Money Bag: CAGE, Cash Wedges, and Net Worth Calculations
Welcome to the Money Bag, where I answer questions and address comments from readers on a wide range of money topics, myths, and perceptions about money. No question is off limits, so hit me up in the comments section or send me an email about any money topic that’s on your mind.
Today, I'm answering reader questions about a new asset allocation ETF from CIBC and Avantis, spreading your money around with VEQT, market timing during “these times“, where to park your cash wedge, and whether your net worth calculation should include future tax liabilities.
Thoughts on CAGE
First up is a question from multiple readers about the new Avantis CIBC All-Equity asset allocation ETF. Take it away!
I'm sure you've heard of the CIBC Avantis ETF CAGE by now. Since you're such an advocate for VEQT, I – and I'm sure those who follow you – would be interested on your take of CAGE.
As far as I can tell it's the only Canadian domiciled all-in-one that aims to do a bit better than the market (factor alone) by incorporating tilts to small cap and value stocks. And it's available to DIY investors (as opposed to something like DFA's F-Series funds).
Yes, I saw the launch and listened to their episode on the Rational Reminder podcast.
It's great news for DIY investors looking for an easy all-in-one factor tilted fund. Much better than trying to build your own multi-ETF portfolio.
That said, I’m skeptical of its theoretical outperformance (Avantis suggested as much as 2% per year, which would be big, if true) over a market-cap-weighted fund, and I don’t think I could personally stomach any periods of underperformance if the factors aren’t “working”.
But, in general, I'm a big fan of asset allocation ETFs as the most sensible way for most people to invest. Pick your flavour (fund sponsor) and your risk appropriate version (EQT, GRO, BAL, AGE, etc.), contribute regularly and stick to your plan, and that's a pretty good recipe for good financial outcomes.
Buying the Haystack
Next up is Fiona, who asked me about investing inside my TFSA:
With the money you put inside your TFSA, do you purchase VEQT only or do spread the money around?
I only hold VEQT in each of my account types (RRSP, LIRA, TFSA, corporate account). You can read about that in this post about how I invest my money.
VEQT spreads the money around already by holding more than 13,000 global stocks. More than just all your eggs in one basket, it's the biggest basket you can buy.
Market Timing in “These Times“
Up next is Thomas, who actually wrote this 14 months ago during the tariff tantrum but the question can easily be applied to today (and several times in any given year when there's market turbulence):
Hi Robb, I’m writing about the current situation with the market and wondering if we should sell off our current shares of VEQT and buy back in again when this all blows over (if it does).
No need to panic. Global stocks had been on an incredible run since October 2022. VEQT was up 20+% in 2023 and 2024. That's abnormally high. I use a 6.1% expected return in financial plans, so it would make perfect sense to see markets pull back a bit after years of strong growth.
It's hard to see these headlines every day and not feel like you need to do something. But markets have been through much worse (Covid, inflation, real recessions, global financial crisis, etc.) and keep moving up and to the right (eventually). There's no reason to think this time is any different.
Finally, selling now and buying back in when things blow over is a lot more difficult than you think. You have to be right twice. Once now (thinking you've avoided some upcoming losses), and then again when you think better days are ahead. Nobody knows when those bottoms and tops occur, which is why we stay the course.
Helpful Blog Posts
Here's a nice email from Nathan, who is grateful for the retirement focused articles:
Just a quick note to thank you for your incredibly helpful blog posts. My wife and I are in our mid-50s; she's retired and I will be retiring in a few years. I recently discovered your blog, and I've learned so much from it. Particularly helpful has been the information on delaying CPP and OAS to age 70, the importance of strategically drawing down RRSPs/RRIFs between retirement and age 70, and the use of a small cash wedge when drawing down investments in retirement. It's hard to find good content on the decumulation stage of life, and yours is top notch and easy to understand.
Thanks for the note and for your kind words – it truly means a lot.
I'm so glad you're getting value from the blog. In the era of podcasts, TikTok, and YouTube, I'm grateful for an audience that still gets value from the written word 😉
Where to Park Your Cash Wedge?
