Cash Pot?

Sarahspangles

Fink_Nottle said:

Sarahspangles said:

If you unexpectedly lose your regular income you need your rainy day money to be easy to access, even if that means lower returns. 

Like the OP, I'm trying to work out a position on this, so following all your thoughts with interest. The comments on the psychological aspects of holding cash to avoid locking in a loss certainly chime with me.

One small observation I'd make though is that if you're in a MMF, I presume your money is no easier to access than if it were in any other kind of fund i.e. you'll need to wait a few days for the sale to settle and transfer to a bank account?

I think a decision before elevenses gives me cash in my SIPP around teatime the next day. There’s then the usual timescale to set up a UFPLS. One advantage with an MMF is that there’s no significant day to day variation, you’re not going to be kicking yourself on Wednesday that it’s fallen since Monday.

singhini

SVaz said:

If you are using a lot of your pot for early retirement , say 7- 10 years, then having a cash/mmf pot or Gilt ladder seems the only sane way to do it.

I’ll stop having a cash pot at 67 and just take the yield from my funds.   

I have 2 sipps, one is now 40% STMMF which equates to 3 years income,  I’m still 50/50 on creating a Gilt ladder for the following 3 years,  which means selling another £20k of investments (  VLS 80 and Fidelity index world)  so it’s which one to sell, or chunks of both.
 Or I could gamble that interest rates will stay above 3.5% and just drip sell over the next few years to my cash pot.  

Of course the time to sell was before Trump went even more bonkers.  

My other Sipp is fully in HSBC dynamic global strategy ( income) and I may or may not take the TFC in around 5 years. 

Do people think that if the Bank Of England Inflation Bill is passed that we will get more flucuation in interest rates on a more regular basis.

The parliamentary bill is:
A Bill to make provision for penalties against the Court of Directors of the Bank of England for failure to meet inflation targets.

Currently, the Bank of England (BoE) does not have penalties against the Court of Directors for failing to meet inflation targets. Instead, the BoE's Governor writes a letter to the Chancellor explaining the reasons for missing the target and outlines the steps to bring inflation back to 2%. 

LHW99

singhini said:

SVaz said:

If you are using a lot of your pot for early retirement , say 7- 10 years, then having a cash/mmf pot or Gilt ladder seems the only sane way to do it.

I’ll stop having a cash pot at 67 and just take the yield from my funds.   

I have 2 sipps, one is now 40% STMMF which equates to 3 years income,  I’m still 50/50 on creating a Gilt ladder for the following 3 years,  which means selling another £20k of investments (  VLS 80 and Fidelity index world)  so it’s which one to sell, or chunks of both.
 Or I could gamble that interest rates will stay above 3.5% and just drip sell over the next few years to my cash pot.  

Of course the time to sell was before Trump went even more bonkers.  

My other Sipp is fully in HSBC dynamic global strategy ( income) and I may or may not take the TFC in around 5 years. 

Do people think that if the Bank Of England Inflation Bill is passed that we will get more flucuation in interest rates on a more regular basis.

The parliamentary bill is:
A Bill to make provision for penalties against the Court of Directors of the Bank of England for failure to meet inflation targets.

Currently, the Bank of England (BoE) does not have penalties against the Court of Directors for failing to meet inflation targets. Instead, the BoE's Governor writes a letter to the Chancellor explaining the reasons for missing the target and outlines the steps to bring inflation back to 2%. 

It's a private members bill, so probably won't get through.

I'm not sure I see the point. A good deal of what goes into inflation is outside the Bank's control, and presumably any fines would be paid by Government / taxpayers anyway.

Sarahspangles

This thread is apropos of something I’m currently pondering. With retirement imminent, I’m looking at the best way to hold savings and investments for the next two or three years. I have been holding a year’s basic income in Premium Bonds in case of a gap between contracts - but I think that’s now duplicating my ‘first year’s pension’ in the STMM fund. My rolling return on PBs is 1.3% (equivalent to 1.63% in an easy access account, as I’ve used my personal savings allowance) - is it time to ditch them? 

kempiejon

Cash is for spending, I keep a sum equivalent to 2 or 3 years of basic living, it's not productive but gives me confidence I wouldn't have to sell my assets in bad times.
Asset allocation, I hold FTSE stocks, some pay dividends, ETFs for global, gold, investment trusts for income and growth and I have gilts/fixed interest out about 4 years, staggered maturities. I've historically been over 90% equity but have adjusted to about 85% equities, I'm doing some longer term planning and setting capital aside into gilts. About half my investments give an income; last year it was about enough to live on.
My appetite for risk is that I've been happy with a high allocation of stocks previously but have some big expenses on the horizon so have set extra aside, of course returns on cash are better than 5,10 years ago. I've looked at some studies and back testing where various stock:bond:gold ratios have been compared and I think the take home is that some in bonds/gold reduces stock volatility and doesn't necessarily significantly detract from portfolio performance long term. My plan is pretty unscientific, I might get above 80:20 or revert to my earlier weights.

