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

pip895

I wonder if I have a different definition of cash buffer from others..  I have a cash allocation which will vary depending on interest rates/ the state of the bond market etc and a cash buffer which I define as a couple of years drawdown sitting in my SIPP. 

When this cash buffer slips below 1 year, I top it up.  This is done by selling bonds/alternatives (eg.PNL) if equities are low, or I sell equities if they are high.  Essentially this is just part of the annual rebalancing - I don't need to make a decision as to weather the market is high or low surely, rebalancing does that for me.  If things get really bad over a sustained period and it is difficult to sell enough "non equity"/ "non equity" is significantly down as well, I may consider reducing drawdown to use only my zero rate band and burning through external cash reserves / reducing expenditure, but we are a long way from that point now.   

Linton

pip895 said:

I wonder if I have a different definition of cash buffer from others..  I have a cash allocation which will vary depending on interest rates/ the state of the bond market etc and a cash buffer which I define as a couple of years drawdown sitting in my SIPP. 

When this cash buffer slips below 1 year, I top it up.  This is done by selling bonds/alternatives (eg.PNL) if equities are low, or I sell equities if they are high.  Essentially this is just part of the annual rebalancing - I don't need to make a decision as to weather the market is high or low surely, rebalancing does that for me.  If things get really bad over a sustained period and it is difficult to sell enough "non equity"/ "non equity" is significantly down as well, I may consider reducing drawdown to use only my zero rate band and burning through external cash reserves / reducing expenditure, but we are a long way from that point now.   

What is the difference between your “cash buffer” and your “external cash reserves”? I would see them as the same thing.

pip895

Linton said:

pip895 said:

I wonder if I have a different definition of cash buffer from others..  I have a cash allocation which will vary depending on interest rates/ the state of the bond market etc and a cash buffer which I define as a couple of years drawdown sitting in my SIPP. 

When this cash buffer slips below 1 year, I top it up.  This is done by selling bonds/alternatives (eg.PNL) if equities are low, or I sell equities if they are high.  Essentially this is just part of the annual rebalancing - I don't need to make a decision as to weather the market is high or low surely, rebalancing does that for me.  If things get really bad over a sustained period and it is difficult to sell enough "non equity"/ "non equity" is significantly down as well, I may consider reducing drawdown to use only my zero rate band and burning through external cash reserves / reducing expenditure, but we are a long way from that point now.   

What is the difference between your “cash buffer” and your “external cash reserves”? I would see them as the same thing.

So my cash buffer is part of the SIPP and allows me to avoid selling equity at inappropriate times as would happen if I were 100% invested and allowed my provider to sell on a monthly basis out of my largest holding - in my case from my global tracker.  

The rest of the cash is split into two sections emergency cash obviously (currently held in PB) but could be elsewhere in an easy access account for example and cash allocation that is there only because I hate bonds at the moment - some of which is in my isa some in savings accounts.  Once I start drawing down from my isa then that will also need a cash buffer.

As I am currently drawing down from my SIPP at around 5% (prior to state pension kicking in) it is looking at present as though I won’t have to do much rebalancing this year as my cash withdrawal has held the equity % up - the fact that some of my bond funds have been performing pretty badly as well has unfortunately helped..  

Multiple years of poor returns on equity and bonds will reduce options but I have a plan to increase the target % equity in the SIPP up to 80% in such a scenario.  Only after that will I look at dropping the drawdown amount and transferring to “external cash”.  Ultimately even my investment property may be considered part of a buffer - we have always planned to sell at some point to reduce the burden on our executors apart from anything else.

andyjb999

Has anyone found our what the answer to the question is?

westv

andyjb999 said:

Has anyone found our what the answer to the question is?

42.......

Time4T_Accounts

“What’s 6 x 7?”

Parking_Trouble

My investment skills are very limited. I've been lucky with choices in my ISA and SIPP and got in at the right time.

What I have noticed is that the 'low risk' VLS 20 grew at a slower rate than the VLS 60 but seemed to drop just as sharply.

I also note the risk rating for VLS 20 is '3' and 40, 60, 80 are all '4' and 100 '5'

I guess equities and bonds have both taken a hit and cash reserves are being hit by inflation. A triple whammy?

Linton

Yes, the fall in equity values, safe bond prices, and the rise in inflation are only partially linked.  Each has some specific causes that do not affect both the other two.  For example the fall in bond prices was due to the rise in intereatrates which was going to happen some time anyway.  Inflation, at least initially, arose from post covid supply problems both in manufacturing and in transport.  And the equity fall was prompted by the supply problems and Ukraine.

GazzaBloom

Linton said:

Yes, the fall in equity values, safe bond prices, and the rise in inflation are only partially linked.  Each has some specific causes that do not affect both the other two.  For example the fall in bond prices was due to the rise in intereatrates which was going to happen some time anyway.  Inflation, at least initially, arose from post covid supply problems both in manufacturing and in transport.  And the equity fall was prompted by the supply problems and Ukraine.

The current inflation is interesting, on the face of it, it seems to be supply side issues rather than demand side. Demand is only returning to the pre-covid "normal" levels but it's the supply chains in commodities, good and services that are struggling to match this "normal" demand due to the Ukraine conflict, further China lockdowns and post rest of world covid lockdown hangovers.

Yet Governments seem to taking the traditional stance of trying to quell demand rather than boosting and alleviating issues in the demand side, where the real problem is.

MK62

GazzaBloom said:

Linton said:

Yes, the fall in equity values, safe bond prices, and the rise in inflation are only partially linked.  Each has some specific causes that do not affect both the other two.  For example the fall in bond prices was due to the rise in intereatrates which was going to happen some time anyway.  Inflation, at least initially, arose from post covid supply problems both in manufacturing and in transport.  And the equity fall was prompted by the supply problems and Ukraine.

The current inflation is interesting, on the face of it, it seems to be supply side issues rather than demand side. Demand is only returning to the pre-covid "normal" levels but it's the supply chains in commodities, good and services that are struggling to match this "normal" demand due to the Ukraine conflict, further China lockdowns and post rest of world covid lockdown hangovers.

Yet Governments seem to taking the traditional stance of trying to quell demand rather than boosting and alleviating issues in the demand side, where the real problem is.

....but what can governments realistically do about the Ukraine conflict (that they aren't already doing), China lockdowns and "post rest of world covid lockdown hangovers"?