Monday, July 11, 2016

Building a Cash Cushion

While I have enjoyed the recent stock market rally, I have no confidence in the market's ability to continue advancing.  So as the market advances, I have been taking profits in accounts that have been hitting new highs, and maintaining the original account balance.  That way I stay invested and take profits.  So if the market goes up, our investments will participate. If the market goes down, I have protected some profits.

 At first, I would wait for a 5% gain before taking out funds.  Now I am taking out funds with as little as a 1% gain.   Since the accounts are like a mutual fund with a 1.25% expense fee,  there is no commission charge when I sell a small portion to raise cash.  I have been doing this since 2012 and have taken as much as 40% out, while maintaining the original amount invested.   However,  I do have one account that is losing about 10% net after accounting for the funds taken out.

I plan to do this until I have withdrawn about 50% of the original investment to create a cash cushion.   After that I may let the investments ride until they gain 25-50% before taking additional funds out.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2016 Achievement Catalyst, LLC


pfstock said...

Ok. So let me ask this question. What type of account is "like a mutual fund" and has an (annual?) "1.25% expense fee"? Also, don't you still pick individual stocks?


Super Saver said...

It was my attempt to describe a managed account that has a wrap fee. The positive of a managed account is that it is like a mutual fund, but holds the actual shares of stocks. The negative is the higher initial minimum investment. When I started investing, managed accounts charged 4%. Now, some top professional managers are offered through brokers at 0.9-1.25%, which is a little higher than a specialty mutual fund.

Yes, I still buy individual stocks, mostly dividend paying ones. However, I'm preparing for when I'm older and perhaps less confident in my skills. So I am testing having good proven professional managers by allocating a portion of our funds to this option.