50-50 portfolio would be a better choice; actuary tables only predict average population statistics, not individual life durations. If health is good, expect to live longer then average actuarial lifetime
If you live another 20+ years, that could be a problem, but it's your choice, your money. I understand people change as they get older, my mom is like this, but I have her at least putting something in stocks now, but still think she's way too heavy on cash.
I think you have to do the math. I am early in my retirement, and I am using a cash buffer to mitigate sequence of returns risk. IOW, holding cash to buffer a stock crash. I run my portfolio through portfolio analyzer with the cash as cash and with the cash distributed according to my asset allocation and I am losing .2 percentage point on the sample portfolio. (my Annualized Return (CAGR) for the with cash portfolio is 5.96 and my CAGR is 6.2 for the distributed portfolio). I am totally fine with this cost for my peace of mind.
Rob has a video on his thoughts about the bucket strategy. I encourage anyone wanting more analysis on this to go find it. He just touched on this towards the end of this video.
I believe investors should prioritize putting their cash to work instead of letting it sit in banks. This quarter, we'll likely see greater market diversification. I plan to invest approximately $350K of my retirement savings in stocks for the coming year, with the aim of generating significant returns and potentially millions.
Given that risk levels are currently very high, it might be wise to exercise patience and wait for conditions to improve. Alternatively, you could seek guidance from a qualified financial advisor to develop a sound strategy.
Yes true, I have been in touch with a brokerage Advisor. With an initial starting reserve of $80k, my advisor chooses the entry and exit commands for my portfolio, which has grown to approximately $550k.
Great advice Rob, especially about not keeping a large hoard of cash to weather a market downturn. It makes perfect sense to just rebalance at least yearly when you’re retired just like you did while working. Your videos have been a TREMENDOUS help and I am sincerely thankful for your common sense insights.
Thanks for the video. I am retired with a 55/45 split. Your perspective on rebalancing vs. socking away cash for down markets is different from other advice that I have heard. I think I will stick with 3-4 years of cash for living expenses, Roth conversion taxes, and home projects.
@@CaptainBenjamins Just and fyi - many consider an investment account of 50%/50% split with a different non-investment emergency account of cash (often 1- 6 months) as a steady state for non-financial people. IE set it and leave it: it is a long run strategy
@@CaptainBenjamins That's a good question! I had financial advisors when I was near the end of my career recommend it given my income requirements and net worth. My son, who is in the financial industry (but not a financial advisor) is ok with it. New Retirement software's Monte Carlo simulations also look good. So basically the answer is that I am projected to have enough money in retirement so being conservative adds a little peace of mind.
@@dancurran8977 I guess if your professional son says it is okay, then you should be good. I feel that you would be leaving money on the table, right? I mean, sure your portfolio would have enough for a 30 year retirement, but what about leaving a legacy for generational wealth?
One additional place I keep cash is in the safe, the goal is to keep about 4-5k in a mix of bills. The reasoning is the bank has a 1k ATM withdrawal limit and I do not have a local bank. This cash has come into play a few times when a deal pops up on the local 4-sale boards. And most recently when having the house window trim repainted. Cash is still king when bartering over items for sale and in dealing with some small independent contractors.
@@alextjb Just curious, how would you actually use that silver or gold in real world situations? I see how cash is useful for last minute purchases with individuals, etc., but I imagine that the percentage of individuals who would barter in gold or silver is significantly lower.
Pawn shops may buy some amount of physical gold or silver coins, but they won’t give you full value for it. It’s one thing to say, “I have $10,000 worth of gold coins.” It’s something else to actually get that amount for it when you sell.
@@MusicalXena it can be used for a number of situations. Primarily related to storing value that is not directly tied to any one economy so you aren’t fully dependent on that currency valuation. Keep in mind though, I’m not advocating for putting your entire life savings in gold and silver. the name of the game is all about diversification. So something like 2-4%… sure! just like having 1-2% exposure to crypto currencies. One practical use for silver that I have actually used is that I keep a one once silver coin in my wallet. Back in the day my debit card had stopped working and my credit card was maxed out because I had been traveling for work on two long projects back to back… the reimbursement hadn’t come through yet. I didn’t have cash and this was before payment apps were even a thing. I bartered my one ounce silver coin for a ride back home. You would be surprised how much people admire gold or silver. In barters they are typically are worth more than their current value because of the novelty of the item in that moment. That is extremely specific… but there are plenty of practical reasons one may want to hold a small amount of precious metals. Also, I’m not a fan of owning precious metal stock… that defeats the purpose. If you are going to own gold and silver then you want physical gold or silver and you need to be in possession of it. I hope that answers your question.
Regarding Bonds going down with stocks only once in a 100 years.... In 2008 and 2009, Bond returns were mixed and down a little at the same time as stocks. Not as much as 2022, but still, it happened less than 20 years ago... It feels like "once in a blue moon" events are happening more frequently as of late... That all being said, I agree that timing never works and the best thing you can do is set up your portfolio using the metrics you described and hang on tight. Its gonna be what it is...
I'm 55, and not retired yet. So far, I have a 6 month emergency fund in a high yield savings, one paycheck ahead in checking, plus our current budget checking. I have sinking funds for 6 common recurring expenses including taxes, insurance, car repair / replace, etc... I have a another 6 months invested in a CD ladder. I have 6 years worth of expenses invested in index funds in a taxable brokerage. Another 20 plus years worth of expenses are in Roth and Traditional IRA's. I have a small pension and SS which I plan on taking at age 67 or 70.
IF you make your main checking account at a place like Fidelity, you can stash your cash in a money market fund at 5% while its waiting to be used to pay bills. When the money is needed, it gets withdrawn automatically from the money market account.
Excellent video Bob, and I am on board with your recommendations. The only other thing I have is $5K-$10K in cash, in my Gun Safe. I bank with Capital One, and they have no brick & mortar in my area, so I keep cash handy, in case I need to deposit it in our local bank (where I maintain $500-$1,000 balance) to get a Bank Check or something similar. Some purchases I make (like my local Gun Store and my dentist) give cash discounts for not using credit cards.
I used to be almost 100% in stocks, now have some long term bonds, yielding in the range of 4-6% and a lot of cash in my money market account earning 5.29%. I’m gradually increasing by exposure to equities, but I’m happy to take my time as long as I’m getting paid. If there is a correction I’ll go shopping.
Maybe off topic a bit, but I've read that some analysts believe the stock market is heavily over valued, for example the S&P CAPE ratio is 32% as one example. We all assume that past history says that the market will always go up over the long term but as the ads say "past performance is no guarantee of future performance." I'm actually worried about the markets longterm.
@@Robert-z8z1z I’ve been hearing these exact same statistics for ten years. Supposedly, the market was only supposed to gain 2% a year between 2018 and 2030. Best to not worry about what the experts think and just dollar cost average in and rebalance when appropriate.
@@Robert-z8z1zthis means your not confident in the US economy. More people coming into the first world means they will want to live like Americans. The market may correct but it will always go up
How much you hold in cash changes as you age. We currently are looking at about 15 years to plan for (that takes us into our mid 90s). We no longer need much or any return since we do not have children to leave anything to. So we are about 99% cash with only about 1% in dividend stocks. As far as that stock goes, it is so little money that we could have it go to zero with no significant impact. The result is that we can ignore the market.
I work in the oil and gas industry which is very cyclical many folks who have been up and down with price crashes have 4 to 5 years living expenses in cash CDs or MYGAs…just in case 🤞
Thanks Rob great video! This is exactly what we need to hear because it's so much simpler. The bucket approach is way too complicated and requires market timing just like you said not to mention all the cash drag.
Cash and cash equivalents are not “investments” even if they earn interest. The interest on cash is largely just to keep up with inflation. No real (inflation-adjusted) growth. Love your show!
It is to some. Many of us at retirement are no longer interested in beating the market, and keeping up with inflation (and maybe a dividend) is good enough.
@@jeffb.2469That’s fine! It’s a question of nomenclature, that’s all. Investment vehicles provide a potential for risk-adjusted returns above inflation. Cash does not. Hence, cash and cash equivalents are not considered investments. Thanks!
I am not critical of holding cash for spending needs over a pre-determined term, but it’s not recognized as an “investment.” That’s a fact. Proof: Would you pay an investment advisor to hold significant sums in cash? Of course not! That would be folly. He’s not managing anything. So, why pay him? It’s not an investment. That’s all that I mean. No criticism here! Hold your cash as you will. In my opinion, Rob’s show is the very best retirement show on the internet.
We keep about 1 1/2 months expenses in checking too. Then keep a significant amount in high yield money market to cover estimated taxes, travel etc. Doing Roth Conversions for 2 more years so need it for extra taxes. We have about 5% of total portfolio in cash. As rates lower I may reduce it.
