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Losing to inflation is only for cash held as cash (in your wallet or under the mattress, for example.)
Cash held in a 401K money market fund or equivalent (e.g. treasury I-bonds) will earn higher interest if inflation rises and so do interest rates, which is what usually happens.


Money held in money market funds or T bonds/bills loses less to inflation than cash under the mattress, but it still loses.

Current money market rates have recently risen to about 1.5% - 1.6% (they were about .2% - 0.25% lower before the last Fed increase in December). Inflation last year averaged 2.1% So, even at today's rates, money market accounts would have lost 0.5% If you use the rates prior to the last rate increase, it would have been closer to 0.75%

AJ
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Hello, My wife is going to retire in a couple years. Her 401K allocation is 53% stocks and 47% bonds. With the market volatility she wants to know if a portion of her portfolio should be in cash.
I told her that I wasn't sure. So I came to this board in hope of getting some opinions.


It depends. Does she feel uncomfortable with her current allocation? If so, then maybe she should move some to cash. It's really a personal decision.

Pro for cash: If you need to make a withdrawal (for RMDs or for living expenses) and the market has gone down, you don't have to sell securities that are down in price.

Con for cash: You will lose money to inflation, especially if you hold it long term.

AJ
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Keep in mind that interest rates are expected to rise over the next year or so. That means that the net asset value of bond funds (which most use for bonds in 401ks) will decline in value. This matters only when you
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(Sorry. Helped by a cat.)

This matters only when you sell, but it will make market value decline a bit.

Money market funds or some 401ks used to have "fixed income" funds. They should be better for funds you need in the near future.
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When she retires in a couple of years, will she be using this portfolio for monthly income? If so, what percentage of her assets would she spend annually from that account?

Absent us knowing her timeline for actually using that money and then how much (vs. simply having a retirement date in mind), there would be no way for anyone to give adequate feedback on any changes she should make.

Also, it depends on what type of bonds she has. There could be a big difference in performance between long duration high quality and short duration lower quality bonds over the next two years.
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Con for cash: You will lose money to inflation, especially if you hold it long term.

No you won't.
Losing to inflation is only for cash held as cash (in your wallet or under the mattress, for example.)
Cash held in a 401K money market fund or equivalent (e.g. treasury I-bonds) will earn higher interest if inflation rises and so do interest rates, which is what usually happens.
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No. of Recommendations: 4
Losing to inflation is only for cash held as cash (in your wallet or under the mattress, for example.)
Cash held in a 401K money market fund or equivalent (e.g. treasury I-bonds) will earn higher interest if inflation rises and so do interest rates, which is what usually happens.


Money held in money market funds or T bonds/bills loses less to inflation than cash under the mattress, but it still loses.

Current money market rates have recently risen to about 1.5% - 1.6% (they were about .2% - 0.25% lower before the last Fed increase in December). Inflation last year averaged 2.1% So, even at today's rates, money market accounts would have lost 0.5% If you use the rates prior to the last rate increase, it would have been closer to 0.75%

AJ
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