Announcement

Collapse
No announcement yet.

Should short-term cash/earmarked savings be part of your asset allocation?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Should short-term cash/earmarked savings be part of your asset allocation?

    What are the forum's thoughts on including an emergency fund in their fixed income portion of their asset allocation?

    What about "earmarked" savings (house, car, vacation, etc..)?

    I'm definitely the risk-taker in our marriage and we settled on 75/25 stock/bond allocation--would have gone more aggressive but this is what my wife felt comfortable with and "happy wife, happy life" is much more important to me than a swing of 10-15% more stock and she is a really good saver! I would like to include our emergency fund in the 25% fixed allocation.  We are updating our IPS. It is especially important since I am under 3 years out of residency and it's probably a 15-20% portion of our total assets. I will be switching jobs in a little over a year, so we are also saving for a house. We are currently renting. No debt. Probably won't purchase one for 2-3 years.

    Thoughts? Should saving for down payment on a house or purchasing a car be included? Any evidence one way or another? seems to be a bigger deal in the early years out of residency due to the EF percentage compared to total assets.

    Thanks!

  • #2
    In my opinion, your asset allocation should be based on long-term savings only (ie for retirement). I'm in a somewhat similar situation where our downpayment would make a substantial part (~25%) of our net worth, and would thus skew my 80/20 stock/bond allocation goal significantly. But that cash will be gone in the next few months when we close on our new home, thus putting us back to around 80/20. It feels like you wanting to include your downpayment into your asset allocation is a (subconscious?) way of trying to make your portfolio more aggressive without angering you spouse.

    Comment


    • #3
      I agree with Gas_Doc although it could be a sneaky way of adjusting long-term allocation to higher equities.  It depends on how you want to define your "portfolio".
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

      Comment


      • #4
        Thanks for the reply.  I'm more concerned about the emergency fund in cash that will not change and is part of my long term plan. Do you include this in your fixed income?  I agree, the down payment will change when one purchases a house and will skew the allocation significantly.

         

        Comment


        • #5
          An emergency fund is not exactly part of a long-term plan, imo. It's for short-term emergencies. But then again, I divide a plan between short term (< 5 years) and long term (5+ years).
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

          Comment

          Working...
          X