2012 Portfolio Re-balance Part 2: Forgetting about Cash

Image via

One of my February goals was to re-balance my portfolio.  If you haven’t read Part 1, you can catch up here.

Re-balancing my Portfolio – Take 1

I was really happy with myself after this re-balance and I was ready to make the transfers, after March 1st, since I wasn’t sure if moving out my funds would affect my contributions for my 2011 taxes.  I was happily chatting away with BF, feeling pretty darn good about myself and my re-balances portfolio until…

What about Cash??

BF pointed (in the kindest and most gentlest way), that I hadn’t taken into account cash in my portfolio. Since I kept a sizable amount of cash on-hand, I realized that by not counting my cash, my portfolio was actually a lot more conservative than it seemed.

I decided not to include my Emergency Fund Savings ($10,000) and my Travel Fund ($1,200) since I wanted to keep that cash on hand for anything that comes up.  I am also debating about what to do with my General Savings Fund ($15,000) – for now, I have left it out of my portfolio calculation.

Re-balance – Take 2

I calculated my actual asset allocation, including my cash. Sure enough, it was a lot more conservative than I had wanted it to be.  From the chart above, I actually have 50% of my portfolio in cash and bonds.  Waaay too conservative for my liking.

So, I tweaked my asset allocation to be 30% of bonds & cash, and 70% stocks.  Now, it looks a lot better.

Conclusion

This was a great exercise and a huge wake-up call that money sitting in my checking account is idle money that could otherwise be earning interest, or could be invested in something.  It was also a great reminder that I need to continuously tally up my $0 budget at the end of the month and put the “extra” money (if any) into something – TFSA or Travel Fund, or whatever, so that I know my money is working for me.

Readers, how much cash do you like to keep in your portfolio?  Do you account for cash as part of your portfolio?

Cheers,

Advertisements

4 Comments

Filed under Fashion

4 responses to “2012 Portfolio Re-balance Part 2: Forgetting about Cash

  1. What is your General Savings fund for? It seems like you are already well covered with a $10K EF.

  2. I kept a lot of cash in my EF just because I wasn’t working and I wasn’t sure what would happen with my situation (plus I was traveling).

    Now that I am working, I’m going to drain those cash reserves slowly.. 🙂 I invested the rest. Have to rebuild now!

    • I think that I’d still want at least $15,000 accessible – so I will look into laddering my funds, every 4 months or so. But with the interest rates so low, there’s isn’t a huge incentive.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s