Personal Investments • Why numerous years of cash cushion?

With cash, you do not need to think about this.

In March 2020, the stock dropped 30+% and the bond dropped 7%.

Keep it simple. In a crisis, the last thing that you need is one more thing to worry about.

KlangFool

I remember this scenario. Now I understand why you would want a year+ of cash.

Thanks guys!

Tbf that was one month. I think both stocks and bonds rose in 2020 for the year. I don’t know about you, but in March 2020 I spent almost nothing except necessities.

In March 2020, I know that I will be laid off in a few months. And, I was unemployed for more than 1 year with several eye surgeries coming up. I "Sleep Well At Night" (SWAN) and rebalanced my portfolio because I have 2 years of expense in cash.

I don't know about you. But, not all of us are that lucky.

Counting on being lucky is not a good strategy.

My 60/40 portfolio is 30X not including the cash. So, I have 2 to 3 years of expense in cash and 12 years of expense in bond.

KlangFool

Understand, I actually hold about 50% in short-term bonds. I have no clue how many years that is because I have no faith in forecasting future spend, nor do I care as I am retired now. I think on Black Monday I was about 10% munis and the rest mostly small-cap value stocks.

I look at duration risk on a total portfolio basis. Equity is a high duration asset so with high equity I would be closer to cash for fixed. With moderate equity, a bond duration of 5-7 would be of no concern. If I were 25% equity I’d probably go out 7-12 years (mostly Tips).

Edit: I also agree that someone with job loss risk needs to think differently than someone who is retired. I would add though that mitigating job loss risk should also involve much more than financial resources.

Statistics: Posted by jebmke — Wed Aug 07, 2024 4:59 pm — Replies 34 — Views 1991

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