To each their own. Even in retirement, my planning model is 97% USA ETF Stock and 3% cash. I manage (take advantage?) volatility by a 'sell one year of expense at each 10% gain' in bull markets, hopefully that is enough to cover through bear markets. If it is not, I 'sell one month of expense at current market price' to mitigate the asset damage. It becomes a game of managing forward time through the bull / bear market cycle.
@@gg80108 That's a very good question. I don't think one should listen to millionaire investors who tell you to invest everything... 60% down is not same for them as it is for most people.
@ShadyGrady3 one always got a plan till you get hit in the mouth! Age minus 100 is a good stock allocation. There is always something that crashes market and catches everyone by surprise. Then the market rotates, those that were first will be last and may never come back?
many have a multi-year cash cushion (or short-term stuff like CDs, SGOV, BILS, etc) so they don't need bonds, rather than having bonds so they don't need a cash cushion. try a portfolio visualizer to see which wins out.
I think a lot of this depends on how much money you have. For example, having $80k in cash may seem like a horrible decision, but if that’s only 3% of your portfolio and it gives you the peace of mind to invest more aggressively with the rest of your money, that’s very different than someone with the same amount of cash but it’s 40% of their portfolio.
Bingo all advice is not for everyone. I suspect BOB has about a 2 million dollar nest egg, excluding RE, and needing about 100k income. If his starting point matches yours, it might be a good plan.
@@thetjt bingo that is the starting point, do I really have to do anything, except not lose a big chunk of money or figure out how much you can lose and then it's play money.
I would love for you to do a video sharing your thoughts about fidelity’s personal retirement annuity (FPRA). They have around 67 VIP funds available for investing, including the type that would create a boglehead’s type 3 fund strategy as you often discuss. The main selling points of the FPRA as I see it is the ability to trade within this group of funds without having to report earnings for taxes purposes until they are withdrawn. Secondly, it would be interesting to find an approach to tracking these VIP funds, as their ticker symbols do not appear to chart when entered into any of the charting platforms. Love your advice and thought it was past time to let you know!
I bought me some TSLA, PYPL and SOFI last month. Investors are preaching buy the dip, some are selling without a concern should I too? I am asking because after a pretty good run Q1. I am up to 251k from 180k at the beginning of Q1 thanks to the likes of AMD and TSMC.
Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.
This is true. I'm in my mid 50's now. My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. I'm making money even before retiring, and my retirement fund has grown way more than it would have with just the 401(k). Haha.
Rob, thinking about the Fed TSP and a “60/40 Portfolio” I’m currently a few months from retirement and am allocated 65% C & 35% G. I believe with the current return on the G that is better for the “bond” portion than the F fund. Am thinking about changing equities to some combo of C, S & I. Maybe 35% C, 15% S & 15% I. In any case your thoughts on a good retiree 60/40 portfolio keeping funds in the TSP?
I've always kept 1 to 5 years of living expenses in cash $80k in 1990. 500k in 2024. It was a mistake when interest rates tanked after 2008. Now that I'm old, I'm getting 5% . It makes more sense. Some people do not have enough cash to last year
I always appreciate the videos. I think that we have a much higher potential to have both stocks and bonds going down together with our national debt and inability to slow the increase down. It feels like we are going to have an L as opposed to a V when stocks correct. I bought international stocks a few years ago and I think I am only breakeven right now. I am about to retire in a few months so sequence of returns is weighing heavily on my mind. thanks again.
When investment markets were smaller people transferred between stocks and bonds. Now the markets are overgrown and thus people buy or sell, thus selling will occur on both sides, drops on either side will bring the other side down. Simply they will either put money into the market(stocks and bonds) or remove it from the market(stocks and bonds).
@ROB BERGER. unrelated questions 1) should we have beneficiaries listed at brokerage firms on after tax investments? I don’t knew them to lose the step up basis feature. 2) where to go if you are supposed to be receiving pension from a defined benefit plan years ago. The company was acquired by another. I contacted them and the pension guarantee company, no one can find my records. They told me to contact social security. I have all my tax returns. Worked there from 1981-1989. I was fully vested when I left.
You should contact a fee-only (paid hourly) financial advisor or tax professional. For a fixed fee they can answer your questions about beneficiaries and about a lost defined benefit pension plan. Short answers: 1) naming beneficiaries does not lose step-up in basis as far as I know, but a joint account with rights of survivorship **would** lose step-up…, an attorney, tax pro, or financial advisor would know more. You DO lose step-up in basis on real estate if you name heir as joint owner (with rights of survivorship), that’s different than a beneficiary or heir. 2) There may be an office in your state capital that deals with pensions and regulations-or call your local state or federal representative-your congress person-and ask. They can help you find the lost pension plan benefits you may be entitled to.
We have 2 years projected spend in cash ( savings and checking ), then 2 years in high yield savings. So 4 years total to ride out market crashes while taking minimum or nothing off the downed portfolios, etc. Planning shows that even if we only replace half of what we spend we never run out of money when we factor in just 1 of our SS income which I will turn on at 64 or 65. Our projections assume 4% inflation AVG through the rest of our lives. It looks like in our late 60s our cash and investments will grow beyond what we have now and instead we will be adding to after tax investments, etc. Good problem to have. Better than being on the other side of the numbers and worry about money.
Great video as usual, Rob. I think this depends entirely on your goals and tolerance for volatility. For example, if you are risk averse, and you're 5 years out from a planned early retirement, and a 4% return will get your portfolio to beyond where you need it, then why keep your money in an 80/20 portfolio for the next 5 years and risk a massive decline (a la 2000-2003)? Yes, the probability is that you'll handily outperform the 4%. But when the 5-year risk-free (Treasury) rate is 4.25%...you're pretty much there with a very conservative allocation. Why risk your early retirement in the pursuit of "even more," if you already have more than enough? On the other hand, if you have reached your goal and you'll easily weather the emotions of a steep market decline and yawn your way into retirement, then by all means ... stick to your 80/20 allocation, rebalance, and enjoy your life!
Your example about the 2-3 years of "cash" cushion during the market crash assumes they don't rebalance the rest of their portfolio (sell bonds, buy stock). 1. The "cash position" is still considered part of the total fixed income allocation (within the 30 of the 70/30, etc.). 2. The portfolio would still be rebalanced during that period, meaning stocks would still be purchased during the downturn. For example: $2,000,000 Total Portfolio 70% Equity = $1,400,000 30% Fixed Income = $600,000 $80,000 per year * 3 years = $240,000 out of the $600,000 invested for short-term stability, the rest in intermediate Treasury and investment-grade corporate bonds (for example) If the stock market crashes -30% within the first year: $1,500,000 Total Portfolio 65% Equity = $980,000 Equity 35% Fixed Income = $520,000 (assuming no total return for bonds for simplicity) Although they may continue living off their remaining $160,000 cash cushion, they would still rebalance the remaining portfolio, moving $70,000 from fixed income to the equity allocation. That's a similar rebalancing that would have occurred using the basic 70/30 allocation approach.
I never sell winners, they are hard to find and you luck into them mostly. I sell my losers and invest in the winners. Sell winners you end up with a loser stock portfolio.
Yes, this is how I have been thinking of it. I am retired (with a good pension), and I have been using a 70-30 allocation, with the 30 divided between 20% bonds and 10% cash equivalents. Then I'll rebalance at least once a year.
I am 10% cash, 10% foreign equities/ a mutual fund, and 80% U.S. mutual funds. I am 70 and social security covers over 1/2 of my expenses. My cash is earning 4.5%.
My local credit union has a 3.5% interest checking account. Similar to a HYSA, but they add stipulations like you need to use your debit card 15 times per month. Thats not hard to meet if you have your bills setup to autodraft from the account.
Rob, you mentioned estimated taxes. I pay mine with bac 2.62 preferred rewards card and payusatax. you get a float and make a spread on rewards vs the payusatax fee…whatcha think?
Can you do a video on the ways mutual funds end? Specifically, mutual fund mergers within the same fund family and liquidations? Can you give examples of popular funds that have done this? How can we protect ourselves from funds liquidating at market bottoms? Thanks!
My Fidelity checking earns 5% (they call it a cash management account) but I use it as a checking account and like I said it earns 5% a year like a CD. Even during the zero interest days of the past, I was still getting about 2%.
Since you mentioned early in the video that cash-like equivalents could be treasury bonds as in a bond ladder, I think is important to clarify that, when you say that you don’t hold cash for a potential long market downturn, you mean that what you ave in that case is the safe bonds in your asset allocation, but not just pure cash. So, if say you hold 5 years of expenses in safe bonds, that is just part of your bond allocation and not separate cash.
