I wouldn't consider either of these unfortunate people to be in the accumulation phase any more. Without jobs and without insurance and without a home I think it's more likely they are in the drawdown phase. Perhaps they shouldn't be in the PP at all. Go to 100% savings accounts. But if you had asked me to give them advice before their misfortunes occurred, I wouldn't have had a problem suggesting five-year treasuries because they haven't done poorly recently. That is, there hasn't been a big spike in yields, as far as I can recall, in recent years. Also, please note than I am not saying invest 100% of your cash in five-year treasuries. If you do hold five-year treasuries (and, personally, I don't), I would suggest holding them only as part of a ladder while also keeping an emergency fund (in or out of the PP) of something more liquid.jhogue wrote: ↑Sat Nov 30, 2019 3:23 pm Pet Hog,
I disagree with your assumption that “someone in the accumulation phase has greater risk-tolerance” and therefore can be (ought to be?) more aggressive with their investments.
Consider a couple of real-world examples:
Example #1. 52 year old female (divorced, with 3 kids) came down with brain cancer. Got fired from her long-time nursing job because she could not work any more. Had to liquidate IRAs and 403b to meet monthly mortgage payments and medical bills before she died at age 56. I would not have suggested that she invest in 5 year CDs- or 5 year T-bills. Would you?
Example #2. 40 year old male working in the red-hot real estate market in Las Vegas before the financial crisis of 2008-2009. Lost his job when the local construction industry abruptly collapsed. Could not find another job in the area, and with his own house now under water, he stopped making mortgage payments. He subsequently lost the house, but not before his wife divorced him and took 50% of his retirement funds as well as alimony payments. I would not have suggested that he invest in 5 year CDs- or 5 year T-bills. Would you?
To be sure, not all emergencies are strictly financial in nature. Nevertheless, these examples illuminate why safety and liquidity must come before yield, particularly in Cash.
A couple of other points. First, I didn't say anyone "ought" to be more aggressive, just that having a job and accumulating means that you can be a bit more risk-taking if you want to. And if that risk involves extending a treasury ladder out from three years to five -- well, that's not really that much extra risk, is it?
Second, we are all PP investors on this forum. We don't like risk. I lost a lot of money, too, in 2000-2002 and in 2008-2009 and I wish I had been in the PP then -- with any type of 25% cash strategy!