Sandra wrote in asking about where to park her cash wedge to maximize interest:
You've written about money being put into a cash wedge. I believe you had mentioned a HISA ETF. Presently I have a high-interest savings account where I receive 2.25%. I was looking at what was available for HISA ETFs and I am not seeing a substantial difference in the returns I would receive. Is there something I am missing or would keeping my cash wedge at my current bank be essentially the same?
The cash wedge I'm describing is not the money held in a non-registered savings account. It's strictly to help you facilitate withdrawals from your RRSP.
The idea is to put ~10% of your RRSP in a HISA ETF or money market fund to keep it safe, and so that you can withdraw from that fund regularly, rather than selling equities if/when markets happen to be down.
A HISA ETF is not going to beat the best high interest savings account rate, but it let's you hold cash inside of your existing RRSP without having to open a separate RRSP savings account. Think simplicity over maximizing returns.
Net Worth Calculations and Future Taxes
Finally, a question from Lawrence about whether to include future tax liabilities on your net worth statement:
I would appreciate your comments on how to handle major future tax liabilities on net worth statements. Clearly minor amounts from savings deposits, etc. are of little consequence and need not be acknowledged. I am thinking more of larger amounts, such as RRSPs , taxable accounts and the like. I argue with myself that amounts paid in the past year will obviously be reflected in the statements, as you update them each year, but what about the TOTAL tax liability for future years – say in a $1M RRSP and / or brokerage account?
The spirit of a net worth statement is to capture the broad strokes of your current assets minus liabilities.
While I understand that a portion of your RRSP is taxable, I don’t see how it’s reasonable or even practical to include an unknown future tax liability.
If you want to get that granular, why not include the present value of your future CPP and OAS income streams (after-tax, of course)? What about your human capital and projected employment income until retirement? It’s insane behaviour when you put it that way.
Your net worth is a snapshot in time of your current assets minus liabilities. In retirement, your net worth may decrease as you withdraw funds and your total balances deplete over time.
No need to overthink it.
The only caveat is in the event of a divorce and a division of assets. In that case, a $1M RRSP certainly does not have the same value as, say, a $1M principal residence due to the future tax liability of the RRSP. So, knowing that the tax liability exists is extremely helpful.
Do you have a money-related question for me? Hit me up in the comments below or send me an email.
Think I’m in an analysis-paralysis mode – would be grateful for some objective views!
We have a $30k Heloc balance (at 4.45%) that was used for a car purchase however anticipating the purchase, I’d carved out a part of my TFSA holding selling VXC and parking the funds into ZMMK that yields about 2.3%, annualized.
Question is – should I use those MM TFSA funds to pay off the Heloc outstanding or should I buy VEQT or the like within the TFSA and pay the Heloc gradually (might be able to draw a corp dividend in Jan 2027 to clear the Heloc off).
Original plan was to use the TFSA funds but at the last minute didn’t want to rush up the decision and loose that much of growth room within the TFSA.
The Heloc is interest-only but can’t deduct it on taxes (being not an invested investment).
What would you do?
This one’s easy for me. I hate debt of any kind – I’d use the money market fund to pay it off. You’ll still have the TFSA room, and can refill it gradually. Keep things simple, friend.
Hi Rick, this comes down to preference for investment growth versus being debt free.
I’ve been through this decision personally, and when interest rates on the line of credit exceeded 6% (2022/23) we decided to draw funds from our TFSAs rather than increasing the line of credit balance.
At 4.45%, and if funds were still invested, I’d stay invested and just aggressively pay down the line of credit.
You’re in a bit of a grey zone because the funds aren’t currently invested and the longer you hold ZMMK you’re giving up a pretty big opportunity cost.
In summary, I don’t think you can go wrong with either decision but you need to make a decision soon because what you’re currently doing is not optimal either way.
Finally, the corp dividend in January can also be used to refill your TFSA if you decide to make a withdrawal this year.