Rob and others: in your asset allocation (for example (60/40 stocks/fixed income) do you include your emergency fund in your fixed income asset allocation? Personally I include my emergency fund, but not those funds targeted for a large expense due within 6months, for an expensive trip, for example. Thank you Rob for your videos - very informative and “boglehead” compliant, which I like and do my best to practice.
Rob, I really like your videos. I am 74yrs old and my wife is 77yrs old. Two years ago I swithched to fixed income. Getting 5+% on the short end TBills has been great. I watched your video on Vanguard Life strategy funds and you said I could ask questions so here goes. At our age, do we need to be in the stock market? Thanks for your posts. I'm also a big fan of Geoff Schmidt.
@georgemaniere7919 What if you live another 20 or 30 years? Bonds & Tbills are very little return after inflation. So, yes, you really need to be in the stock market.
Thanks, Rob! Your content is the best in the TH-cam financial space. I have been binge-watching your live shows and much prefer them to Netflix. Too bad TH-cam can't show a trending score because you would be #1 in my book.
We have 70% of our funds in short term T-Bills. The T-Bills are laddered where funds mature every month. Most of our stocks have performed poorly relative to the overall market. We are up about 15% ytd. However, most of that is in NVIDIA. We've held stocks like PayPal, Disney, Carnivale, CVS, BA, and Pfizer hoping they would return. We had these and others for several years and they have only lost more money. We do not want to invest any more money into the stock market and have been happy with 5% on T-Bills. If the market crashes, we'll look for undervalued stocks to buy. Probably none of those listed above. The problem now is the market is over bought. We did make the mistake of selling about 60 shares of NVIDIA. Thirty at $500 and 30 at $750. We bought it several years back at $35.
how much money should be kept in savings ( not in CDs, FLOT, FLTR, etc. ) ? We should minimize high yield stable investments. Ordinary savings accounts do not pay much interest these days.
Thanks as always Rob. I would like to see you address the issue of high returns for cash. Is it still a mistake to hold more in cash when returns are 5.4%?
When interest rates go down, bonds will go up. Do you want to buy bonds then, once they’ve gone up in value (and are earning lower interest rates)? Probably not. Pick an asset allocation, and just keep rebalancing to it regularly. Not so important what allocation ratio you pick, just that you stick to it and rebalance regularly. 60/40 (equities/bonds) is fine.
i believe A massive benefit with Fidelity is when you deposit money to be invested. Your money earns 4.99% interest until you buy shares. So if you're doing cash secured puts your still earning interest on your money.
When you are retired, your entire portfolio is your emergency fund. There is no emergency that requires you to need 3-6 months of expenses in cash. You only need enough to cover immediate need. An immediate need can usually be covered by credit card then you have a month or two to liquidate some of your portfolio to raise the needed cash.
Being retired requires a whole different way to think about your money. I no longer have an emergency fund since I don't need 3-6 months worth of expenses in case I become unemployed.
I'm not retired but from what I gather your "emergency" in retirement is a down market. I plan on returning with two years of cash in a high yield savings account. If the market is way down the last thing I want to do is have to keep selling my stocks. If I have a large portion of cash saved before retirement AND a portfolio large enough to support me in a 4-5% withdrawal rate I'll be very secure. If the market takes a huge dip I could literally live off that large cash fund for a year or two to hopefully get at least some of those losses back before I need to continue selling my assets to live on.
@@rajanvaradarajan4575 But then you have to replenish your short-term cash. If you do that right away, then you might as well have just sold stocks, all you are doing is delaying the stock sale by a few days. If you delay the replenish, then you don't have short term cash for another emergency for quite some time. If you do that, then you are admitting that the short term cash is optional.
If retiring at age 53/55, what about holding cash to ensure you can get the ACA subsidy for 12 years? Would you do that? Also, if my portfolio goes down 30-40%, I don't know how comfortable I am touching it. I would be more apt to spend the peace of mind money.
I am in that spot. Using cash for day to day, also have emergency fund, but selectively selling positions to keep below the ACA limits. Just retired in April, so this year’s tax picture is murky. I feel 2025 might be a little more clearer for us.
Morningstar did a video on the BOXX ETF as an alternative to holding cash. The claim is the it mimics the short term bond but when you sell the stock it is recorded as a capital gain and not earned income thus a tax advantage. Have you looked at this and if so do you have any thought?
keep two types of cash, emergency fund 3 months of spending (or for big ticket items), treasuries 1 to 2 years. Other "bond funds" are in the few balanced portion of my ira/roth.
I have all but two monthly bills charging to my credit card. It makes it really easy to see how much to move once a month from my retirement account to checking to pay the bills. I have money for the next few years in money market accounts or CD's (some at 5.4%!).
What about that rebalancing thing when bonds are low, but stocks are up, like now? Do we sell stocks and buy bonds? How do you calculate how much to sell and buy going, either direction?
If you want to buy more stocks during the down turn, don't you want to have the cash cushion vs selling bonds to buy stocks, which will require more rebalancing for X:Y ratio of stock and bond?
Rob do you include your various cash buckets as part of your bond allocation in your overall portfolio, or is it separate? For instance, if you use 70/30 and have a $1m portfolio, does the $300k implied bond allocation include all your cash buckets?
Mostly agree, although I don't consider the 2-3yr cash as a cushion, but as a reserve. My view is: 1yr operating cash, 2-3yrs cash reserve, 3-5yrs bonds, rest equities. I'll take the 3.1%yoy inflation risk on 2-3yrs cash/cash equivalent reserve to benefit from a 10%+ market decline.
I may be a little higher as I am about to retire so 4 years cash , 5 years worth in annuities that feature a basement and ceiling ( I like because the host is incentivized) and the rest in equities. When I say cash at least half of this is in CDs . Still earning so may invest in a business or go TBills will have to look into what Rob is saying.
The 3-5 years in bonds is supposed to act as your reserve in case of market downturns though right? If you aren't using them to diversify like that wouldn't it make more sense to just keep them as equities? I'm not sure I see why to have operational cash and reserve cash and bonds other than for emotional comfort (not in a derogatory way, we all need to feel comfortable with our allocations)
@@rayzerot no, 3-5yrs in bonds is supposed to act as mitigation against equity downturn, not act as a reserve. A reserve isn't a cushion, because I'm actively going to deploy it when an opportunity exists.
@@hanwagu9967”when an opportunity exists” is thinking you can time the market. You cannot. Do what Rob recommends, just keep rebalancing, on a regular basis.
Another potential reason: If retiring before 65, and you do not have post retirement employer paid healthcare, it is likely you will need to sign up for ACA (Obamacare) coverage. Having a cash pool that can be drawn for expenses until Medicare kicks in helps to minimize the income (MAGI) that is used to calculate premiums. And note that if you choose to start SS at 62, your entire SS withdrawal is considered income for MAGI purposes. So relying on cash as much as possible until Medicare may result in considerable healthcare premium savings.
I put $400K in SWVXX and made approximately $40K ish last year b/c i sold puts on long term dividend stocks i wanted to own using that cash . It’s a great way to double dip and get invested.
thanks for the video as always. one thing I can't wrap my head around is in a market crash, rebalancing makes sense, but doesn't it trigger taxable events when selling? (on the flip side, in a bull market, selling stocks to rebalance into bonds also creates taxable events). do the taxes offset the positives of rebalancing?
Hi ! I have watched so many of your podcasts and have learned a lot. So thanx ! But I have a wuestion about the example you gave for the cash cushion to use if the stock market tanks. If you took $50000 from your taxable s+p fund and then rebalanced your IRA thereby essentially moving money out of fixed income to buy more stocks, how is that a net gain? You have already sold stock and you are just going to buy it back again. What am I missing?
The idea of diversifying into bonds vs holding cash seems like a distinction without a difference at least at today’s interest rates. Both bonds and cash are “fixed income,” and with the inverted yield curve these days, cash is actually paying more than long term bonds, with much less risk. If stocks go down, you can use this excess cash to buy more shares.
And if interest rates go down, so bonds go up in value, do you **then** buy bonds when they’re now higher in price? Or if interest rates go up, then you buy more bonds, when they’re lower in value? (In the case where bonds have gone down in value, interest rates have risen… If the yield curve is still inverted your short term cash will be earning even higher rates. Even harder to buy bonds then.) There is risk in holding cash, and long term it doesn’t pay off. Rob mentions that in the video. If you’re betting on the yield curve changing (or betting on it staying the same: inverted), then you’re still market timing…
@@liketheskyI guess I have never really seen the point of bonds. When interest rates were near zero for years, they paid nearly nothing while carrying the risk they would drop in price when rates finally rose. Now that rates are high, one could argue they make more sense, but for long term investments stocks as a class have generally outperformed bonds, so not all that compelling to me for capital appreciation. For safety, cash is king. True you do run the risk of missing out on potential upside, but if that cash cushion keeps you from needing to sell low, it may save you downside too. Main thing is, don’t put money in the market that you need in the next 5 years, since anything can happen short term. But long term, stocks are the place to be.
