Ca$h. Who doesn’t like to have some on-hand? We all know the answer to that question. The real question is – if you are taking cash withdrawals as income from your investment portfolio – do you have enough cash-on-hand to last through this bear market caused by the Covid-19 coronavirus period of uncertainty?
On average, a bear market for the Dow lasts 206 trading days, while the average bear period for the S&P 500 is about 146 days, according to data from Dow Jones Market Data.
Source: Dow Jones Market Data
We made a decision in early January 2020, for those of our clients taking periodic withdrawals for income purposes, to create a separate ‘cash bucket’ in their accounts to cover approximately 24 months of income payments. In order to create this cash bucket, we sold a portion of the assets that had increased in value in the past and used the proceeds to secure these income payments. By having done so, we are not forced to sell assets to raise cash in portfolios for withdrawals while so many asset prices are depressed. Hopefully, prices will appreciate in value before we need to replenish our clients’ cash buckets in the next 18 – 24 months.
It’s always good to have enough cash-on-hand so you can have enough cash-in-hand.
Brad Lyons, CFP®