Optimization REMOVING Cash

[frugal]

Hi,

I am thinking to consider to remove cash from my PP.
I have another Cash positions already.

The 25% of CASH of the portfolio shall then go to STOCKS? 50% ?
Or 12,5% for Stocks + 12,5% for long term bonds?
What is the best option in you opinion?



Thank you.

[Pointedstick]

Why not just 33/33/33?

Is the reason why you're considering your cash as separate from the PP because you can't bear to part with your 4% CDs? 

[LifestyleFreedom]

I will be in "dis-saving mode" in a few years when I become fully retired and start drawing cash from my investment accounts to pay living expenses.  My plan is to draw 3% of the portfolio the first year and then index subsequent year withdrawals to my personal rate of inflation (which is assumed to be 4% for planning purposes).

My plan is to withdraw the required cash each year on January 1 and then immediately rebalance the portfolio when triggered by the 15/35 rebalancing band settings.  What I'm finding out is that a 3% initial safe withdrawal indexed to my personal rate of inflation is the same thing as having annual portfolio investment expenses of around 3%.  (Ironically, my simulations find myself rebalancing more frequently when the other assets in the portfolio are generally appreciating and rebalancing less frequently when the entire portfolio is falling in value.)

I believe that having the full cash component in the portfolio is critical when retired because one never knows what the other assets are going to do in the subsequent years.  Giving up potential asset appreciation during those years when Mr. Market is smiling on me is a good tradeoff to make in exchange for the certainty of knowing that there will be enough cash available to cover my living expenses during those years when Mr. Market might be frowning on me.

This particular approach might not be best one to use if we have hyperinflation, but I will cross that bridge somehow when I come to it.

[frugal]

Why not just 33/33/33?

Is the reason why you're considering your cash as separate from the PP because you can't bear to part with your 4% CDs? 

33% x 3 is another option. There's no optimal %'s, right?

I'm young and I have CD's as you said and real REIT.

Also 1,3% more per year will make a big difference in the end result.

Cheers

I will be in "dis-saving mode" in a few years when I become fully retired and start drawing cash from my investment accounts to pay living expenses.  My plan is to draw 3% of the portfolio the first year and then index subsequent year withdrawals to my personal rate of inflation (which is assumed to be 4% for planning purposes).

My plan is to withdraw the required cash each year on January 1 and then immediately rebalance the portfolio when triggered by the 15/35 rebalancing band settings.  What I'm finding out is that a 3% initial safe withdrawal indexed to my personal rate of inflation is the same thing as having annual portfolio investment expenses of around 3%.  (Ironically, my simulations find myself rebalancing more frequently when the other assets in the portfolio are generally appreciating and rebalancing less frequently when the entire portfolio is falling in value.)

I believe that having the full cash component in the portfolio is critical when retired because one never knows what the other assets are going to do in the subsequent years.  Giving up potential asset appreciation during those years when Mr. Market is smiling on me is a good tradeoff to make in exchange for the certainty of knowing that there will be enough cash available to cover my living expenses during those years when Mr. Market might be frowning on me.

This particular approach might not be best one to use if we have hyperinflation, but I will cross that bridge somehow when I come to it.

Good!
I think one should have Cash, but I have it, not in the HBPP.
For the PP probably I will not consider Cash.
I will use only 3/4 ETF's which I'm not sure that are more solid than CD's in Portugal.

Keep posting.

[TripleB]

Interestingly enough, I've considered going to 50% cash, 16.7% Gold, 16.7% Stocks, 16.7% LTTs, at least for the next year or two.

I find the future extremely hazy and possibly all assets except cash will decline in 2013.

[Reub]

But, then again, as Harry Browne has stated so well, you could be wrong.

[ngcpa]

Interestingly enough, I've considered going to 50% cash, 16.7% Gold, 16.7% Stocks, 16.7% LTTs, at least for the next year or two.

I find the future extremely hazy and possibly all assets except cash will decline in 2013.

Considering "real" inflation, I suspect cash will be gaurantied to decline in real $.
Norm

[LifestyleFreedom]

I agree about the risk of being wrong.  I remember how bleak the 1970s seemed at the time, which made Business Week publish it's now infamous The Death of Equities article.  Soon afterwards, stocks started their two decade bull run.  Or how great the late 1990s seemed at the time, only to lead to the popping of one of the largest stock market bubbles in history.  When everyone is overly bullish or overly bearish, I've learned to expect the opposite to start happening (with the proviso that there is no guarantee the opposite actually will start happening).

[k9]

As I'm also paying back, regularly, parts of my mortgage and counting it as a LT bonds investment (which it is), my own portfolio is 33 cash / 33 gold / 33 stocks, which should behave quite well.

[One day at a time]

Could someone discuss the risks and benefits of considering one's mortgage as part or all of the LTT allocation? 

[k9]

Benefits :
- reducing your liabilities is the most secure way to invest in debt as you have to pay it and cannot default (at least in France) ; it is AAAAA-rated debt, from your own point of view.
- tax free (once again, in France, bond revenues are taxed at 45% and you get no reduction from your mortgage interest).

So, between a mere 2% from an AA+ issuer that becomes 1% after taxes and fees and a net 3.8% from an AAAAA issuer with no tax, I think the choice is obvious.

Drawback :
- not liquid at all (you can't sell it back if you need to and get back that virtual investment a little every month once the mortgage is fully paid back. If you lose your job before that, you might not be able to pay back your mortgage, while you could have done it had you chosen to invest that money rather than pay back.

[Thomas Hoog]

I think it depends on your personal situation and risk sensitivity. The PP is almost riskfree (until now) en performs well.
However I can permit to take a higher risk and hold only 10 % cash mainly for balance purposes. When retirement is near I will increase the Cash allocation just like Lifestyle Freedom.
I hold equity portfolio's for my childeren for eduction purposes. Their allocation is 10 % Cash, Gold, Bonds en 70 % stocks. They are teen-agers so their investment horizon is at least 20 years. In due time (every 10 years)  their portfolio allocation will be changed to their investment horizon.
The mortgage allocation of K9 in stead of LTB is very creative and I think he is right. However I would hate the illiquidity of the asset.
The wrong reason to change the allocation is the idea of predicting the market. Nobody knows when Cash will be the winner or the loser.