"Keep two years' expenditure in cash"

[tjh290633]

Personally I would avoid bonds and just keep a suitable cash reserve. A lot of gilts are on very low or negative returns to redemption, and there is a good chance of capital loss if the interest rates rise.

Dividend income is likely to rise and ideally you are able to live on less than 100% of that. The surplus can either go into your cash reserve or to buy more shares to enhance the dividend income. The income can be expected tom outpace inflation, so you get a double benefit.

TJH

[kempiejon]

Personally I would avoid bonds and just keep a suitable cash reserve. A lot of gilts are on very low or negative returns to redemption, and there is a good chance of capital loss if the interest rates rise.

Dividend income is likely to rise and ideally you are able to live on less than 100% of that. The surplus can either go into your cash reserve or to buy more shares to enhance the dividend income. The income can be expected tom outpace inflation, so you get a double benefit.

TJH

Whilst I broadly agree with the sentiment and so far my income from high yielding shares does appear to have at least kept pace with inflation, when it doesn't it doesn't. TJH I'm sure you had to reposition your portfolio following a 50% cut in income that again from memory took 3 or 4 years to recover.
I hold 2 years of essential expenses as cash/premium bonds, I'm probably going to increase that as I near complete dependence on investment income. As an alternative though I have for some time considered credit as a handy buffer, for the past decade I have been able to get large limits allowing interest free borrowing for a couple of years.

[tjh290633]

Personally I would avoid bonds and just keep a suitable cash reserve. A lot of gilts are on very low or negative returns to redemption, and there is a good chance of capital loss if the interest rates rise.

Dividend income is likely to rise and ideally you are able to live on less than 100% of that. The surplus can either go into your cash reserve or to buy more shares to enhance the dividend income. The income can be expected tom outpace inflation, so you get a double benefit.

TJH

Whilst I broadly agree with the sentiment and so far my income from high yielding shares does appear to have at least kept pace with inflation, when it doesn't it doesn't. TJH I'm sure you had to reposition your portfolio following a 50% cut in income that again from memory took 3 or 4 years to recover.
I hold 2 years of essential expenses as cash/premium bonds, I'm probably going to increase that as I near complete dependence on investment income. As an alternative though I have for some time considered credit as a handy buffer, for the past decade I have been able to get large limits allowing interest free borrowing for a couple of years.

Yes, of course. However taking 2000 as the start point, the dividend income was still ahead of the RPI, despite the 50% fall.

That reinforces the need for a sensible cash buffer.

TJH

[Gilgongo]

Dividend income is likely to rise and ideally you are able to live on less than 100% of that. The surplus can either go into your cash reserve or to buy more shares to enhance the dividend income. The income can be expected tom outpace inflation, so you get a double benefit

This is probably forking the thread to a different topic, but just so that I'm clear: are you talking about a "natural yield" retirement strategy for income? That is, relying on dividends only and not selling down the capital?

G

[tjh290633]

Dividend income is likely to rise and ideally you are able to live on less than 100% of that. The surplus can either go into your cash reserve or to buy more shares to enhance the dividend income. The income can be expected tom outpace inflation, so you get a double benefit

This is probably forking the thread to a different topic, but just so that I'm clear: are you talking about a "natural yield" retirement strategy for income? That is, relying on dividends only and not selling down the capital?

G

In a word, yes. Not everybody may be able to, but that is the objective.

TJH

[MDS1951]

It was always my aim to maintain cash assets equivalent to 2 years' income after I retired, and my pension gratuity and voluntary redundancy payment (which coincided with my retirement) made sure I could do that. I just liked the security of having a substantial cash sum in case my investments went pear-shaped.

However, over time my reasons for a cash reserve have changed. During the last 3 years I have become reasonably familiar with the world of private care homes, owing to my mother going into a very nice care home for respite care and then full-time care a year before she died; I'm now a volunteer there for one morning a week. There is always the possibility that I might need care in a home in my turn, and I'd like it to be this care home if the time comes. The purpose of my cash balance now is to make up the difference between the fees and my income for approximately 2 years so that I'm under no great pressure to sell my home quickly to help fund my time there.

As earlier posters have observed, we often have different reasons for keeping substantial cash balances.

MDS1951

[Gilgongo]

In a word, yes. Not everybody may be able to, but that is the objective.

I see. I was thinking about asking a separate question about this, so will start another thread.

[Dod101]

It was always my aim to maintain cash assets equivalent to 2 years' income after I retired, and my pension gratuity and voluntary redundancy payment (which coincided with my retirement) made sure I could do that. I just liked the security of having a substantial cash sum in case my investments went pear-shaped.

However, over time my reasons for a cash reserve have changed. During the last 3 years I have become reasonably familiar with the world of private care homes, owing to my mother going into a very nice care home for respite care and then full-time care a year before she died; I'm now a volunteer there for one morning a week. There is always the possibility that I might need care in a home in my turn, and I'd like it to be this care home if the time comes. The purpose of my cash balance now is to make up the difference between the fees and my income for approximately 2 years so that I'm under no great pressure to sell my home quickly to help fund my time there.

As earlier posters have observed, we often have different reasons for keeping substantial cash balances.

MDS1951

That seems to me to be a very good reason to retain a substantial balance because I would hope that my family will be worrying about me rather than where the cash is to come from if I ever progress to that state.

In fact I think that except for peace of mind keeping two years expenditure in cash is quite unnecessary for the average portfolio. Even in the financial crisis of 2008/9, dividends did not dry up. They were cut certainly, in quite a lot of cases, but they never stopped coming into my bank account. I had slack in the system so that I never had to draw on any reserves of cash. I adjusted my spending pattern a bit and watched my cashflow but that was about it.

Dod