Author Topic: Anyone changed Asset Allocation due to cash being worth something now?  (Read 1015 times)

Much Fishing to Do

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So I'm transitioning into my FIRE asset allocation now, which is part of the trigger of all this, but really all that I have found I have changed is I'm moving from 80/20 equities/bonds to 70/20/10 equities/bonds/cash. 

Even though I was planning on this 70/20/10 quite a while ago (backtesting it never seemed to make much of a difference than 80/20 in risk and performance, but having the 3 years of cash seemed to feel better to me given the huge downturns in my investing life's experience of the past 20 years were all recovered in 3 years), I don't think I would have made this move 3 years ago when MMs were paying zilch, but now that my VG MM pays 2.3% it seems different.  I also realize maybe this is some false reasoning, as maybe the 0% in 2014 and the 2.3% now are basically the same real return (~0%?).

Anyone have any thoughts on this, positive or negative?

clifp

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Re: Anyone changed Asset Allocation due to cash being worth something now?
« Reply #1 on: December 03, 2018, 04:01:57 PM »
I started selling stock and moving money into bonds this last week. I'm going to move from 90/5/5 to probably 80/10/10 but possibly as low 70/20/10.  With CD 2 year CD paying over 3% and the bull market so old, it is doesn't make sense to have everything in stocks.

Boofinator

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Re: Anyone changed Asset Allocation due to cash being worth something now?
« Reply #2 on: December 03, 2018, 04:04:11 PM »
I'm not a fan of cash unless you expect to use that money imminently. Short-term bonds (or Treasuries if you want to go extremely conservative) will have greater expected yield and minimal interest rate risk.

clifp

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Re: Anyone changed Asset Allocation due to cash being worth something now?
« Reply #3 on: December 04, 2018, 02:34:35 AM »
I'm not a fan of cash unless you expect to use that money imminently. Short-term bonds (or Treasuries if you want to go extremely conservative) will have greater expected yield and minimal interest rate risk.

CD are considered cash, and nowadays they have yields greater than treasury bonds and often competitive with AA and AAA corporate bonds in the 2-5 years range.

Dances With Fire

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Re: Anyone changed Asset Allocation due to cash being worth something now?
« Reply #4 on: December 04, 2018, 04:28:42 AM »
I'm not a fan of cash unless you expect to use that money imminently. Short-term bonds (or Treasuries if you want to go extremely conservative) will have greater expected yield and minimal interest rate risk.

+1

I am starting to transition into more short term funds with NEW money but for different reasons other than current yields. (Although that does help with the decision to do so.)

DW and I have "won the race" and are now FI. We are now looking at retirement in the next 3-4 years (maybe less.)

Boofinator

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Re: Anyone changed Asset Allocation due to cash being worth something now?
« Reply #5 on: December 04, 2018, 07:04:25 AM »
I'm not a fan of cash unless you expect to use that money imminently. Short-term bonds (or Treasuries if you want to go extremely conservative) will have greater expected yield and minimal interest rate risk.

CD are considered cash, and nowadays they have yields greater than treasury bonds and often competitive with AA and AAA corporate bonds in the 2-5 years range.

The rate you quoted is pretty good, don't blame you for going for it. Though to be fair, CDs are not exactly cash equivalents (in my opinion) in that they can come with early withdrawal penalties.

Scandium

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Re: Anyone changed Asset Allocation due to cash being worth something now?
« Reply #6 on: December 04, 2018, 08:46:06 AM »
I-bonds yield 2.83% now. Unless I need the money in <1 year I'd rather put it there, at least up to the $10k annual max.
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm
« Last Edit: December 04, 2018, 10:28:45 AM by Scandium »

Road2Freedom

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Re: Anyone changed Asset Allocation due to cash being worth something now?
« Reply #7 on: December 04, 2018, 02:07:51 PM »
Figure I'll piggyback off this post since I was going to put out something similar. 

All of our non-401K accounts are through Fidelity and I went through the process of switching them from Target Date Funds to index funds after I found the FI community last year.  Basically have a 3-fund portfolio with FSKAX (Total Market Index Fund), FTIHX (Total International Index) and FXNAX (US Bond Index).  401K accounts are S&P index (best option available) for us.  Rest in cash (probably 10% at the time).

I've been adding to my cash position because we're considering buying a home next year and have it in an Ally savings account (2%) and it has gotten closer to 15% total net worth.  I've been contemplating for a while to move the bonds to FSKAX because they've been a net loser and I'm at least 10 years from retirement.  That'll also put me closer to 85% equities / 15% cash.

Finally pulled the trigger today since I didn't do it last week.

Boofinator

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Re: Anyone changed Asset Allocation due to cash being worth something now?
« Reply #8 on: December 04, 2018, 02:53:52 PM »
Figure I'll piggyback off this post since I was going to put out something similar. 

All of our non-401K accounts are through Fidelity and I went through the process of switching them from Target Date Funds to index funds after I found the FI community last year.  Basically have a 3-fund portfolio with FSKAX (Total Market Index Fund), FTIHX (Total International Index) and FXNAX (US Bond Index).  401K accounts are S&P index (best option available) for us.  Rest in cash (probably 10% at the time).

I've been adding to my cash position because we're considering buying a home next year and have it in an Ally savings account (2%) and it has gotten closer to 15% total net worth.  I've been contemplating for a while to move the bonds to FSKAX because they've been a net loser and I'm at least 10 years from retirement.  That'll also put me closer to 85% equities / 15% cash.

Finally pulled the trigger today since I didn't do it last week.

I agree that bonds don't have much of a place during the accumulation stage toward FI, but it shouldn't have to do with them being "a net loser". Bonds, especially those with a mix of long durations, will fluctuate with interest rate changes and appear for periods of time to not make money. But they haven't lost that much money, and they will definitely not lose money over the duration of the bonds (barring an economic collapse). Stocks, on the other hand, will lose big money at some point and may appear to be a much bigger "net loser"; are you prepared for that?

In other words, don't determine asset allocations based on recent performance. This is probably rule #1 for investing.

Road2Freedom

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Re: Anyone changed Asset Allocation due to cash being worth something now?
« Reply #9 on: December 04, 2018, 03:23:07 PM »
Figure I'll piggyback off this post since I was going to put out something similar. 

All of our non-401K accounts are through Fidelity and I went through the process of switching them from Target Date Funds to index funds after I found the FI community last year.  Basically have a 3-fund portfolio with FSKAX (Total Market Index Fund), FTIHX (Total International Index) and FXNAX (US Bond Index).  401K accounts are S&P index (best option available) for us.  Rest in cash (probably 10% at the time).

I've been adding to my cash position because we're considering buying a home next year and have it in an Ally savings account (2%) and it has gotten closer to 15% total net worth.  I've been contemplating for a while to move the bonds to FSKAX because they've been a net loser and I'm at least 10 years from retirement.  That'll also put me closer to 85% equities / 15% cash.

Finally pulled the trigger today since I didn't do it last week.

I agree that bonds don't have much of a place during the accumulation stage toward FI, but it shouldn't have to do with them being "a net loser". Bonds, especially those with a mix of long durations, will fluctuate with interest rate changes and appear for periods of time to not make money. But they haven't lost that much money, and they will definitely not lose money over the duration of the bonds (barring an economic collapse). Stocks, on the other hand, will lose big money at some point and may appear to be a much bigger "net loser"; are you prepared for that?

In other words, don't determine asset allocations based on recent performance. This is probably rule #1 for investing.

Probably the wrong wording regarding bonds.  If I went off recent performance I would've dumped the international allocation.  Just too much money locked up in conservative investments / cash for my liking.