts to just one: a Treasury money market fund.

[mathjak107]

I never consider cash as spendable if it is part of the portfolio unless I had to .....cash serves a purpose and it would upset the balance of things to treat the cash as spending cash ....in the pp rather cash has two uses ... first it acts to temper the duration of the long term treasuries and second it acts as a stock option to buy stocks at lower prices but with no expiration date

[Xan]

I never consider cash as spendable if it is part of the portfolio unless I had to .....cash serves a purpose and it would upset the balance of things to treat the cash as spending cash ....in the pp rather cash has two uses ... first it acts to temper the duration of the long term treasuries and second it acts as a stock option to buy stocks at lower prices but with no expiration date

...and it acts as spendable cash. Certainly that's how it's designed to work in retirement. I don't see any reason it can't double as an emergency fund, as long as it really is only for emergencies.

That's a big advantage of the barbell as opposed to the bullet, as far as I can see. Having cash there if you need it is really nice.

I also think that not having to have a separate emergency fund is another big advantage of the PP. Riskier portfolios effectively require that you keep a big stash of cash outside the portfolio, and then they don't count that against their returns as they should. The PP is all-inclusive.

[pmward]

I never consider cash as spendable if it is part of the portfolio unless I had to .....cash serves a purpose and it would upset the balance of things to treat the cash as spending cash ....in the pp rather cash has two uses ... first it acts to temper the duration of the long term treasuries and second it acts as a stock option to buy stocks at lower prices but with no expiration date

I think cash serves as optionality to purchase more assets than just stocks... it's there to purchase any asset that pulls back. The PP is an agnostic portfolio, there is more to it than just stocks.

[mathjak107]

I never consider cash as spendable if it is part of the portfolio unless I had to .....cash serves a purpose and it would upset the balance of things to treat the cash as spending cash ....in the pp rather cash has two uses ... first it acts to temper the duration of the long term treasuries and second it acts as a stock option to buy stocks at lower prices but with no expiration date

I think cash serves as optionality to purchase more assets than just stocks... it's there to purchase any asset that pulls back. The PP is an agnostic portfolio, there is more to it than just stocks.

I said it can act as a stock option ....I did not say it can’t buy other assets too

[pmward]

it acts as a stock option to buy stocks

That seemed 100% biased towards stocks to me, especially since you had specifically said "to buy stocks" and that was why I mentioned it. I didn't want him to think that optionality is only of benefit with stocks.

[mathjak107]

it's primary job is to balance out the long term treasuries .. the cash forms a barbell ... if you spend the cash down far enough it really requires rebalancing the portfolio back which may end up being self defeating ...you could have just sold what needed to be reduced to create the spending cash in the first place without first spending the cash , then going through the rebalance to account for it ...

think that through carefully .