how to account for uninvested cash on hand

[dsilberm]

my financial advisor wants me to keep a significant amount of cash liquid. How do I account for that? I thought I might enter it under "tax free savings" and both start and end year would be "retirement year" to indicate a single, nonrecurring amount. Would that work?

[jimr]

The most straightforward way to model this might be to include the cash as an asset class as part of your taxable portfolio and adjust the portfolio return/std deviation to account for the portion of the portfolio that's cash. Ypur financial planner could probably help you choose the appropriate return/std deviation to use.

The way you've described using the tax free portfolio could also work, but in that case you may want to use the upper table in additional inputs to set the return/std deviation for the tax free portfolio to zero (assuming you don't have any other assets in that portfolio).

Generally, using a cash flow with start year equal to end year as you've described will work as a way to infuse a certain amount into one of the portfolios (taxable, tax deferred, or tax free).

[dsilberm]

Actually, I did include the cash as part of my taxable portfolio with an adjusted return rate.

I hadn't thought of the tax-free portfolio idea. I'll try it both ways.

Thanks!!!