How much of my portfolio should be in cash during retirement?

83705628

neilnockie said:

0% should be in cash.
Saving is losing with inflation.
Invest in funds targeting a 15-20% return & you'll way outperform cash.

/
Please go away.

cfw1994

neilnockie said:

0% should be in cash.
Saving is losing with inflation.
Invest in funds targeting a 15-20% return & you'll way outperform cash.

You really do talk some nonsense!!
Where do those magic funds come from?
& why would you not want some cash, even if it was only 6-18 months worth - you don’t think that would be useful to stop you having to draw money out during times like...oh, I don’t know...maybe the first 6 months of 2020, when your funds plummeted in value?

BritishInvestor

cfw1994 said:

neilnockie said:

0% should be in cash.
Saving is losing with inflation.
Invest in funds targeting a 15-20% return & you'll way outperform cash.

You really do talk some nonsense!!
Where do those magic funds come from?
& why would you not want some cash, even if it was only 6-18 months worth - you don’t think that would be useful to stop you having to draw money out during times like...oh, I don’t know...maybe the first 6 months of 2020, when your funds plummeted in value?

Because it might impact on the long-term sustainability of the plan.

michaels

neilnockie said:

0% should be in cash.
Saving is losing with inflation.
Invest in funds targeting a 15-20% return & you'll way outperform cash.

Sequence of return risk means your safe withdrawal rate based on historic market performance is higher with 20% cash 80% equities than it is with 100% cash.

My point is that a strategy to withdraw from cash rather than equities when markets are by some definition 'low' is effectively a dynamic rebalancing strategy that should recognised for what it is and formalised.  If at some market level it makes sense to hold less cash and more equities (and vice versa) then why not rebalance the whole portfolio correspondingly rather than tinkering at the edges via the drawdown?

cfw1994

BritishInvestor said:

cfw1994 said:

neilnockie said:

0% should be in cash.
Saving is losing with inflation.
Invest in funds targeting a 15-20% return & you'll way outperform cash.

You really do talk some nonsense!!
Where do those magic funds come from?
& why would you not want some cash, even if it was only 6-18 months worth - you don’t think that would be useful to stop you having to draw money out during times like...oh, I don’t know...maybe the first 6 months of 2020, when your funds plummeted in value?

Because it might impact on the long-term sustainability of the plan.

Seriously?
You think long term sustainability might be jeopardised by 6-18 months worth of cash at hand?
If things are that tight, and relying on those 6-18 months of cash being invested....then I'd suggest working a little longer instead!
If someone who was drawing down on funds did NOT have 6+ months worth in cash earlier this year....I think that would have been a FAR greater risk to any long term sustainability.   Maybe that is just me.....I'm no IFA.....

green_man

It’s not quite as obvious as you might think.
 Holding cash does not necessarily reduce your risk of running out of money. In fact it can in most cases increase the risk.

See my thread discussing this from 18 months ago https://forums.moneysavingexpert.com/discussion/5948700/any-point-in-a-cash-buffer-in-pension-drawdown-account/p1

in particular my post on page 2 that references this study
http://investmentmoats.com/financial-independence/why-having-a-cash-buffer-does-not-increase-the-longevity-of-wealth-in-financial-independence/

Conclusions of study being:
Many financial planners recommend holding cash equal to 2 years’ withdrawals to draw on when your investments are down. The idea is that after a significant down year, you can live off the cash and not touch your investments, to give them some time to recover.

This sounds logical, but was not supported by the 146-year study. For example, assuming 100% in equities and a cash holding, here are the success rates for a 30-year retirement:


In every case, holding cash either had no effect or increased the risk of running out of money. I could not find a single example of a retiring year or withdrawal amount when holding any amount of cash provided a higher success rate than holding no cash.

The study showed that holding cash does not protect you. In fact, it often increases your risk of running out of money.

