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TL;DR: Cash is king — and bonds are not cash. I've written about this in this other answer. Here's part of it: [...] inflation aside, why do we want our "equivalent to cash" position to be relatively liquid and principal-protected? When it comes time to rebalance your portfolio after disastrous equity and/or bond returns, you've got in ...


12

A lot of people (and it's common advice) only have x% of their portfolio invested at any given time. Depending on your tolerance for risk, you might leave 10-30% in cash/money market, for example. Also, if you're still earning and saving, that amount of cash will grow every month as you continue to grow your nest egg. That's where the money comes from.


5

Your question is based on the assumption that all investors hold their stocks during a 'crash' and therefore they have a limited amount of cash available during it. That assumption does not apply to everyone. It's important to distinguish between a crash and a bear market. Market crashes such as 1929 and 1987 are rare and if one is fully invested during ...


5

With my additional savings is there any reason i would want to do a post-tax 401k instead of keeping it in a regular taxable brokerage account? Let's clarify what you mean by "post-tax 401k". First there is the Roth 401k, which behaves like a Roth IRA -- money that you contribute is taxed, but you pay no taxes on earnings when you withdraw them in ...


5

A post-tax IRA is not a very good deal. You don't save any taxes now. When you take the money out, you pay ordinary income tax rates on the gains. If you invest in a brokerage account instead, you pay capital gains taxes when you sell. I don't have a reference but I don't think the long-term capital gains rate has ever been higher than the ordinary income ...


4

A general rule of investing is that as you get older, you reduce your market exposure. Traditionally, advisers have used the “100 minus your age” rule, which is the percentage of your assets that you should allocate to equities. The older you get, the more you should shift toward fixed income, thereby reducing the volatility and risk of your portfolio. ...


4

Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. Full Definition ...


4

Assume that you have a regular income, with enough left over after living expenses that you can save or invest. Also assume that you think the market currently is over-priced*, so that you've been saving that excess as "cash" - which isn't necessarily money stuffed under the mattress. Now the market takes a steep drop, as it did in '08-09. Here you are ...


2

Also, some of those people are traders of some kind (mostly swing/longer term, but still). Guess what - as a trader, it is totally ok to be in cash because that is your default position. You only take market risk if you see a market chance. Did they have a bunch of money just sitting around for the event, and hence not earning much of anything in the ...


2

You use the cash part of your portfolio A well balanced investment isn't all in stocks. Imagine your policy is to keep 2/3 of your portfolio in stocks ($60000) and 1/3 in cashlikes ($30000). Stocks lose half their value, your stocks are now worth $30,000. To get back to 2/3-1/3, you will need to buy $10,000 in stocks so you now have $40k in stocks ...


2

Bonds can be bought and sold prior to maturity. If you download the holdings of an ETF from the manager's website, it will often include the prices of the bonds the fund holds. The price depends on how interest rates have changed. All else equal, I would pay more for a treasury bond with a 5% coupon than for one with a 4% coupon. The prices of the two ...


2

When I sell my share of ETF, the ETF gets the cash by selling the shares it owns. Is this the right thinking? No. Selling your ETF shares is just like selling any other security. They are purchased by a buyer and cash is exchanged. When an ETF company wants to create new shares of its fund, it uses an authorized participant (AP) who acquires the ...


2

Short answers to your short questions: What is the "true" definition of a diversified portfolio Diversification in the inclusion of partially correlated assets in a portfolio in order to reduce risk (volatility). why is it better? "better" is relative, but it's "better" than the alternative in investing in a single asset (or two perfectly correlated ...


1

Your index funds may be more geographically diversified than you think, since many companies that are based in the US (for example) actually derive a lot of their business from emerging markets. One admittedly extreme example is Coca-Cola: Coca-Cola is one of the most globally active international companies, deriving 80 percent of its sales from outside ...


1

A few tidbits of advice regarding target funds: If you want to shift the risk/reward with target funds you can always buy one a few years later or earlier than your retirement date. The further out the date the less conservative it will be (to a point). Nothing says you have to pick the year you actually plan to retire. Target funds are more actively ...


1

A benefit of post-tax 401k contributions that isn't mentioned in the other answers: Your plan might allow (as at least some Fidelity plans do) an in-plan conversion of post-tax 401k balances to Roth 401k balances (whereas it might not allow rolling over to a Roth IRA via in-service withdrawals). Only the earnings on the post-tax contributions at the time of ...


1

I don't think you're on the right track. You're adding a lot of artificial constraints to what your portfolio should look like. Why do you decide on 60%/40% growth vs value? Why decide on a set percentage of how much should be in Asia, compared to Europe? As Pete mentioned, companies might be headquartered in the US but do 80% of their business abroad. And ...


1

It is a bit hard to understand your question, as I am not sure what you are trying to accomplish. Typically asset allocation models (AAMs) look something like: 80% Stocks : 20% Bonds with 15% International. So your stock ETFs, or funds, would include about 15% exposure to international. Even that becomes tricky. Is Tesla an international or domestic ...


1

The controlling party owns a wide range of short and long-term bonds. Both commercial and federal. They also likely own higher-risk bonds that pay a higher coupon rate. So like a stock ETF, you just purchase shares of the ETF and you own a portion of all those different bonds. The bond ETF pays dividends, or modified coupon rates to you each month. So let's ...


1

Typically, you just borrow against your existing positions. If that leaves you with more leverage than you want to have, you sell some portion of some of your existing positions. With interest rates as low as they are now, there's usually no rush to adjust unless you have some positions you want to reduce.


1

Certainly they didn't use their emergency fund (which would be foolish)? A better term would be "contingency fund". You should have some money set aside in case something comes up. That's not always going to be an "emergency". Did they change their stock/to bond allocation (which might also be foolish)? If stocks are undervalued, then it's not foolish ...


1

L&G's multi-index 5 or 6 seems not too bad a fit (although I'm not sure what if anything it claims as a benchmark), and these days many would no doubt regard the main discrepancy (tilting away from UK equities to international) as a positive feature. Asset allocation in latest factsheet is: WMA L&G 6 L&G 5 ...


1

The "right" amount of risk is subjective. You are correct that a person's income, assets, and liabilities contribute to the capacity to take risk. Some people are also more comfortable taking risk than others. Time horizon is also important. Some investments cannot be sold quickly, but might have higher expected returns to compensate. Some university ...


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