Rob, I think you made a mistake. At 13:08, you mentioned selling S&P 500 index fund in the taxable account, then re-buying the same (by selling bonds) in the IRA. You then mentioned that the net effect was that you bought more stocks--which you go on to mention a few more times in the video--although truly, the net effect was simply holding the same amount of stocks, while decreasing bonds by the value withdrawn. In your example, you sold stocks in taxable, then re-bought (presumably at same cost on same day) in the IRA. The actual net effect is that you'd own the same amount of S&P 500 index fund, as opposed to buying more of it when the market is down, as I think you erroneously mentioned a few times. To achieve what you're referring to (i.e., buy stocks when they're down), I think you'd have to sell stocks in taxable, then not only re-purchase in the IRA by selling bonds, but also sell even more bonds in the IRA to purchase even more S&P 500 than what you originally sold in taxable.
I was thinking the exact same thing. It’s a wash. You are holding bonds to be able to buy more stock you just sold or you use cash so you don’t have to sell your stock. The latter is less work.
We've been retired for 8 years, we keep 3 years of RMD's, equivalent to 5 years of actual budget, in MM accounts. 100% of the balance stays fully invested.
I think another category could be increased cash allocation based on a statistic such as the Buffett Indicator. If I remember correctly, Berkshire Hathaway is carrying about 40% cash which goes against the prevailing recommendations -- including yours.
Recently bonds and stocks are moving together, so there is no safe place to store capital. Any advice on "safer" funds would be appreciated. Bonds still seem to be moving with equities in the latest bull market; any change predicted? Thx for all your advice.
This video may be of interest to you. Rob posted this about two years ago. Hope it helps! m.th-cam.com/video/zY00_GjhVgo/w-d-xo.html&pp=ygUXUm9iIGJlcmdlciBtYXJrZXQgY3Jhc2g%3D
Maintain accounts at more than one bank or credit union. My credit union is currently temporarily shut down due to ransomware. Fortunately, I have accounts at multiple credit unions, so I'm not concerned with not having access to my money at the affected credit union.
Is it time for Federal bank deposit and credit union deposit insurance "FDIC" "NCUA" to increase? I think so,especially after the recent spate of inflation that has in my experience at least cut the purchasing value of a dollar in half or to even less than half in the years since the last Presidential administration change. Perhaps $1,000,000. would be appropriate,it takes almost that much to purchase an entry level residence in a lot of localities. I believe that at one time the FDIC amount was $10,000. but then ten thousand might have been what an entry level house cost !
Let's say you have a large portfolio of 6 million or more and you have adopted the Warren Buffett approach of 90% S & P 500 Index and 10% Treasuries to build wealth for your heirs. Doesn't that accomplish the goal of keeping plenty of money in cash for emergencies and enough to weather a stock market downturn that lasts 3 years. (ie 10% = $600,000)? Any thoughts on that?
You mean 1.5 years cash for the average bear market, not MOST scenarios. Half of the bear markets will last longer than 1.5 years, so you may need to consider that.
I think 1.5 years of safe assets is not enough. Remember the lost decade of 2000-2009 when it was just starting to recover in 2007 when it went down again.
Rob, explain why it would be smart in todays Market after 2022 to invest in bonds vs. cash or money market when the cash return is basically equal or even better than bonds. Although maybe not a sure thing, it is certainly possible the with a run away inflation bonds could actually still have a big swing. Interest rates went as high as 18 percent in the 80s. If you can get +5% return in a fidelity cash account, why would it be better to buy bonds at the same returns?
Cash accounts only hold that 5% for 90 days to one year, after that they have a new number, which today many expect those accounts to pay less in the next 2, 3 years. The Bond accounts usually range from 2 years to 30 years (10 years is the most common)
When you sell stock from your taxable, sell bonds in your tax-advantaged accounts and buy stocks in your tax advantaged accounts (rebalance), you aren't a net buyer of stocks, though. You are simply taking out your spending money from bonds and re-bucketing your stock allocation from your taxable to your tax advantages accounts.
We honestly don't know if 2022 is an anomaly since we have very little experience with that kind of an event. You're also thinking that the cash is separate from the 70/30, 60/40, 50/50 portfolio when it should be treated as part of the fixed income portion. So regardless of the market activities, there would still be the opportunity to rebalance by buying stocks when they're down.
@@godblessyou7376 I'll point you a bit farther down the comments to MeasureTwiceMoney's response. He does this for a living and trust his stuff, too. Obviously there are no hard and fast rules for bucket strategies, but I'm choosing this way because of some things Rob has said in the past as well as in this video.
Is it better to do regular tax withholding from your pensions such as social security or make quarterly tax payments? I do both but keep wondering if I should just do quarterly IRS tax payments.
I plan on having 5 years' worth of cash which is $210K (retiring in South America). If the markets crash, I can just leave my investment withdrawals alone and bide my time until they recover. I won't need $3,500 per month. It is an overestimate, just to nail the beast down.
Given the actuary tables, being in my 70s, everything is now in CDs and money mkt. funds. It just makes sense at this point.
50-50 portfolio would be a better choice; actuary tables only predict average population statistics, not individual life durations. If health is good, expect to live longer then average actuarial lifetime
I know people your age who still invest in dividend stock and ETFs. That's upwards of 10% (for a JEPI) or 5% for a blue chip stock.
I am 69 and have 50pct in a 5yr myga and 50pct in equities you need safe money for income and half for future growth
If you live another 20+ years, that could be a problem, but it's your choice, your money. I understand people change as they get older, my mom is like this, but I have her at least putting something in stocks now, but still think she's way too heavy on cash.
I think you have to do the math. I am early in my retirement, and I am using a cash buffer to mitigate sequence of returns risk. IOW, holding cash to buffer a stock crash. I run my portfolio through portfolio analyzer with the cash as cash and with the cash distributed according to my asset allocation and I am losing .2 percentage point on the sample portfolio. (my Annualized Return (CAGR) for the with cash portfolio is 5.96 and my CAGR is 6.2 for the distributed portfolio). I am totally fine with this cost for my peace of mind.
Rob has a video on his thoughts about the bucket strategy. I encourage anyone wanting more analysis on this to go find it. He just touched on this towards the end of this video.
I believe investors should prioritize putting their cash to work instead of letting it sit in banks. This quarter, we'll likely see greater market diversification. I plan to invest approximately $350K of my retirement savings in stocks for the coming year, with the aim of generating significant returns and potentially millions.
Given that risk levels are currently very high, it might be wise to exercise patience and wait for conditions to improve. Alternatively, you could seek guidance from a qualified financial advisor to develop a sound strategy.
Yes true, I have been in touch with a brokerage Advisor. With an initial starting reserve of $80k, my advisor chooses the entry and exit commands for my portfolio, which has grown to approximately $550k.
I’ve been looking to switch to an advisor for a while now. Any help pointing me to who your advisor is?
Her name is ' Rebecca Noblett Roberts ' Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I searched for her full name online, found her page, and sent an email to schedule a meeting. Hopefully, she responds soon. Thank you
Great advice Rob, especially about not keeping a large hoard of cash to weather a market downturn. It makes perfect sense to just rebalance at least yearly when you’re retired just like you did while working. Your videos have been a TREMENDOUS help and I am sincerely thankful for your common sense insights.
Thanks for the video. I am retired with a 55/45 split. Your perspective on rebalancing vs. socking away cash for down markets is different from other advice that I have heard. I think I will stick with 3-4 years of cash for living expenses, Roth conversion taxes, and home projects.
If you don’t mind me asking, why not stick to a typical 70/30 split? Why is your allocation at 55/45 when you already have a 3-4 year emergency fund
@@CaptainBenjamins Just and fyi - many consider an investment account of 50%/50% split with a different non-investment emergency account of cash (often 1- 6 months) as a steady state for non-financial people. IE set it and leave it: it is a long run strategy
@@CaptainBenjamins That's a good question! I had financial advisors when I was near the end of my career recommend it given my income requirements and net worth. My son, who is in the financial industry (but not a financial advisor) is ok with it. New Retirement software's Monte Carlo simulations also look good. So basically the answer is that I am projected to have enough money in retirement so being conservative adds a little peace of mind.