83705628

green_man said:

It’s not quite as obvious as you might think.
 Holding cash does not necessarily reduce your risk of running out of money. In fact it can in most cases increase the risk.

See my thread discussing this from 18 months ago https://forums.moneysavingexpert.com/discussion/5948700/any-point-in-a-cash-buffer-in-pension-drawdown-account/p1

in particular my post on page 2 that references this study
http://investmentmoats.com/financial-independence/why-having-a-cash-buffer-does-not-increase-the-longevity-of-wealth-in-financial-independence/

Conclusions of study being:
Many financial planners recommend holding cash equal to 2 years’ withdrawals to draw on when your investments are down. The idea is that after a significant down year, you can live off the cash and not touch your investments, to give them some time to recover.

This sounds logical, but was not supported by the 146-year study. For example, assuming 100% in equities and a cash holding, here are the success rates for a 30-year retirement:


In every case, holding cash either had no effect or increased the risk of running out of money. I could not find a single example of a retiring year or withdrawal amount when holding any amount of cash provided a higher success rate than holding no cash.

The study showed that holding cash does not protect you. In fact, it often increases your risk of running out of money.

/
Point is neilnockie is obviously a scammer, a spammer, a spanner or about to be a banned-er

cfw1994

green_man said:

It’s not quite as obvious as you might think.
 Holding cash does not necessarily reduce your risk of running out of money. In fact it can in most cases increase the risk.

See my thread discussing this from 18 months ago https://forums.moneysavingexpert.com/discussion/5948700/any-point-in-a-cash-buffer-in-pension-drawdown-account/p1

in particular my post on page 2 that references this study
http://investmentmoats.com/financial-independence/why-having-a-cash-buffer-does-not-increase-the-longevity-of-wealth-in-financial-independence/

Conclusions of study being:
Many financial planners recommend holding cash equal to 2 years’ withdrawals to draw on when your investments are down. The idea is that after a significant down year, you can live off the cash and not touch your investments, to give them some time to recover.

This sounds logical, but was not supported by the 146-year study. For example, assuming 100% in equities and a cash holding, here are the success rates for a 30-year retirement:


In every case, holding cash either had no effect or increased the risk of running out of money. I could not find a single example of a retiring year or withdrawal amount when holding any amount of cash provided a higher success rate than holding no cash.

The study showed that holding cash does not protect you. In fact, it often increases your risk of running out of money.

Well, I clearly cannot argue with a 146 year study 
Although I *can* disagree with it.....
I think if I was drawing down this year, when March hit, I would want enough cash lying around to NOT have to cash any equity in.  In this instance, just enough to avoid drawing for 3 months would do the job.
Clearly that study tells me I am entirely wrong - I haven't read the detail of it - but I suspect I would feel a whole lot better about life, & that's the real aim, eh

green_man

Obviously in hindsight it’s easy to come up with the best strategy to cope effectively with that scenario.

What the study does is take 146 years of history and runs different cash/equities mixes through 10 different types of drawdown strategy to see how often one mix and strategy beats another.   There were zero cases where the higher cash percentage gave an advantage.

in your case of this year you may gain this year but you will have lost in the previous 10 years by having 10/15% In cash rather than equities.

Given the generally held view is that cash should be held I found this an interesting counterpoint.

michaels

I think it may depend on your drawdown profile.  I used the SWR toolbox spreadsheet which has however many years of data and found that the highest SWR with a portfolio of cash and equities came at about 80% equities, 20% cash, this wasn't with any mucking about drawing cash when equities were in some way deemed low.  However half my planned retirement income comes from 2 state pensions payable in approx. 15 years so the drawdown is front loaded.  Without that the proportion of equities would probably be higher.

If it made sense to draw from cash rather than equities when markets were 'low' earlier this year did it not also make sense to rebalance from cash to equities at the same point, and equally when markets are 'high' doesn't it make sense to reduce equities and increase cash rather than just fiddling about at the edges via withdrawal strategy?