Bear Scare ... Have a Cash Buffer

Retiring Soon? Plan for Market Downturns


Retirees with cash buffers often react more calmly to market declines, reducing the odds that they will panic and bail out of the market completely, says Ross Levin, a financial adviser in Edina, Minn. The problem, Mr. Levin says, is that the low returns on cash often reduce a portfolio’s long-term returns. “If you have 80% in stocks and 20% in bonds with a three-year cash position, that’s a worse strategy from a returns standpoint than having 70% in stocks and 30% in bonds,” and nothing in cash, he says. A cash buffer “allows you to manage a client’s psychology during bad times, but it’s not an optimal strategy.” To solve that problem, some advisers instead use bonds as a buffer. A $1 million portfolio with 60% in stocks and 40% in bonds effectively holds eight years of living expenses in bonds, Mr. Pfau says.
Comment: This is our current strategy ... hold some in cash (using my T-Bill strategy) and if the market declines (it feels very high right now), buy on the dip

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