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  #681  
Old 16.06.2021, 13:40
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Re: Equity Portfolio Advice

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Speaking of which, how much do people keep in cash/easy access for the rainy day?
I hear 5% (seems way too low), or 6 months, or 3 years.
I guess if you're young enough you don't need much as new employment is not difficult to find, so 6 to 9 months should cover that, but at my age I'm in the twilight of working years so when this jobs goes, it could be my last well paid one and it's a stretch until I can draw a pension (@10 years).
Depending on your liquidity needs, 1% cash could be ample if significant in nominal terms.
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  #682  
Old 16.06.2021, 13:43
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Re: Equity Portfolio Advice

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I prefer to see it in time rather than a percentage of my total net worth.

I have set aside 2years of current living expenses, you can see I'm a really risk averse person
I will work out possible redundancy and RAV to add in to my calculations, but 2 years I don't think is ridiculous.
Some people get a string of bad luck that can financially take them down for that long.
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  #683  
Old 16.06.2021, 14:21
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Re: Equity Portfolio Advice

currently, i'm negative cash due to various debt. but eventually, i plan to pay off debts and hold maybe 2-3 years living costs in cash as an emergency fund/buffer.
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  #684  
Old 16.06.2021, 14:27
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Re: Equity Portfolio Advice

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I prefer to see it in time rather than a percentage of my total net worth.

I have set aside 2years of current living expenses, you can see I'm a really risk averse person
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currently, i'm negative cash due to various debt. but eventually, i plan to pay off debts and hold maybe 2-3 years living costs in cash as an emergency fund/buffer.
Sounds like you're both anticipating Armageddon!
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  #685  
Old 16.06.2021, 14:42
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Re: Equity Portfolio Advice

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Sounds like you're both anticipating Armageddon!
I think if I were to have less on the side, it would make me twitchy and stressful to market movements, which is something bad for a long term investor. With the reserve I currently have, if I wake up to see a 30% drop in the market I'll just switch side and continue sleeping.

Being in my thirties, I should probably be more confident with having a smaller reserve, but I can't help it.
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  #686  
Old 16.06.2021, 14:49
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Re: Equity Portfolio Advice

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I think if I were to have less on the side, it would make me twitchy and stressful to market movements, which is something bad for a long term investor. With the reserve I currently have, if I wake up to see a 30% drop in the market I'll just switch side and continue sleeping.
this! my 18-24 mth reserve cash also gives me peace of mind and allows me stay true to my strategy and not be reactive. it also allows me, if needed, to seize any unique opportunities or have some special projects at a whim
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  #687  
Old 16.06.2021, 15:37
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Re: Equity Portfolio Advice

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Sounds like you're both anticipating Armageddon!
not really. i probably wouldn't aim to hold so much but covid changed my mind. here's something which could tank the stock markets, make you lose your job and potentially have your tenants free to live in your rental properties while not paying you. your businesses forced to shut down. all while you or your family could be suffering from crippling health issues. nowhere in my contingencies had i accounted for all these events to happen simultaneously.

the cash buffer then helps to ride out these incidents.

Last edited by Phil_MCR; 17.06.2021 at 09:27.
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  #688  
Old 16.06.2021, 17:02
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Re: Equity Portfolio Advice

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I tend to keep at most 5k Swiss francs.
I also try to keep under 5k once rent, credit card and monthly bills are paid. A football pundit used to say, “play the percentages” and that’s what I try to do.

I have a loan facility at Interactive Brokers (interest rate 1.5%) and sometimes use this to go slightly in the red until I can pay it back from salary.

I accept the risk that I may need to sell some of my shares at a loss to cover expenses one day but for me the cost of the alternative is too high. Compound returns mean that the lost opportunity of keeping 2 years’ living expenses cash is likely to be 8 years living expenses after 20 years (assuming 7% historical, long term return on shares). That's 8 years’ longer to hit a financial independence (retire early) target. It's not a cost I'm prepare to pay but I appreciate everyone has a different attitude towards risk
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  #689  
Old 16.06.2021, 17:50
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Re: Equity Portfolio Advice

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I also try to keep under 5k once rent, credit card and monthly bills are paid. A football pundit used to say, “play the percentages” and that’s what I try to do.

I have a loan facility at Interactive Brokers (interest rate 1.5%) and sometimes use this to go slightly in the red until I can pay it back from salary.

I accept the risk that I may need to sell some of my shares at a loss to cover expenses one day but for me the cost of the alternative is too high. Compound returns mean that the lost opportunity of keeping 2 years’ living expenses cash is likely to be 8 years living expenses after 20 years (assuming 7% historical, long term return on shares). That's 8 years’ longer to hit a financial independence (retire early) target. It's not a cost I'm prepare to pay but I appreciate everyone has a different attitude towards risk
Nice way of lookin at it. If I'd have been doing this the last 20 years I'd have clocked out by now.
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  #690  
Old 16.06.2021, 20:49
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Re: Equity Portfolio Advice

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I also try to keep under 5k once rent, credit card and monthly bills are paid. A football pundit used to say, “play the percentages” and that’s what I try to do.

I have a loan facility at Interactive Brokers (interest rate 1.5%) and sometimes use this to go slightly in the red until I can pay it back from salary.

