I read the 2nd link, and they are assuming you have extra money outside the portfolio, but given that taking money out of portfolio to make a safety bucket is suboptimal, it must follow that it would be better to add that money to the portfolio rather than turning it into a safety bucket.Seems they agree, actually:As a counterpoint, RR had an episode where they cover the 'cash wedge' (keeping 1-3 years expenses in cash and drawing from that when portfolio in drawdown, draw from portfolio/refill cash when portfolio doing well).I have thought about including a safety bucket in my plan, holding 3 years of withdrawals in short term bonds to give the portfolio time to recover after a bear market.
Three years is insufficient to recover from a bear market:
https://earlyretirementnow.com/2017/03/ ... h-cushion/
But the safety bucket is effective if in addition to the portfolio:
https://earlyretirementnow.com/2018/05/ ... ity-myths/
https://rationalreminder.ca/podcast/277
The papers discussed in the episode are linked in the RR discussion thread (https://community.rationalreminder.ca/t ... read/25831)
... having a cash wedge might make you feel better, there may be some psychological benefits to implementing a strategy like that. But more than likely, it's suboptimal and is going to make you worse off over the long run.
(They didn't consider the second scenario [safety bucket in addition].)
I.e., if you have $X in your portfolio, and $Y extra money that you could put into a cash wedge, this seems functionally identical to 'I have $(X+Y) money in the portfolio, would it benefit me to take $Y out of the portfolio to make into a cash wedge', to which the answer seems to be 'no'.
Statistics: Posted by Morik — Wed Dec 27, 2023 4:24 pm — Replies 429 — Views 94374