Thanks Robb, I’ve decided to hold the Heloc loan paying interest only and the occasional top offs as we have some surplus cash thru the year. I’ll pay it off in full come Jan 2nd 2027 with the corp dividend I expect to draw then.
As for TFSA, sold ZMMK earlier this morning and bought VEQT – of course markets dropped shortly after that lol. But hey as you say, this is long term holdings specially given it is TFSA.
Another decision factor was the upcoming move of the portfolio from Wealthsimple to TD DI to leverage their 2pc Spring promo, so in effect the 4.45 loan ‘may’ actually end up a bit cheaper to keep for the next 7 months.
What is the ideal scenario that could be achieved by melting down RRSP? Is the goal to smooth taxes and deplete RRSP before 71 to minimize OAS clawback?
The goal of an RRSP meltdown is to reduce your lifetime tax, including estate after death. Many tools do not include OAS clawbacks in their tax calculations, but it can/should be considered a tax, as it is money that the government is retaining rather than paying it to you.
Spot on Sam
Hi Joaquin, the idea is that there is an inevitable collision of taxable income coming at age 70-72 where all of your income taps are now turned on, whether you like it or not.
Deferring CPP and OAS to 70 allows for a larger RRSP/RRIF meltdown to bring up taxable income to where it will eventually be in your 70s, bring down your eventual RRIF balance before that collision of income occurs, and help reduce or eliminate any OAS clawbacks.
Would love to hear your thoughts on our US dollar dilemma. We have $35,000 of non-registered funds, which are earmarked for a renovation project at our Florida condo 3-5 years down the road.
Due to the better tax treatment of Canadian dividends, I have considered converting the funds to CAD and investing in Canadian dividend paying equities or similar ETF. However, converting USD to CAD and then CAD to USD when I need the funds, will likely eat up 2% with each conversion.
Am I better to take the hit on the conversion and take advantage of the better treatment of Canadian dividends or is there a suitable USD denominated ETF where I should park the funds? I understand that the wildcard is the USD-CAD currency fluctuations, but that is not something we can control.
If it was me, I would put this 35k into a USD FI vehicle (such as FBND).
Would also subtract this 35k from my usd assets in the tracking system and use the adjusted number to add future cash flows based on my target allocations.
Your tax savings on Canadian dividends are inconsequential compared to other, far more meaningful factors.
That said, you could exchange for less than 2% using NG.
This is an excellent comment
Hi Richard, Canadian dividend stocks are not an appropriate substitute for short-term cash.
Wealthsimple is paying 3.25% interest on its USD account (no fee either). That seems like a sensible place to park USD cash needed in 3-5 years.
Hey Robb – grateful as always for your help. I just dissolved a TFSA ETF at tangerine to fund a kitchen reno – about $50,000. Am I right in thinking that I can’t contribute to my TFSA until next calendar year? (I already contributed my $7,000 for this year) I’d like to get $$ back into my TFSA asap. thx, R
You are correct. You do not have the room from your withdrawal until next calendar year.
Would this not depend on contribution room available. Lets say Rob has 100k and took out 50k and deposited 7k this year. he still has 100-50-7=43k he will be allowed to put into his TFSA immediately…or am i missing something?
If you have available contribution room in your TFSA as of Jan.01, you can contribute this year. If you make a TFSA withdrawal, you do not get get contribution room back until Jan.01 of the next year.
Agreed, as per my example he could not put the 50k back this year but if there was some headroom available minus monies already contributed he can still contribute. Handy to have a running balance calculator for TFSA accounts ,especially if you have more than one to keep track of your balances.
Hi Rob, if your $7k contribution earlier this year maxed out your lifetime TFSA limit, and then you withdraw $50k from your TFSA for a kitchen reno, you cannot contribute to your TFSA again until 2027.
On January 1st, you’ll get the $50k in room back, plus the new annual limit for 2027.
Thx Robb – I was wondering if I should check my CRA page to see if it might be a little bit more – or what the exact amount might be. But I seem to recall, they’re not very quick with it – like it wouldn’t be right at the beginning of Jan.