@@dancurran8977 I guess if your professional son says it is okay, then you should be good. I feel that you would be leaving money on the table, right? I mean, sure your portfolio would have enough for a 30 year retirement, but what about leaving a legacy for generational wealth?
@@CaptainBenjamins Leaving a legacy is not one of our goals. My take is that parents and children should be able to handle their own finances.
One additional place I keep cash is in the safe, the goal is to keep about 4-5k in a mix of bills. The reasoning is the bank has a 1k ATM withdrawal limit and I do not have a local bank. This cash has come into play a few times when a deal pops up on the local 4-sale boards. And most recently when having the house window trim repainted. Cash is still king when bartering over items for sale and in dealing with some small independent contractors.
Keeping a little bit of silver or gold in the safe would be a good idea as well
@@alextjb Just curious, how would you actually use that silver or gold in real world situations? I see how cash is useful for last minute purchases with individuals, etc., but I imagine that the percentage of individuals who would barter in gold or silver is significantly lower.
Pawn shops may buy some amount of physical gold or silver coins, but they won’t give you full value for it. It’s one thing to say, “I have $10,000 worth of gold coins.” It’s something else to actually get that amount for it when you sell.
@@MusicalXena it can be used for a number of situations. Primarily related to storing value that is not directly tied to any one economy so you aren’t fully dependent on that currency valuation.
Keep in mind though, I’m not advocating for putting your entire life savings in gold and silver. the name of the game is all about diversification.
So something like 2-4%… sure!
just like having 1-2% exposure to crypto currencies.
One practical use for silver that I have actually used is that I keep a one once silver coin in my wallet.
Back in the day my debit card had stopped working and my credit card was maxed out because I had been traveling for work on two long projects back to back… the reimbursement hadn’t come through yet.
I didn’t have cash and this was before payment apps were even a thing.
I bartered my one ounce silver coin for a ride back home.
You would be surprised how much people admire gold or silver. In barters they are typically are worth more than their current value because of the novelty of the item in that moment.
That is extremely specific… but there are plenty of practical reasons one may want to hold a small amount of precious metals.
Also, I’m not a fan of owning precious metal stock… that defeats the purpose. If you are going to own gold and silver then you want physical gold or silver and you need to be in possession of it.
I hope that answers your question.
@@alextjbcan't buy food with gold and gold never beats the stock market
Regarding Bonds going down with stocks only once in a 100 years....
In 2008 and 2009, Bond returns were mixed and down a little at the same time as stocks. Not as much as 2022, but still, it happened less than 20 years ago...
It feels like "once in a blue moon" events are happening more frequently as of late...
That all being said, I agree that timing never works and the best thing you can do is set up your portfolio using the metrics you described and hang on tight. Its gonna be what it is...
I'm 55, and not retired yet. So far, I have a 6 month emergency fund in a high yield savings, one paycheck ahead in checking, plus our current budget checking. I have sinking funds for 6 common recurring expenses including taxes, insurance, car repair / replace, etc... I have a another 6 months invested in a CD ladder. I have 6 years worth of expenses invested in index funds in a taxable brokerage. Another 20 plus years worth of expenses are in Roth and Traditional IRA's. I have a small pension and SS which I plan on taking at age 67 or 70.
IF you make your main checking account at a place like Fidelity, you can stash your cash in a money market fund at 5% while its waiting to be used to pay bills. When the money is needed, it gets withdrawn automatically from the money market account.
Excellent video Bob, and I am on board with your recommendations. The only other thing I have is $5K-$10K in cash, in my Gun Safe. I bank with Capital One, and they have no brick & mortar in my area, so I keep cash handy, in case I need to deposit it in our local bank (where I maintain $500-$1,000 balance) to get a Bank Check or something similar. Some purchases I make (like my local Gun Store and my dentist) give cash discounts for not using credit cards.
I am retired and hold a lot of cash. At 5% plus, I am happy to do so.
I used to be almost 100% in stocks, now have some long term bonds, yielding in the range of 4-6% and a lot of cash in my money market account earning 5.29%. I’m gradually increasing by exposure to equities, but I’m happy to take my time as long as I’m getting paid. If there is a correction I’ll go shopping.
@@JRRob3wn What you're doing is reverse glide path... look it up.
Maybe off topic a bit, but I've read that some analysts believe the stock market is heavily over valued, for example the S&P CAPE ratio is 32% as one example. We all assume that past history says that the market will always go up over the long term but as the ads say "past performance is no guarantee of future performance." I'm actually worried about the markets longterm.
@@Robert-z8z1z I’ve been hearing these exact same statistics for ten years. Supposedly, the market was only supposed to gain 2% a year between 2018 and 2030. Best to not worry about what the experts think and just dollar cost average in and rebalance when appropriate.
@@Robert-z8z1zthis means your not confident in the US economy. More people coming into the first world means they will want to live like Americans. The market may correct but it will always go up
I’m in a volatile industry that has long periods of lows. I keep the equivalent of a years salary in cash. My credit union is paying 5.25% yield
Sounds smart. How do you keep yourself and family from touching it?
@@Ferdinand208 firm boundaries and simple lifestyle. You are either a consumer or an investor
@@alexg4185 … for now!!! And I’ll pivot when needed.
@@Ferdinand208you can create a CD ladder if you don't trust yourself
Try to be a temp owner of everything. Never buy retail unless food and essentials. Be groovey to all things percieved living or not.
How much you hold in cash changes as you age. We currently are looking at about 15 years to plan for (that takes us into our mid 90s). We no longer need much or any return since we do not have children to leave anything to. So we are about 99% cash with only about 1% in dividend stocks. As far as that stock goes, it is so little money that we could have it go to zero with no significant impact. The result is that we can ignore the market.
1st class content as usual - thanks for sharing!
I work in the oil and gas industry which is very cyclical many folks who have been up and down with price crashes have 4 to 5 years living expenses in cash CDs or MYGAs…just in case 🤞
Thanks Rob great video! This is exactly what we need to hear because it's so much simpler. The bucket approach is way too complicated and requires market timing just like you said not to mention all the cash drag.
Cash and cash equivalents are not “investments” even if they earn interest. The interest on cash is largely just to keep up with inflation. No real (inflation-adjusted) growth.
Love your show!
It is to some. Many of us at retirement are no longer interested in beating the market, and keeping up with inflation (and maybe a dividend) is good enough.
@@jeffb.2469That’s fine! It’s a question of nomenclature, that’s all. Investment vehicles provide a potential for risk-adjusted returns above inflation. Cash does not. Hence, cash and cash equivalents are not considered investments.
Thanks!
“Investment” in risk mitigation and peace of mind.
I am not critical of holding cash for spending needs over a pre-determined term, but it’s not recognized as an “investment.” That’s a fact.
Proof: Would you pay an investment advisor to hold significant sums in cash? Of course not! That would be folly. He’s not managing anything. So, why pay him? It’s not an investment. That’s all that I mean. No criticism here! Hold your cash as you will.
In my opinion, Rob’s show is the very best retirement show on the internet.
We keep about 1 1/2 months expenses in checking too. Then keep a significant amount in high yield money market to cover estimated taxes, travel etc. Doing Roth Conversions for 2 more years so need it for extra taxes. We have about 5% of total portfolio in cash. As rates lower I may reduce it.
To each their own. Even in retirement, my planning model is 97% USA ETF Stock and 3% cash. I manage (take advantage?) volatility by a 'sell one year of expense at each 10% gain' in bull markets, hopefully that is enough to cover through bear markets. If it is not, I 'sell one month of expense at current market price' to mitigate the asset damage. It becomes a game of managing forward time through the bull / bear market cycle.
do you really need all that market risk is always the question.
@@gg80108 That's a very good question. I don't think one should listen to millionaire investors who tell you to invest everything... 60% down is not same for them as it is for most people.
@ShadyGrady3 one always got a plan till you get hit in the mouth! Age minus 100 is a good stock allocation. There is always something that crashes market and catches everyone by surprise. Then the market rotates, those that were first will be last and may never come back?
@ShadyGrady3 everyone has a plan till they get hit in the mouth with a 40% drop. How many shares you wanna sell at a 40% lose?
His talk Sounds like my scenario....great overview. Thx RB...yur a most groovey guy...the mostest
many have a multi-year cash cushion (or short-term stuff like CDs, SGOV, BILS, etc) so they don't need bonds, rather than having bonds so they don't need a cash cushion. try a portfolio visualizer to see which wins out.
I think a lot of this depends on how much money you have. For example, having $80k in cash may seem like a horrible decision, but if that’s only 3% of your portfolio and it gives you the peace of mind to invest more aggressively with the rest of your money, that’s very different than someone with the same amount of cash but it’s 40% of their portfolio.
