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Subject:  Re: Strategy comparison S&P500 vs. IUL Date:  4/3/2013  7:28 PM
Author:  gdett2 Number:  71685 of 88532


* What you are doing when you spend the cash is shifting your asset allocation to HIGHER equity allocation levels. Instead of 10/90 it becomes 5/95.
* If the bear market lasts longer than your cash cushion, then you are 100% equities. You wanted to have no more than 90% stocks because you wanted to feel safe. But yout strategy caused you to move toward 100% stocks -- the exact opposite of your goal.
* AND, when you've used up all of the cash, you now are selling stocks even deeper in the downdraft. Instead of selling some when they were 5% down, you wind up selling when they are 20% down.

I do something similar but different. I move my cash to passbook. I maintain a 6 month minimum of expenses and have had it as full as 18 months. I do not consider it as part of our portfolio when I look at allocations, etc.

They convinced me that this "cash bucket" approach is mostly an illusion, and that it completely fails you just when you need it the most -- in a terrible downdraft.
You have the comfort of feeling safe, right up until the sawblades hit.

I refill from dividends and any position trimming that I do. I either sweep cash from brokerage to savings or hold it for reinvestment.

For near-cash, I have a larger cash holding, 21.5% of our portfolio today, in an IRA insurance annuity that earns 4.5%. I raided it a couple times for stock opportunities, replacing it with sale proceeds. It has become a smaller percentage of our portfolio over the past few years despite numerous transfers into it from brokerage.

We retired in 2005 and have not dipped into any near-cash(the IRAs) or sold anything in a market downturn to pay expenses. We actively manage our cash position since it is what we live on. The concept would fail if you don't maintain an adequate cash and near-cash position.

I look at this setup as our version of the CD/bond ladder of 5 years worth of expenses outside of the stock market.

This setup is also why I find no value in any of these IUL offerings.

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