Hi Robb, thanks so much for continuing to share your financial wisdom. I’m particularly enjoying the retirement plans. My question is this: if you’re already retired and are expecting a large capital gain in one year (cottage sale) what’s your advice on how to handle this? If you’re already retired and still have some room in your rrsp is it advantageous to max that out from a tax perspective, even though you’re retired? Thank you.
Following. I’m in the same boat.
Hi Irene,
I have somewhat of a similar situation in that I have a holding in my portfolio which has grown to a weighting over 15% with only 19 holdings. I have high hopes that it will become 20% or more before the end of the year. My challenge is about half of this holding is in my non-registered account and I i will incur considerable capital gains tax to sell it, which was always my plan. This is my last year working, so I am planning to hold those shares until the New Year, at which time I would sell the shares in a much more favourable tax bracket. There is always the possibility of an acquisition / takeover in which case my hand might get forced. Also, things change, and it may become necessary to sell ahead of schedule, but hopefully my plan will stay intact, and the sale can take place on better tax terms.
Hi James, yes much more advantageous for you to sell when you no longer have working income. I hope it all works out for you.
Hi Irene, that’s exactly how to handle it from a tax optimization perspective. You can contribute to your RRSP all the way until the end of the year you turn 71. If you still have contribution room and then incur a large taxable gain from selling a property (or a stock, in James’ case below), then use some of those proceeds to contribute to your RRSP and reduce your taxable income.
i do not have a company pension and I took my CPP when I turned 60 years old as my company closed down just when I turned 60. I have been contributing to my RRSP diligently over the years.
I wanted to boost my retirement earnings, so I opened up a non-registered trading account. Every year since i turned 60 I withdrew from my RRSP (only up to the 20% tax bracket) and purchased dividend stocks with the DRIP option into my non -registered trading account.
I did not use any of my RRSP withdrawals to live on.
So far, my non-registered account has a $41,000.00 income- all going into DRIP.
I will be turning 71 this year and will have to convert my remaining RRSP balances into a RRIF.
The non-registered margin trading account is 40% margined.
Should I continue this strategy when I start to receive my RRIF funds which will be around $35,000.00 per year.
As the main reason I did the dividend strategy was that you receive a dividend tax credit and am able to write off the interest expenses on the margin account.
Thank you so much for your great advice. I have finally dropped my advisor and gone to the VEQT fan club. It took a lot of convincing for my wife, but we have arrived.
I have a question:
We are melting down my RRIF and that of my wife, and we hope to have them emptied by 85, to avoid the tax implications.
However, at the moment we are taking $17,500 yearly out of each RRIF account total and depositing the max to each TSFA as per the plan. We then put the remaining amount from the RRIF each into a joint non-registered account with VEQT.
Since we don’t need the money at the moment (and probably for the next 10 years), we are now paying tax on the dividends each year and the capital gains when we withdraw. I don’t think that I have dodged the taxman, as I am now paying taxes twice on the same money. Am I missing something?
You don’t say how old you and your wife are, or the size of your RRIFs. Or what stage of retirement you’re in (Go-go, Slow-go, No-go) and your estimated annual expenses in each of the stages.
But if you’re in your late 50s with largish RRIFs you most likely want to melt them down more aggressively during the “gap years” before 65-70 so that you don’t hit the OAS clawback threshold.
Reminder that RRSPs are taxed the most (100% of income is taxable), then non-reg capital gains (50%), then TFSAs (0%).
We are both late 60’s with 250K each in RRIFs. DB pension means we don’t really need the money at the moment. Understand about the 100% taxable on closing a RRIF.
Hi Dave, it maybe sounds like more of a spending issue to me. If you’re plowing money into a non-registered account in retirement (in addition to maxing out TFSAs) that is usually a telltale sign that you are underspending.
Yes, a growing non-registered account means paying more tax on dividends, potentially affecting the OAS clawback, and a growing unrealized capital gain that will need to be paid eventually. Of course, more tax also means more money for you and/or your beneficiaries.