Bingo all advice is not for everyone. I suspect BOB has about a 2 million dollar nest egg, excluding RE, and needing about 100k income. If his starting point matches yours, it might be a good plan.
Good point. However, if you total 2.7 million money you really don't *have to* invest anything now do you...
@@thetjt bingo that is the starting point, do I really have to do anything, except not lose a big chunk of money or figure out how much you can lose and then it's play money.
I would love for you to do a video sharing your thoughts about fidelity’s personal retirement annuity (FPRA). They have around 67 VIP funds available for investing, including the type that would create a boglehead’s type 3 fund strategy as you often discuss. The main selling points of the FPRA as I see it is the ability to trade within this group of funds without having to report earnings for taxes purposes until they are withdrawn. Secondly, it would be interesting to find an approach to tracking these VIP funds, as their ticker symbols do not appear to chart when entered into any of the charting platforms. Love your advice and thought it was past time to let you know!
I bought me some TSLA, PYPL and SOFI last month. Investors are preaching buy the dip, some are selling without a concern should I too? I am asking because after a pretty good run Q1. I am up to 251k from 180k at the beginning of Q1 thanks to the likes of AMD and TSMC.
Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.
This is true. I'm in my mid 50's now. My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. I'm making money even before retiring, and my retirement fund has grown way more than it would have with just the 401(k). Haha.
Spend it wisely...
Rob, thinking about the Fed TSP and a “60/40 Portfolio” I’m currently a few months from retirement and am allocated 65% C & 35% G. I believe with the current return on the G that is better for the “bond” portion than the F fund. Am thinking about changing equities to some combo of C, S & I. Maybe 35% C, 15% S & 15% I.
In any case your thoughts on a good retiree 60/40 portfolio keeping funds in the TSP?
At 69 years old, I prefer to keep 300k in CDs for LTC risk
Thoughts?
I'd say if that helps you sleep better, then it's the way to go! Currently with CD's around 5%, it's a great way to go.
With today's interest rates on savings. Why have bonds that goes up and down. Why not have a large part of your money in 5.25% savings?
I've always kept 1 to 5 years of living expenses in cash $80k in 1990. 500k in 2024. It was a mistake when interest rates tanked after 2008. Now that I'm old, I'm getting 5% . It makes more sense. Some people do not have enough cash to last year
I always appreciate the videos. I think that we have a much higher potential to have both stocks and bonds going down together with our national debt and inability to slow the increase down. It feels like we are going to have an L as opposed to a V when stocks correct. I bought international stocks a few years ago and I think I am only breakeven right now. I am about to retire in a few months so sequence of returns is weighing heavily on my mind. thanks again.
When investment markets were smaller people transferred between stocks and bonds. Now the markets are overgrown and thus people buy or sell, thus selling will occur on both sides, drops on either side will bring the other side down. Simply they will either put money into the market(stocks and bonds) or remove it from the market(stocks and bonds).
@ROB BERGER. unrelated questions 1) should we have beneficiaries listed at brokerage firms on after tax investments? I don’t knew them to lose the step up basis feature.
2) where to go if you are supposed to be receiving pension from a defined benefit plan years ago. The company was acquired by another. I contacted them and the pension guarantee company, no one can find my records. They told me to contact social security. I have all my tax returns. Worked there from 1981-1989. I was fully vested when I left.
You should contact a fee-only (paid hourly) financial advisor or tax professional. For a fixed fee they can answer your questions about beneficiaries and about a lost defined benefit pension plan.
Short answers: 1) naming beneficiaries does not lose step-up in basis as far as I know, but a joint account with rights of survivorship **would** lose step-up…, an attorney, tax pro, or financial advisor would know more. You DO lose step-up in basis on real estate if you name heir as joint owner (with rights of survivorship), that’s different than a beneficiary or heir.
2) There may be an office in your state capital that deals with pensions and regulations-or call your local state or federal representative-your congress person-and ask. They can help you find the lost pension plan benefits you may be entitled to.
We have 2 years projected spend in cash ( savings and checking ), then 2 years in high yield savings. So 4 years total to ride out market crashes while taking minimum or nothing off the downed portfolios, etc. Planning shows that even if we only replace half of what we spend we never run out of money when we factor in just 1 of our SS income which I will turn on at 64 or 65. Our projections assume 4% inflation AVG through the rest of our lives. It looks like in our late 60s our cash and investments will grow beyond what we have now and instead we will be adding to after tax investments, etc. Good problem to have. Better than being on the other side of the numbers and worry about money.
Why not put your 2 years in a Money Market account? They are FDIC insured and mine yields 5.29%.
Great video as usual, Rob. I think this depends entirely on your goals and tolerance for volatility. For example, if you are risk averse, and you're 5 years out from a planned early retirement, and a 4% return will get your portfolio to beyond where you need it, then why keep your money in an 80/20 portfolio for the next 5 years and risk a massive decline (a la 2000-2003)? Yes, the probability is that you'll handily outperform the 4%. But when the 5-year risk-free (Treasury) rate is 4.25%...you're pretty much there with a very conservative allocation. Why risk your early retirement in the pursuit of "even more," if you already have more than enough? On the other hand, if you have reached your goal and you'll easily weather the emotions of a steep market decline and yawn your way into retirement, then by all means ... stick to your 80/20 allocation, rebalance, and enjoy your life!
Your example about the 2-3 years of "cash" cushion during the market crash assumes they don't rebalance the rest of their portfolio (sell bonds, buy stock).
1. The "cash position" is still considered part of the total fixed income allocation (within the 30 of the 70/30, etc.).
2. The portfolio would still be rebalanced during that period, meaning stocks would still be purchased during the downturn.
For example:
$2,000,000 Total Portfolio
70% Equity = $1,400,000
30% Fixed Income = $600,000
$80,000 per year * 3 years = $240,000 out of the $600,000 invested for short-term stability, the rest in intermediate Treasury and investment-grade corporate bonds (for example)
If the stock market crashes -30% within the first year:
$1,500,000 Total Portfolio
65% Equity = $980,000 Equity
35% Fixed Income = $520,000 (assuming no total return for bonds for simplicity)
Although they may continue living off their remaining $160,000 cash cushion, they would still rebalance the remaining portfolio, moving $70,000 from fixed income to the equity allocation.
That's a similar rebalancing that would have occurred using the basic 70/30 allocation approach.
I never sell winners, they are hard to find and you luck into them mostly. I sell my losers and invest in the winners. Sell winners you end up with a loser stock portfolio.
Yes, this is how I have been thinking of it. I am retired (with a good pension), and I have been using a 70-30 allocation, with the 30 divided between 20% bonds and 10% cash equivalents. Then I'll rebalance at least once a year.
@@mikesennett7478 I never sell stock winners, they are too hard to find. I Sell losers and buy more of my winners. Keep taxes low by using MLPs.
I am 10% cash, 10% foreign equities/ a mutual fund, and 80% U.S. mutual funds. I am 70 and social security covers over 1/2 of my expenses. My cash is earning 4.5%.
My local credit union has a 3.5% interest checking account. Similar to a HYSA, but they add stipulations like you need to use your debit card 15 times per month. Thats not hard to meet if you have your bills setup to autodraft from the account.
Rob, you mentioned estimated taxes. I pay mine with bac 2.62 preferred rewards card and payusatax. you get a float and make a spread on rewards vs the payusatax fee…whatcha think?
That's just what I have been doing for several years. As you say, you make about 1/2% on the spread and you have 1-2 months float.
Can you do a video on the ways mutual funds end? Specifically, mutual fund mergers within the same fund family and liquidations? Can you give examples of popular funds that have done this? How can we protect ourselves from funds liquidating at market bottoms? Thanks!
My Fidelity checking earns 5% (they call it a cash management account) but I use it as a checking account and like I said it earns 5% a year like a CD. Even during the zero interest days of the past, I was still getting about 2%.
Since you mentioned early in the video that cash-like equivalents could be treasury bonds as in a bond ladder, I think is important to clarify that, when you say that you don’t hold cash for a potential long market downturn, you mean that what you ave in that case is the safe bonds in your asset allocation, but not just pure cash. So, if say you hold 5 years of expenses in safe bonds, that is just part of your bond allocation and not separate cash.
Rob and others: in your asset allocation (for example (60/40 stocks/fixed income) do you include your emergency fund in your fixed income asset allocation?
Personally I include my emergency fund, but not those funds targeted for a large expense due within 6months, for an expensive trip, for example.
Thank you Rob for your videos - very informative and “boglehead” compliant, which I like and do my best to practice.
Rob, I really like your videos. I am 74yrs old and my wife is 77yrs old. Two years ago I swithched to fixed income. Getting 5+% on the short end TBills has been great.
