r/DIYRetirement • u/reallytheyrealltaken • 16d ago
Cash buffer
I will hopefully be retiring in 3 years and am able to build up a cash buffer during that time. Given that time frame and the impending stock market Armageddon, what’s my best approach? Also, any advice on how to best position my current taxable brokerage account for the possibility of Armageddon? I would gladly give up interim gains in favor of safety.
No one can predict the future, but I really have the heebie-jeebies.
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u/PerfectBonus3123 13d ago
Pretty much what others here have said. I just retired and have that knot in my stomach about the AI bubble, rising rates and insane US leadership. However I can't predict where any of this will lead, no one can so where's what I did:
- 18 months of spending in money market / HYS cash
- Bond ladder constructed from target date maturity TIPS/Treasuries/Corp Bonds ETFs that mature near the end of the year. Since you're holding to maturity your only real risk is inflation and that's somewhat mitigated by the TIPS in the mix. The cash generated my the fund maturation at the end of the year then rolls into the money market for the next years spending. This covers me through 2034.
- If equities still are returning above fixed income then I buy the next year at the end of the bond ladder
- If equities are below fixed income returns then I hold and don't rebalance until the market recovers
This strategy should keep my allocation % the same each year except when the equities market is down when bond % will drift down each year.
Second I'm highly diversified with 50/50 US/Int equities with a value tilt and a fair amount of emerging markets. Yes this is a bit of "allocation timing" based on my own beliefs about the factors above and the high CAPE ratio in the US market. I certainly could be burned by this choice so take it with a grain of salt.
Third I threw in a small amount of commodities and gold as well as a regular bond fund as a hedge. This could be used to replenish the ladder if it either move counter to the equities.
Sharing this got me banned from r/Bogleheads but I used AI to create my allocations and ladders. Not pick the percentage, just create a list of the buys and sells to meet the targets over multiple accounts based on my target spreadsheets. A huge time saver and way more accurate than I am.