No. of Recommendations: 3
Author: FrugalSpeculatr | Date: 6/1/05 5:09 PM | Number: 46300
Another way to look at is, is to keep ~5 years worth of living expenses in CD's and the remainder in equities. The bigger the portfolio and the smaller the expenses on a relative basis will allow on to put more or less into CD's.

I have tried this (buckets of money) approach, and, in theory, it should work. However, you wouldn't believe how hard it is to liquidate a year's living expenses from your stocks to buy CD's, when your stocks are increasing nicely and you won't need the money from the CD's for another five years. It is very very tempting to just skip the liquidation, and now you have only 4 years of CD's, and it will be nearly impossible to liquidate 2 years of expenses next time.

I finally abandoned this approach, because I didn't believe I could maintain it over the long term.

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