I watched your video on Vanguard Life strategy funds and you said I could ask questions so here goes. At our age, do we need to be in the stock market?
Thanks for your posts. I'm also a big fan of Geoff Schmidt.
@georgemaniere7919 What if you live another 20 or 30 years? Bonds & Tbills are very little return after inflation.
So, yes, you really need to be in the stock market.
Thanks, Rob! Your content is the best in the TH-cam financial space. I have been binge-watching your live shows and much prefer them to Netflix. Too bad TH-cam can't show a trending score because you would be #1 in my book.
Overdraft protection works too!
We have 70% of our funds in short term T-Bills. The T-Bills are laddered where funds mature every month. Most of our stocks have performed poorly relative to the overall market. We are up about 15% ytd. However, most of that is in NVIDIA. We've held stocks like PayPal, Disney, Carnivale, CVS, BA, and Pfizer hoping they would return. We had these and others for several years and they have only lost more money.
We do not want to invest any more money into the stock market and have been happy with 5% on T-Bills. If the market crashes, we'll look for undervalued stocks to buy. Probably none of those listed above.
The problem now is the market is over bought. We did make the mistake of selling about 60 shares of NVIDIA. Thirty at $500 and 30 at $750. We bought it several years back at $35.
Whoever says "cash is trash" can give me all his cash.
@Rob Berger I may have missed it over the many episodes I’ve watched: when do you and your spouse intend to claim Social Security?
how much money should be kept in savings ( not in CDs, FLOT, FLTR, etc. ) ? We should minimize high yield stable investments. Ordinary savings accounts do not pay much interest these days.
Thanks as always Rob. I would like to see you address the issue of high returns for cash. Is it still a mistake to hold more in cash when returns are 5.4%?
When interest rates go down, bonds will go up. Do you want to buy bonds then, once they’ve gone up in value (and are earning lower interest rates)? Probably not. Pick an asset allocation, and just keep rebalancing to it regularly. Not so important what allocation ratio you pick, just that you stick to it and rebalance regularly. 60/40 (equities/bonds) is fine.
Thanks so much for sharing that! That is huge in this higher interest rate environment
i believe A massive benefit with Fidelity is when you deposit money to be invested. Your money earns 4.99% interest until you buy shares. So if you're doing cash secured puts your still earning interest on your money.
When you are retired, your entire portfolio is your emergency fund. There is no emergency that requires you to need 3-6 months of expenses in cash. You only need enough to cover immediate need. An immediate need can usually be covered by credit card then you have a month or two to liquidate some of your portfolio to raise the needed cash.
Being retired requires a whole different way to think about your money. I no longer have an emergency fund since I don't need 3-6 months worth of expenses in case I become unemployed.
I'm not retired but from what I gather your "emergency" in retirement is a down market.
I plan on returning with two years of cash in a high yield savings account.
If the market is way down the last thing I want to do is have to keep selling my stocks. If I have a large portion of cash saved before retirement AND a portfolio large enough to support me in a 4-5% withdrawal rate I'll be very secure.
If the market takes a huge dip I could literally live off that large cash fund for a year or two to hopefully get at least some of those losses back before I need to continue selling my assets to live on.
partly true; emergencies and planned expenses may come over the horizon. you don't want to touch your stock funds and use short term cash instead.
@@rajanvaradarajan4575 But then you have to replenish your short-term cash. If you do that right away, then you might as well have just sold stocks, all you are doing is delaying the stock sale by a few days.
If you delay the replenish, then you don't have short term cash for another emergency for quite some time. If you do that, then you are admitting that the short term cash is optional.
@@coreyburke3493why choose a high yield savings account rather than a T-Bill ladder?
Totally agree on the re-balance strategy
If retiring at age 53/55, what about holding cash to ensure you can get the ACA subsidy for 12 years? Would you do that? Also, if my portfolio goes down 30-40%, I don't know how comfortable I am touching it. I would be more apt to spend the peace of mind money.
I am in that spot. Using cash for day to day, also have emergency fund, but selectively selling positions to keep below the ACA limits. Just retired in April, so this year’s tax picture is murky.
I feel 2025 might be a little more clearer for us.
I also retired in April, and am looking forward to ending the year and seeing how good I did on estimating for ACA.
16:01 well, rebalancing one’s portfolio is a form of market timing (programmatically, I would hope)
Morningstar did a video on the BOXX ETF as an alternative to holding cash. The claim is the it mimics the short term bond but when you sell the stock it is recorded as a capital gain and not earned income thus a tax advantage.
Have you looked at this and if so do you have any thought?
Bravo! How did you learn to do this and what is your secret to sticking with the plan?
keep two types of cash, emergency fund 3 months of spending (or for big ticket items), treasuries 1 to 2 years. Other "bond funds" are in the few balanced portion of my ira/roth.
I have all but two monthly bills charging to my credit card. It makes it really easy to see how much to move once a month from my retirement account to checking to pay the bills. I have money for the next few years in money market accounts or CD's (some at 5.4%!).
Be careful with this as many bills charge a fee to use your credit card to pay.
@zumapuma38 surprisingly none of mine do or I wouldn't do it.
What about that rebalancing thing when bonds are low, but stocks are up, like now? Do we sell stocks and buy bonds? How do you calculate how much to sell and buy going, either direction?
If you want to buy more stocks during the down turn, don't you want to have the cash cushion vs selling bonds to buy stocks, which will require more rebalancing for X:Y ratio of stock and bond?
Thanks, I hope that's helpful to others as well.
Rob do you include your various cash buckets as part of your bond allocation in your overall portfolio, or is it separate? For instance, if you use 70/30 and have a $1m portfolio, does the $300k implied bond allocation include all your cash buckets?
Mostly agree, although I don't consider the 2-3yr cash as a cushion, but as a reserve. My view is: 1yr operating cash, 2-3yrs cash reserve, 3-5yrs bonds, rest equities. I'll take the 3.1%yoy inflation risk on 2-3yrs cash/cash equivalent reserve to benefit from a 10%+ market decline.
I may be a little higher as I am about to retire so 4 years cash , 5 years worth in annuities that feature a basement and ceiling ( I like because the host is incentivized) and the rest in equities. When I say cash at least half of this is in CDs . Still earning so may invest in a business or go TBills will have to look into what Rob is saying.
The 3-5 years in bonds is supposed to act as your reserve in case of market downturns though right? If you aren't using them to diversify like that wouldn't it make more sense to just keep them as equities? I'm not sure I see why to have operational cash and reserve cash and bonds other than for emotional comfort (not in a derogatory way, we all need to feel comfortable with our allocations)
@@rayzerot no, 3-5yrs in bonds is supposed to act as mitigation against equity downturn, not act as a reserve. A reserve isn't a cushion, because I'm actively going to deploy it when an opportunity exists.
@@hanwagu9967”when an opportunity exists” is thinking you can time the market. You cannot. Do what Rob recommends, just keep rebalancing, on a regular basis.
Another potential reason: If retiring before 65, and you do not have post retirement employer paid healthcare, it is likely you will need to sign up for ACA (Obamacare) coverage. Having a cash pool that can be drawn for expenses until Medicare kicks in helps to minimize the income (MAGI) that is used to calculate premiums. And note that if you choose to start SS at 62, your entire SS withdrawal is considered income for MAGI purposes. So relying on cash as much as possible until Medicare may result in considerable healthcare premium savings.
Great video. Thank you
Hi Rob, another informative video. Do you think Vanguard’s new Cash Plus Account would be an ok place to keep a large savings position? Thanks.
I put $400K in SWVXX and made approximately $40K ish last year b/c i sold puts on long term dividend stocks i wanted to own using that cash . It’s a great way to double dip and get invested.
Also what are the pluses and minus regarding say TFDXX blackrock fund vs. T bills in terms of interest rate and other factors?
you lose the protection of maturity with a fund. You may never see your principal back.
thanks for the video as always. one thing I can't wrap my head around is in a market crash, rebalancing makes sense, but doesn't it trigger taxable events when selling? (on the flip side, in a bull market, selling stocks to rebalance into bonds also creates taxable events). do the taxes offset the positives of rebalancing?
Try to do the rebalancing in your 401K/IRA.
How about using the cash to rebalance by buying stocks with cash. I hold 20 percent cash 5 percent bonds and 75 percent stocks
Subscribed…partially for the good advice…mostly because you have a ROM #1 on your shelf. Good taste makes for good choices. 😉
Hi ! I have watched so many of your podcasts and have learned a lot. So thanx ! But I have a wuestion about the example you gave for the cash cushion to use if the stock market tanks. If you took $50000 from your taxable s+p fund and then rebalanced your IRA thereby essentially moving money out of fixed income to buy more stocks, how is that a net gain? You have already sold stock and you are just going to buy it back again. What am I missing?
