What is your trigger point to start spending from cash buffer?? + QE, Does it change the game?

Prism

Probably also worth clarifying what people mean by a cash buffer. Easy access? Premium bonds? 1-3 fixed term savings account? 5 years accounts?

NedS

Prism said:

Probably also worth clarifying what people mean by a cash buffer. Easy access? Premium bonds? 1-3 fixed term savings account? 5 years accounts?

Yes, I think a person's assets should be looked at as a whole (excluding the primary property), regardless of the wrapper they may be in, so for me all cash (other than the bank balance to cover monthly running costs) is considered part of our overall assets or portfolio.

Linton

coyrls said:

If cash is part of the 40 of a 60:40 portfolio, it will be subject to defined rebalancing rules.  With a cash buffer there doesn't seem to be any defined rules as to when it should be drawn from and when it should be increased, other than when the market is "down" and when the market is "up".

Why must the cash form a fixed % of the whole?  My cash tranche/portfolio/subportfolio or whatever you want to call it is rebalanced occasionally to roughly the size that it needs to be to meet its objectives.  Similarly with the income part and the WP part.  

At the moment equity happens to be 55%.  Last year it would have been around 60%.  Is that a problem?

Linton

Prism said:

Probably also worth clarifying what people mean by a cash buffer. Easy access? Premium bonds? 1-3 fixed term savings account? 5 years accounts?

It could be held anywhere.  Easy access is logical.  If you can meet the objectives despite having to wait 5 years before being able to access some of the cash perhaps you could consider putting the money in a WP fund instead.

Any return from cash I see as irrelevent.    If you dont need the extra possible return it's just noise/distraction, if you do then cash is not the best place to get it.

Linton

NedS said:

Prism said:

Probably also worth clarifying what people mean by a cash buffer. Easy access? Premium bonds? 1-3 fixed term savings account? 5 years accounts?

Yes, I think a person's assets should be looked at as a whole (excluding the primary property), regardless of the wrapper they may be in, so for me all cash (other than the bank balance to cover monthly running costs) is considered part of our overall assets or portfolio.

Depends why you are looking at it.  For SWR calculations, yes just regard it as a whole.  On the other hand if you have  objectives with specific time frames then it may be appropriate to assign those to a particular subset of the portfolio.  I do not see how otherwise you can set up a portfolio with potentially conflicting objectives eg long term return and short term income.  If you split by objective then it is much easier to select an appropriate asset allocation and underlying investments. In the case of cash holdings you must have some reason for choosing the amount of cash you need so it can hardly be considered just as part opf the overall portfolio.

coyrls

Linton said:

coyrls said:

If cash is part of the 40 of a 60:40 portfolio, it will be subject to defined rebalancing rules.  With a cash buffer there doesn't seem to be any defined rules as to when it should be drawn from and when it should be increased, other than when the market is "down" and when the market is "up".

Why must the cash form a fixed % of the whole?  My cash tranche/portfolio/subportfolio or whatever you want to call it is rebalanced occasionally to roughly the size that it needs to be to meet its objectives.  Similarly with the income part and the WP part.  

At the moment equity happens to be 55%.  Last year it would have been around 60%.  Is that a problem?

No, it's not a problem.  Rebalancing occasionally to roughly the size that it needs to be to meet its objectives, is not the way that proponents of a cash buffer say that a cash buffer should be used.  I am not suggesting that cash can't be part of a portfolio and I am not suggesting that it should be a fixed percentage over time.  I am suggesting that holding a cash buffer to take income from when equity prices are low and to increase when equity prices are high without defining the terms high and low and without any evidence to support the strategy is hard to justify.

Audaxer

Linton said:

NedS said:

Prism said:

Probably also worth clarifying what people mean by a cash buffer. Easy access? Premium bonds? 1-3 fixed term savings account? 5 years accounts?

Yes, I think a person's assets should be looked at as a whole (excluding the primary property), regardless of the wrapper they may be in, so for me all cash (other than the bank balance to cover monthly running costs) is considered part of our overall assets or portfolio.

I do not see how otherwise you can set up a portfolio with potentially conflicting objectives eg long term return and short term income. 

I don't think there is anything wrong with your set-up. However I also don't see anything wrong with one portfolio that comprises mostly of equity funds/ITs that provides an income yield of around 3.5%, but should also produce long-term capital growth?

Linton

coyrls said:

Linton said:

coyrls said:

If cash is part of the 40 of a 60:40 portfolio, it will be subject to defined rebalancing rules.  With a cash buffer there doesn't seem to be any defined rules as to when it should be drawn from and when it should be increased, other than when the market is "down" and when the market is "up".

Why must the cash form a fixed % of the whole?  My cash tranche/portfolio/subportfolio or whatever you want to call it is rebalanced occasionally to roughly the size that it needs to be to meet its objectives.  Similarly with the income part and the WP part.  

At the moment equity happens to be 55%.  Last year it would have been around 60%.  Is that a problem?

No, it's not a problem.  Rebalancing occasionally to roughly the size that it needs to be to meet its objectives, is not the way that proponents of a cash buffer say that a cash buffer should be used.  I am not suggesting that cash can't be part of a portfolio and I am not suggesting that it should be a fixed percentage over time.  I am suggesting that holding a cash buffer to take income from when equity prices are low and to increase when equity prices are high without defining the terms high and low and without any evidence to support the strategy is hard to justify.

What is your alternative? Fixing an SWR prior to retirement and taking it regardless of what is happening to your portfolio might on average optimise your wealth at death. However I do not believe it will optimise your any partuicular retiree's well-being whilst alive. At some point you have to act to deal with the situation as it is with a judgement call, there is no perfect predefined strategy.

NoMore

@Linton

Are you actually holding a cash buffer in order to specifically protect drawdown from equities when they are low ? I suspect that your not and have other reasons for cash but you aren't making it clear.

Time4T_Accounts

Also, I guess, we need to bear in mind that individuals’ objectives - and attitudes to risk - are likely to change over time ...