UnclePhilip wrote:hiriskpaul wrote:The definition of "hard times" is the issue. Unless there is a more concrete strategy to draw on the £45k in "hard times" it is difficult to judge whether it is the right amount of cash to hold. I would suggest that instead of having a fixed £45k, the money is rolled into the investment and income plan. Out of that plan a figure to hold in cash/bonds should arise, along with rules for drawing on it in hard times and replenishing it in good. The OP may already have a plan of course.
I do find this very interesting.
As written a couple of minutes ago, what I have is not a very exact 'plan'.
Could you expand a bit more about this 'investment and income plan'? And how you derive the figure to hold in cash/bonds? And the rules for drawing and replenishing? I think this is something I may have been missing....
Uncle
A plan may or may not involve replenishing, at least not for a long period of time that may outlive you. Consider as one example the start of 1997 you retired and opted to drop 66% into CASH - such as a 3 year gilt ladder, 34% into stocks, say TJH HYP accumulation or a FT250 accumulation, and drew a 3% SWR i.e. 3% of the portfolio value at the start, where that amount was uplifted by RPI inflation each year and drawn at the start of subsequent years as your income. Spending CASH first. As of the end of 2020 you'd have around enough for two more years of spending that cash left, whilst the initial 0.34 invested into FT250 accumulation had grown to 1.6 times the inflation adjusted start date portfolio value. Started with 33/67 stock/bond is near at 100/0 stock/bond, time averaging 67/33 (actual to end of 2020 averaged 62/38 stock/bond). A consistent inflation adjusted income stream, with low earlier year sequence of returns risk, and as of more recent having over 1.5 times the inflation adjusted start date capital still available.
Other plans such as Warren Buffett's 90/10 suggests drawing income from stocks in years when stocks are up and look to replenish bonds to be 10% of the portfolio, otherwise spend from bonds (don't rebalance from bonds into stocks)
...etc.
The simple act of holding some "bonds" as part of a asset allocation provides a means to cover 'emergency' or hard-times spending. If for instance a (poorly contrived example) big storm hit the UK and crashed stock prices and it was declared that insurance companies didn't have to pay out to replace roofs, then selling some bonds might cover the expense of replacing your own. That might blow your investment plan out of the water, but avoided having to sell stocks at depressed prices.
EDIT: The former plan could be extended to include perhaps re-set/restart once you were down to perhaps 10% (whatever) cash remaining, assuming you lived another 20+ years before that point occurred, so as to replenish your 'reserves'. That plan also has optionality - if for instance stocks crashed in the earlier years then the high bond weighting might mean you endured relatively small losses and could swap the portfolio for a all-stock version with a high forward time reward potential, or perhaps into index linked gilts that were maybe being priced to 3% real yields ... whatever.