The idea of diversifying into bonds vs holding cash seems like a distinction without a difference at least at today’s interest rates. Both bonds and cash are “fixed income,” and with the inverted yield curve these days, cash is actually paying more than long term bonds, with much less risk. If stocks go down, you can use this excess cash to buy more shares.
And if interest rates go down, so bonds go up in value, do you **then** buy bonds when they’re now higher in price? Or if interest rates go up, then you buy more bonds, when they’re lower in value? (In the case where bonds have gone down in value, interest rates have risen… If the yield curve is still inverted your short term cash will be earning even higher rates. Even harder to buy bonds then.)
There is risk in holding cash, and long term it doesn’t pay off. Rob mentions that in the video. If you’re betting on the yield curve changing (or betting on it staying the same: inverted), then you’re still market timing…
@@liketheskyI guess I have never really seen the point of bonds. When interest rates were near zero for years, they paid nearly nothing while carrying the risk they would drop in price when rates finally rose. Now that rates are high, one could argue they make more sense, but for long term investments stocks as a class have generally outperformed bonds, so not all that compelling to me for capital appreciation. For safety, cash is king. True you do run the risk of missing out on potential upside, but if that cash cushion keeps you from needing to sell low, it may save you downside too. Main thing is, don’t put money in the market that you need in the next 5 years, since anything can happen short term. But long term, stocks are the place to be.
Rob, I think you made a mistake. At 13:08, you mentioned selling S&P 500 index fund in the taxable account, then re-buying the same (by selling bonds) in the IRA. You then mentioned that the net effect was that you bought more stocks--which you go on to mention a few more times in the video--although truly, the net effect was simply holding the same amount of stocks, while decreasing bonds by the value withdrawn. In your example, you sold stocks in taxable, then re-bought (presumably at same cost on same day) in the IRA. The actual net effect is that you'd own the same amount of S&P 500 index fund, as opposed to buying more of it when the market is down, as I think you erroneously mentioned a few times. To achieve what you're referring to (i.e., buy stocks when they're down), I think you'd have to sell stocks in taxable, then not only re-purchase in the IRA by selling bonds, but also sell even more bonds in the IRA to purchase even more S&P 500 than what you originally sold in taxable.
I was thinking the exact same thing. It’s a wash. You are holding bonds to be able to buy more stock you just sold or you use cash so you don’t have to sell your stock. The latter is less work.
If you place one years worth of cash to cover current year expenses, do you include this amount in total assets allocation. Thanks
Hey Rob, thanks for sharing the knowledge about how much cash you should have on hand…Question, what is your opinion on Yieldmax Funds…Thanks👍😎👌
We've been retired for 8 years, we keep 3 years of RMD's, equivalent to 5 years of actual budget, in MM accounts. 100% of the balance stays fully invested.
Are you buying the actual tbill or the money market fund spaax?
Ron have you talked about RMD lately? Should you do it at start of year or wait to end? The money will be reinvested in personal account.
I think another category could be increased cash allocation based on a statistic such as the Buffett Indicator. If I remember correctly, Berkshire Hathaway is carrying about 40% cash which goes against the prevailing recommendations -- including yours.
Berkshire carries about 20% cash which is typical for them. Nowhere close to 40%. They have about $180B cash and a $880B mkt cap.
@@likethesky Thanks for the correction. I should have verified my data before posting instead of "remembering".
Recently bonds and stocks are moving together, so there is no safe place to store capital. Any advice on "safer" funds would be appreciated. Bonds still seem to be moving with equities in the latest bull market; any change predicted? Thx for all your advice.
Can you dedicate a show to just a discussion about how to invest during a market crash. taking into mind cash holding in a retirement account.
This video may be of interest to you. Rob posted this about two years ago. Hope it helps!
m.th-cam.com/video/zY00_GjhVgo/w-d-xo.html&pp=ygUXUm9iIGJlcmdlciBtYXJrZXQgY3Jhc2g%3D
Maintain accounts at more than one bank or credit union. My credit union is currently temporarily shut down due to ransomware. Fortunately, I have accounts at multiple credit unions, so I'm not concerned with not having access to my money at the affected credit union.
If you already have a 3-6 month of expenses emergency fund, what is the additional year's expenses in the peace of mind fund for?
Great advice thank you 😊
Is it time for Federal bank deposit and credit union deposit insurance "FDIC" "NCUA" to increase? I think so,especially after the recent spate of inflation that has in my experience at least cut the purchasing value of a dollar in half or to even less than half in the years since the last Presidential administration change.
Perhaps $1,000,000. would be appropriate,it takes almost that much to purchase an entry level residence in a lot of localities.
I believe that at one time the FDIC amount was $10,000. but then ten thousand might have been what an entry level house cost !
Random question, is T.Rowe a good brokerage? I read good thing about them.
Thanks Rob
@RobBerger I noticed My Banking Direct in the video is not on all cards anymore. Is there a reason why?
Let's say you have a large portfolio of 6 million or more and you have adopted the Warren Buffett approach of 90% S & P 500 Index and 10% Treasuries to build wealth for your heirs. Doesn't that accomplish the goal of keeping plenty of money in cash for emergencies and enough to weather a stock market downturn that lasts 3 years. (ie 10% = $600,000)? Any thoughts on that?
Most bear markets last 18 months, so 1.5 years cash is all you need for most scenarios.
You mean 1.5 years cash for the average bear market, not MOST scenarios. Half of the bear markets will last longer than 1.5 years, so you may need to consider that.
I think 1.5 years of safe assets is not enough. Remember the lost decade of 2000-2009 when it was just starting to recover in 2007 when it went down again.
Rob, explain why it would be smart in todays Market after 2022 to invest in bonds vs. cash or money market when the cash return is basically equal or even better than bonds. Although maybe not a sure thing, it is certainly possible the with a run away inflation bonds could actually still have a big swing. Interest rates went as high as 18 percent in the 80s. If you can get +5% return in a fidelity cash account, why would it be better to buy bonds at the same returns?
Cash accounts only hold that 5% for 90 days to one year, after that they have a new number, which today many expect those accounts to pay less in the next 2, 3 years. The Bond accounts usually range from 2 years to 30 years (10 years is the most common)
When you sell stock from your taxable, sell bonds in your tax-advantaged accounts and buy stocks in your tax advantaged accounts (rebalance), you aren't a net buyer of stocks, though. You are simply taking out your spending money from bonds and re-bucketing your stock allocation from your taxable to your tax advantages accounts.
I'm 60/40 with the 40 about half bond fund, half cash.
So that’s about 20% cash which is what I have. I was always worried I had too much in cash but at the same time I feel very safe.
We honestly don't know if 2022 is an anomaly since we have very little experience with that kind of an event. You're also thinking that the cash is separate from the 70/30, 60/40, 50/50 portfolio when it should be treated as part of the fixed income portion. So regardless of the market activities, there would still be the opportunity to rebalance by buying stocks when they're down.
I respectfully disagree. Your allocation (e.g., 70/30, 60/40, etc.) should be in investable assets. Cash should be separate from that.
@@godblessyou7376 I'll point you a bit farther down the comments to MeasureTwiceMoney's response. He does this for a living and trust his stuff, too. Obviously there are no hard and fast rules for bucket strategies, but I'm choosing this way because of some things Rob has said in the past as well as in this video.
Is it better to do regular tax withholding from your pensions such as social security or make quarterly tax payments? I do both but keep wondering if I should just do quarterly IRS tax payments.
@RodHardin If you are over 70 1/2, just take a withdrawal of your estimated tax from your IRA in December and have 100% withholding.
@@Fred2-123 I do that too but it's still not enough. Thanks
Isn’t this mostly market timing of various kinds. Any cash you hold is the same as selling your portfolio to that cash value.
I plan on having 5 years' worth of cash which is $210K (retiring in South America). If the markets crash, I can just leave my investment withdrawals alone and bide my time until they recover. I won't need $3,500 per month. It is an overestimate, just to nail the beast down.
Are T- bills cash or are they bonds? It’s debatable, I can see both sides of the argument. Ultra-short term bonds?
Regardless, this thieving "government" can seize all those bonds, T,-bills, etc
Can you please explain how to buy T bills on something like Merrill ? I have never bought any. I have always used stocks, options, and CD's only.
It is called money market accounts in most of those system.
@@jimrobinson9979 Thank you. I will check out those videos and others about T bill purchases.
Money market are paying equal to tbills, why bother?
@@gg80108 Because money markets are typically 1 year or less, while the bonds can be locked in up to 30 years.