Have we got our sums right?? Appraise our plan.

MK62

Audaxer wrote: »

That's why I think its sensible to have several years income in cash as a buffer.

Agreed....if possible of course.....;)

However, knowing when to use the cash buffer for income, as opposed to selling investments, is a bit of a black art in itself.
Many who rely on their portfolio for income, might consider now to be a good time to use the cash buffer, following a near 20% drop in the equity markets......but if the bear market persists, perhaps in the face of a global recession, you could be looking at having exhausted the cash buffer, with equities in two years time, even lower than today....so in effect you'd have been better off selling investments today and keeping the cash buffer for an even rainier day....so to speak.

So while I agree that a cash buffer is desirable, it's not a panacea......it just gives more flexibility.
You also have to consider that holding the cash buffer through a bull market effectively creates a drag on possible returns during that period......an inevitable consequence you just have to accept...ie that's the price for a bit more peace of mind.

Audaxer

MK62 wrote: »

Agreed....if possible of course.....;)

However, knowing when to use the cash buffer for income, as opposed to selling investments, is a bit of a black art in itself.
Many who rely on their portfolio for income, might consider now to be a good time to use the cash buffer, following a near 20% drop in the equity markets......but if the bear market persists, perhaps in the face of a global recession, you could be looking at having exhausted the cash buffer, with equities in two years time, even lower than today....so in effect you'd have been better off selling investments today and keeping the cash buffer for an even rainier day....so to speak.

So while I agree that a cash buffer is desirable, it's not a panacea......it just gives more flexibility.
You also have to consider that holding the cash buffer through a bull market effectively creates a drag on possible returns during that period......an inevitable consequence you just have to accept...ie that's the price for a bit more peace of mind.

I think the answer is to keep the cash buffer at a fixed percentage of your overall portfolio. So if you decide to keep 10% in cash, at present with equities down the cash percentage of your portfolio will have increased. So you take enough income from the cash buffer to take it back down to 10%.

Triumph13

My plan is to use a cash buffer to smooth half of the volatility and reduce spending to cover the other half. In that way a prolonged 40% downturn would translate to a 20% reduction in spending and a cash buffer of 1 year's spending would see me through a 5 year downturn.

Sea_Shell

Our cash is approx 24% of our total at present. Seems high, but could be prudent if markets continue to fall.

atush

DairyQueen wrote: »

On completion of post grad (phew) the bank of (step) mum & dad had a brief opportunity to consolidate before it was called upon to fund house deposit (willingly given - smack me upside the head). Younger stepd has recently announced her engagement. I am hoping that they will take at least 5 years to produce grandchildren.

Love her to bits but, Lord almighty, I was financially independent from the age of 19. What is wrong with our generation that we feel compelled to support offspring into their 30s and beyond?

Discuss?

I charge mine rent while here. They pay for their own travel. So not really supporting them as such. no weddings, no grandchildren. Will help with house rep later if required.

Sea_Shell

The figures are in....(closed off yesterday, won't worry about Monday!)

December 2017 - we had £495k (DC Pensions, S&S ISA's, Cash)
December 2018 - we have £480k (mainly due to the "correction" over the last 3 months)

We've reduced our cash element down from £140k to £113k, by maxing out our Pensions & ISA's, but that still gives us approx. 8 years of current cash spends (allowing for 3% inflation), which this year came in at £12,785!!! We actually spent £570 less than last year, mainly due to change of holiday plans after such an amazing summer here....no need to fly south!!!

MK62

Audaxer wrote: »

I think the answer is to keep the cash buffer at a fixed percentage of your overall portfolio. So if you decide to keep 10% in cash, at present with equities down the cash percentage of your portfolio will have increased. So you take enough income from the cash buffer to take it back down to 10%.

You could do that, but then you may still be forced to sell investments at low prices in order to maintain the cash buffer at some arbitrary level.....in your case, 10% of total portfolio.....and having to sell investments at low prices is what the cash buffer is supposed to be there to prevent (as much as possible anyway)......you could end up servicing the cash buffer rather than the other way round.

Without hindsight, there is, of course, no right or wrong answer to this conundrum.....it's just another decision an investor has to make.

Sea_Shell

Well I've just made my final (net) pension payment to take me up to 100% gross earnings. So effectively that'll make 20% right off the bat, and i'll be buying some (relatively) cheap units.

I've still got 8 years until I'm 55, so hopefully that'll have some decent growth years in there.

cloud_dog

Sea_Shell wrote: »

So effectively that'll make 20% right off the bat, and i'll be buying some (relatively) cheap units.

It will make you 25% off the bat.

Johnnyboy11

cloud_dog wrote: »

It will make you 25% off the bat.

...75% of which will be lost to income tax when a pension is drawn.