Cashing out

[RetireJapan]

It depends on why you want to take money off the table...

I think it is just arbitrary numbers messing with my head, to be honest. We just hit 25x the upper bound of what I think we might need in annual spending, and it's triggered some 'why risk money you need to get money you don't need' kind of feelings.

Given that we are planning to continue working (to some extent) and saving/investing, a correction would actually be welcome as our future contributions would be worth more.

But I need to think about it a bit more to get comfortable again. Thanks for the link!

[seb]

I checked the YTD gains this weekend on my MSCI World ETF and it's 27% over 10 months. It's kinda crazy.

As others said, you can change the rules from 100% equity to keep 20% cash, or some % of bonds, etc...

Having 20% of cash during a crash means your portfolio might suddenly become 60% equity / 40% cash and you can naturally follow your re-balancing strategy that tells you to buy more stocks to compensate. And in times of crazy gains, the same re-balancing will make you cash out those gains and increase your cash reserves accordinly.

I find these kind of strategies extremely satisfying because by just keeping the ratio with re-balancing, you naturally make rational decisions of selling stocks when it's higher, and buying when it's low.

So your "should I cash out" decision becomes "what ratio should I go with". And just stick to that strategy.

[EmaxisSlim Cultist]

Bonds... Specifically developed country government bonds.

Very happy to hear the other side of that argument though

Yes, no one knows the future. One thing is sure though, inflation will eat away at your cash savings. How fast, or how slowly, is uncertain.

Have you considered buying bonds directly? That locks in the yield.

Have you considered hedged funds? That avoids currency risk.

Consider 3x bonds products like TMF or 90/10 funds like Rakuten 360.

Cash or stocks...no there are more options.

[mighty58]

We just hit 25x the upper bound of what I think we might need in annual spending (...)

Congrats! And fitting that as the founder of this site you've done it. That's a serious milestone and one that many of us (myself included) are striving for.

I find these kind of strategies extremely satisfying because by just keeping the ratio with re-balancing, you naturally make rational decisions of selling stocks when it's higher, and buying when it's low.

This logic seems sound, except of course that the key piece of the puzzle (when it will go down) is unknowable. I was wrestling with the same arguments throughout 2017-2020 when markets were at all-time record highs (as they still are now), and I paid the price for trying to time it and outsmart everyone. You may get it right, or it might go up another 27%, and the "big crash", when it comes, might end up being (an insufficient) 25%. It's unknowable, and thus it's safer to just stay in for the long term.

[RetireJapan]

Congrats! And fitting that as the founder of this site you've done it. That's a serious milestone and one that many of us (myself included) are striving for.

Thanks! Although I am very aware that it is only so high because of the weak yen (almost all our investments are global) and current stock market frothiness.

I fully expect to have a lot less money on paper next year. Hence the ruminating, I guess!

[seb]

This logic seems sound, except of course that the key piece of the puzzle (when it will go down) is unknowable. I was wrestling with the same arguments throughout 2017-2020 when markets were at all-time record highs (as they still are now), and I paid the price for trying to time it and outsmart everyone. You may get it right, or it might go up another 27%, and the "big crash", when it comes, might end up being (an insufficient) 25%. It's unknowable, and thus it's safer to just stay in for the long term.

There is no timing the market in there. Only reacting to market movements (and personal expenses) and rebalancing your portfolio every X months.

If stocks go down, your stock/cash ratio goes down, you buy stocks to go back to the ratio you decided. If stock goes up, or your cash goes down with your expenses, you sell stocks and increase your cash reserve to bring it back to your ratio. No timing, only reacting.

[mighty58]

Although I am very aware that it is only so high because of the weak yen (almost all our investments are global) and current stock market frothiness.

It certainly has been a VERY good year thus far, I'm enjoying watching the (paper) gains go up so high as well.

There is no timing the market in there. Only reacting to market movements (and personal expenses) and rebalancing your portfolio every X months.

If stocks go down, your stock/cash ratio goes down, you buy stocks to go back to the ratio you decided. If stock goes up, or your cash goes down with your expenses, you sell stocks and increase your cash reserve to bring it back to your ratio. No timing, only reacting.

Sure, I see what you're saying. I suppose an asset allocation decision must be made at some point (point zero), so if today is that point, and you stick with the new strategy long-term, then it's not market timing at all, and there's no point criticizing the fact you had a different asset allocation prior to point zero. I guess I was reacting to the decision to go to 20% cash, and then keeping it out of the market until (and hoping for?) a downturn, which sounded like a market-timing decision, and a potentially bad one when you compare it to the alternative long-term benefits of just staying in.

[eyeswideshut]

Bonds... Specifically developed country government bonds.

That's the textbook answer, but I'm having trouble seeing the advantage of holding bonds over cash yen at the moment.

With current bond yields so low, it seems more likely that interest rates will rise rather than fall further (resulting in bond prices falling). Pair that with the tendency of the yen to appreciate during financial crises, and it seems possible that cash yen would end up more valuable than a bond fund during the next correction.

Very happy to hear the other side of that argument though

You are probably right but 2 counterpoints for your consideration: 1) inflation and 2) yen depreciation. Just because both have not happened in Japan for the recent past, does not mean they can't happen in the future - and when they happen they can happen faster than you expect. That said, if all you are doing is accumulating some dry powder to put to use when the market invariably falls again then I think your plan is fair and relatively low risk. I do the same but limit the percentage of my portfolio that I will ever allow to stay in cash (10%). Above that threshold I force myself to invest even if I think the market is wildly overvalued. To be clear, outside of US tech, I don't think the market is wildly overvalued at the moment.

To your larger point, I think taking some risk of the table at this point is probably smart - but I would do it via a structured approach such as re thinking your asset allocation (100% stocks to 90/10 or 80/20) to add a cushion of bonds or cash.

[Gulliver]

At what point does it then become a good idea to take some money off the table?

You left out a couple of pieces of key information without which it is impossible to accurately answer your question:

1. In how many years and at what age will you need access to the money?

2. What will you be spending the money on?

3. At the time you need the money, would you be able to provide for food and shelter without it?

[RetireJapan]

You left out a couple of pieces of key information without which it is impossible to accurately answer your question:

1. In how many years and at what age will you need access to the money?

2. What will you be spending the money on?

3. At the time you need the money, would you be able to provide for food and shelter without it?

Indeed

1. Not sure. Going to finish working at the end of March, then will help wife with her business and (hopefully) put some more time into RJ. Future cash flows are less certain than my job salary, but I imagine we won't be trying to live off investments for at least another 3-5 years.

2. Our basic living expenses are pretty low (everyday annual spending is probably around 3m). Optional expenses for us would be international travel and gifts to family (up to another 3m or so maybe?).

3. Most likely.