Albermarle

Sarahspangles said:

This thread is apropos of something I’m currently pondering. With retirement imminent, I’m looking at the best way to hold savings and investments for the next two or three years. I have been holding a year’s basic income in Premium Bonds in case of a gap between contracts - but I think that’s now duplicating my ‘first year’s pension’ in the STMM fund. My rolling return on PBs is 1.3% (equivalent to 1.63% in an easy access account, as I’ve used my personal savings allowance) - is it time to ditch them? 

You have been unlucky with the PB's so far, so maybe with the law of averages, if you keep them you should see better than average returns?

Albermarle

QrizB said:

GenX0212 said:

I'm still not sure if I agree with this approach or not because when the markets are up then you have less investment growth. If the average/usual market conditions are for growth then is it a zero sum equation at best?

Pretty much, yes.

Learned regulars on this forum have stated (and I paraphrase) that holding a cash pot offers little (if any) benefit under almost all historically back-tested conditions, but psychologically it makes it easier for the investor to keep up their withdrawal plans if they don't have to sell assets at a loss when the market is down.

 Although selling assets at a loss in the early years of a withdrawal, has a much more negative effect than later, due to the Sequence of Returns issue.
So it could be argued that keeping cash ( say 3 years worth) would be potentially more beneficial in the early years, and could be reduced later. 

Linton

GenX0212 said:

Hi all,

I have seen a few references to holding a 'cash' pot as part of your pension portfolio. The idea being that you draw from your cash pot in market downturn rather than take from your investment pot.

I'm still not sure if I agree with this approach or not because when the markets are up then you have less investment growth. If the average/usual market conditions are for growth then is it a zero sum equation at best?

Anyway, my question is if you are holding a cash pot then what is the trigger point for you to draw from cash rather than investments. What rules/strategy are you each using for determining the market is down?
For example my main pot is down £10k in the week but that only actually equates to a short term 2% drop. It's not a concern for me at the moment as I expect it to recover in time but if I was in drawdown would that trigger me to use cash instead, or would it be a 5% drop, 10%, more?

thanks.

I believe operating withdrawals by switching between selling funds from your pension and taking cash from a cash pot is a poor way to manage your income.  The problem is arbitrary rules and market timing. You wont know there is a serious fall in the markets until some time after it has happened and you wont switch back to selling equity until after prices have already clearly risen.

The approach I advocate and have adopted for te past 20 years is to put all income from whatever sources you have into a cash/low risk pot outside the pension and to take all expenditure from that pot.  Assuming your expenditure us generally below your income the pot will tend to increase in size over time.The pot can be further restocked if necessary by selling funds perhaps just once a year when you rebalance.

Managing your finances in this way avoids continually making shortt term decisions and removes the need for short/medium term variations in income.  It also ensures there is always money available for major one-off expences.  Finally you can hold a higher % equity in your pension than you otherwise would if using it directly.

Sarahspangles

Albermarle said:

Sarahspangles said:

This thread is apropos of something I’m currently pondering. With retirement imminent, I’m looking at the best way to hold savings and investments for the next two or three years. I have been holding a year’s basic income in Premium Bonds in case of a gap between contracts - but I think that’s now duplicating my ‘first year’s pension’ in the STMM fund. My rolling return on PBs is 1.3% (equivalent to 1.63% in an easy access account, as I’ve used my personal savings allowance) - is it time to ditch them? 

You have been unlucky with the PB's so far, so maybe with the law of averages, if you keep them you should see better than average returns?

I fear I’m subject to the law of sod….OH has a full holding and even lower return.

phlebas192

Albermarle said:

Sarahspangles said:

This thread is apropos of something I’m currently pondering. With retirement imminent, I’m looking at the best way to hold savings and investments for the next two or three years. I have been holding a year’s basic income in Premium Bonds in case of a gap between contracts - but I think that’s now duplicating my ‘first year’s pension’ in the STMM fund. My rolling return on PBs is 1.3% (equivalent to 1.63% in an easy access account, as I’ve used my personal savings allowance) - is it time to ditch them? 

You have been unlucky with the PB's so far, so maybe with the law of averages, if you keep them you should see better than average returns?

No, that's not how it works. Neither individual PBs nor the drawing mechanism have a memory - ie they don't know that you have had bad luck previously. Every bond and every holder has an equal chance in each new draw.