Using a cashflow ladder in retirement?

dunstonh

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

It's a different strategy/opinion.   However, many people using that strategy also run a cash float.    There are lots of methods and strategies and hybrids of each one.

Prism

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

dunstonh

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

I wonder if that is because many of the studies are US based and there they treat treasuries as zero risk.  It may also be that in most historical periods, the natural yield would match or be in excess of 4%. 

BritishInvestor

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

dunstonh

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Cash is indeed trash in long term portfolios.  However, if the cash is feeding short term withdrawals, then it is not trash.  Hence the whole reason for segmenting the portfolio into short,medium, long in the first place.

bostonerimus

Buckets, ladders, timelines etc are all just different ways to talk about asset allocation. They serve a useful function in selling books and filling magazine and blog column inches. If they help you in planning then great. However, as with so much I see in personal finance, I just look like unnecessary complications to me.

dunstonh

However, as with so much I see in personal finance, I just see them as an unnecessary complication.

Actually, you rarely see the various names mentioned in financial services.   They usually just appear on discussion sites.

bostonerimus

BritishInvestor said:

k6chris said:

I think this type of investement plan, as well as things like 'natural yield' investing, are as much about giving people a warm(er) sense of security as they are about maximising returns.  I would argue that is not a bad thing, since sleeping well and not overly fretting about investments means you are less likely to make a stupid and harmful (investment) decision.  There is no 'do it this way' plan that suits everyone.  My view (which is worthless) is keep a 2 year cash buffer and invest the rest at a level that allows you to sleep well, which for me is about 70% equity and 30% bonds / non equity.  Rebalance every year.  Good luck

I can't see how a natural yield approach will give peace of mind.

(But agreed that peace of mind is important).

My equity index funds produce around 2% dividends each year. If that's enough to cover your spending then you can live without spending capital and that should be a warm and fuzzy feeling.

My goal has always been to have a self sustaining retirement income pot that will not fall in value through retirement so I don't have to worry about outliving my money and will have money to leave to my heirs.

bostonerimus

dunstonh said:

However, as with so much I see in personal finance, I just see them as an unnecessary complication.

Actually, you rarely see the various names mentioned in financial services.   They usually just appear on discussion sites.

Ok, I see them in the magazines and promoted by the celebrity financial gurus and on forums - I think that's were most people come across them. I just feel that they add to the "financial white noise" and are most useful in selling books than anything else.

BritishInvestor

dunstonh said:

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Cash is indeed trash in long term portfolios.  However, if the cash is feeding short term withdrawals, then it is not trash.  Hence the whole reason for segmenting the portfolio into short,medium, long in the first place.

"Hence the whole reason for segmenting the portfolio into short,medium, long in the first place."

But as has been discussed, it's not clear why this is done either.