I accept the risk that I may need to sell some of my shares at a loss to cover expenses one day but for me the cost of the alternative is too high. Compound returns mean that the lost opportunity of keeping 2 years’ living expenses cash is likely to be 8 years living expenses after 20 years (assuming 7% historical, long term return on shares). That's 8 years’ longer to hit a financial independence (retire early) target. It's not a cost I'm prepare to pay but I appreciate everyone has a different attitude towards risk
you can build up the cash balance at the end of the accumulation period to reduce the compounded opportunity cost. while working, you have income and a safety net of unemployment insurance.
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  #691  
Old 16.06.2021, 21:12
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Re: Equity Portfolio Advice

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you can build up the cash balance at the end of the accumulation period to reduce the compounded opportunity cost. while working, you have income and a safety net of unemployment insurance.
Since I don't work & have cashed in my pensions in full I like to keep 1-2 years spending money on hand, when I was working I had about 2 months salaries as cash.

In the 2008 crash I had virtually zero cash on hand, so could not pick up bargains, big mistake
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Old 16.06.2021, 22:38
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Re: Equity Portfolio Advice

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Since I don't work & have cashed in my pensions in full I like to keep 1-2 years spending money on hand, when I was working I had about 2 months salaries as cash.

In the 2008 crash I had virtually zero cash on hand, so could not pick up bargains, big mistake
That’s a thought provoking point. The flip side of that is that if you would’ve kept more cash you would’ve participated less in the gains running up to 2008. Then when a crash comes along there is the problem of knowing when we hit the bottom or if there is further to go
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  #693  
Old 16.06.2021, 23:18
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Re: Equity Portfolio Advice

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you can build up the cash balance at the end of the accumulation period to reduce the compounded opportunity cost. while working, you have income and a safety net of unemployment insurance.
Or... there was an article on BBC this week about how the Mega rich in USA minimise taxes by not selling their investments and instead borrowing against them and deducting the interest from taxable income. If spending is low as a % of assets this is an option too. If you can’t beat them, learn from them...
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  #694  
Old 16.06.2021, 23:20
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Re: Equity Portfolio Advice

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Since I don't work & have cashed in my pensions in full I like to keep 1-2 years spending money on hand, when I was working I had about 2 months salaries as cash.

In the 2008 crash I had virtually zero cash on hand, so could not pick up bargains, big mistake
you could buy on margin...
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  #695  
Old 17.06.2021, 06:29
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Re: Equity Portfolio Advice

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Or... there was an article on BBC this week about how the Mega rich in USA minimise taxes by not selling their investments and instead borrowing against them and deducting the interest from taxable income. If spending is low as a % of assets this is an option too. If you can’t beat them, learn from them...
I know someone who was under investigation by HMRC for over 15 years & went on tax strike. Rather than sell stocks & pay CGT he just borrowed money to live secured against his portfolio. HMRC finally conceded he had overpaid throughout the period under investigation & had to refund in excess of £750,000 plus interest. Since the rate of CGT dropped over the period it was a double whammy for HMRC
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  #696  
Old 17.06.2021, 07:17
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Re: Equity Portfolio Advice

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I know someone who was under investigation by HMRC for over 15 years & went on tax strike. Rather than sell stocks & pay CGT he just borrowed money to live secured against his portfolio. HMRC finally conceded he had overpaid throughout the period under investigation & had to refund in excess of £750,000 plus interest. Since the rate of CGT dropped over the period it was a double whammy for HMRC
It would’ve been good to see the look on the tax inspector’s face in the end but 15 years of investigation sounds a bit unsettling.
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Old 17.06.2021, 08:22
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Re: Equity Portfolio Advice

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It would’ve been good to see the look on the tax inspector’s face in the end but 15 years of investigation sounds a bit unsettling.
Quite outrageous, they only settled after the taxpayer started legal proceedings to close the matter. HMRC originally objected to a 1982 value of a partnership valuation produced by a big 4 accountancy firm & failed to give an alternative no. HMRC wanted original minutes from meetings 40 years before, where most of the people who attended the meetings had since died.

In the U.K. evading £100k of tax will almost certainly end with a prison sentence, VHNWI tend to slightly overpay their tax as an insurance against some error that might have occurred, quite contrary to what you read in the press
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  #698  
Old 17.06.2021, 08:31
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Re: Equity Portfolio Advice

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Or... there was an article on BBC this week about how the Mega rich in USA minimise taxes by not selling their investments and instead borrowing against them and deducting the interest from taxable income. If spending is low as a % of assets this is an option too. If you can’t beat them, learn from them...
since in switzerland, non-professional investors are not be subject to tax on their gains, this should be a non-issue here.
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Old 17.06.2021, 09:21
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Re: Equity Portfolio Advice

On the topic of cash as a safety buffer.

IMHO it depends a lot on the personal circumstances.

I keep a max of 3Months salary as cash. Even that might be too much. Both me and my wife work, so we both have a 2year's safety net right there (notice period + RAV). As for unexpected expenses: we are well insured. Plus, we have a strict spouses' rule to never spend more than we earn over a period of a max a couple of months.

So all in all what would a higher amount of cash bring us? On the other hand, the opportunity costs would be quite significant.
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Old 17.06.2021, 09:23
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Re: Equity Portfolio Advice

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...

In the 2008 crash I had virtually zero cash on hand, so could not pick up bargains, big mistake
Why was it a mistake? I thought you believe in TS's philosophy of time in market vs timing the market.
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