The question is whether you want to use those funds now to spend on yourselves, gift to kids or charity, or build them up in a taxable account to increase your overall estate and eventual tax liability to the government.
I do like Avantis. We have a slight small/value tilt for our US allocation and a few years back we replaced VBAL with AVUV. AVUV did not disappoint; it roughly doubled VBAl’s return since the change. That said, AVUV’s drawdowns tend to be deeper, as one would expect. I am paying for a chance of higher returns with more risk. Will listen to the podcast but not planning to make any changes to my portfolio.
Mordko, I would certainly hope that a fund of US small caps outperformed a global balanced fund.
Yeah, sorry… I meant to write “VBR” rather than “VBAL”.
We do track both numbers: gross net worth + net of taxes. For the latter we assume 30% tax liabilities in RRSPs and CCPC 10% for non-reg and 0 for TFSA. These are random guesstimates for tax liabilities.
No real benefit of doing it, other than to be a little more accurate with what you can afford to spend annually. We also use Monte Carlo simulations of future returns to estimate that magic number, in other words prone to overthinking. And yes, we do have a rough estimate of present net value of a DB pension (but not CPP which we are not getting yet) although its not added to net worth.
Now… If you tend to put all your risky assets into TFSA and your fixed income in an RRSP then accounting for tax liabilities might be useful. Otherwise you are misjudging your asset allocation ratio.
My husband and I are early retirees (I’m 48 and he’s 60) who have been retired for almost 4 years.
On our personal net worth statement, we have recently started including a line to account for our future tax liability on RRSP/RRIF/LIRA/LIF withdrawals as we felt that it was misleading not to list this liability since we have listed our before-tax RRSP/RRIF/LIRA/LIF account values as assets. This is something I had thought about doing for years, but did not do until I heard Dave Chilton discuss it on the Wealthy Barber podcast (not sure which episode it was). After playing around with a number of income/drawdown strategies using Adviice software, Optiml software and our own spreadsheet, we settled on using a 20% average tax rate.
On our net worth statement, we do not, however attempt, to show future tax liabilities from future pension or investment income as future pension and investment income are not line items under assets.
On a separate note, I very much enjoy reading your blog, Robb. I find it super interesting, informative, and useful. Thank you for your work.
For our cash wedge, we’ve divided the funds equally into 13 different buckets. The first is in a HISA earning 1.8%, and the remaining are laddered in one-year GICs earning around 3.5%, with one GIC maturing at the beginning of each month. As each GIC matures, we’ll continue to buy another one-year GIC. We think this strategy will provide the liquidity and security that we need with a better rate of return than having it all in a HISA.
Hi Robb, thanks for sharing your wisdom with Canadians. I wanted to ask if you have any retirement planning advice for Canadians with chronic illness. I’m in my early 40s and invest in my TFSA and unregistered accounts. I stopped contributing to my RRSP a few years ago because I want to be able to retire early without being penalized for accessing my money. Is this the right move? As an aside, I’m hoping the Canadian government is going to expand who can have a registered disability savings account so ppl with episodic illness like MS can access it.
Hi Gee, thanks for your comment and sorry to hear about your MS diagnosis. My wife has been living with MS since 2008 so I can certainly empathize with you, and she does not qualify at this time for the DTC or an RDSP.
Without knowing the severity of your illness, and more about your financial situation in general, it’s difficult to offer any specific planning advice.
I can say that my wife still contributes to an RRSP and I would not ignore that account as a tax planning opportunity if your income is high enough to take advantage.
There is no penalty for withdrawing from an RRSP (you might be thinking of a 401k in the US where there is a penalty for accessing the account before age 59.5).
It might be worth reaching out to a financial planner to work with you and make sure you’re taking advantage of the right accounts for your current situation and future goals.
Regarding market timing, I would suggest that the cash wedge strategy addresses this effectively. If concerned about where the market goes from here, ensuring that your wedge is full when the market is ‘toppish’ might help allay those concerns.
Hi Alan, I’d agree with that advice. That’s exactly what the cash wedge is for.
Great blog – I’m a big fan of your approach to investing! I’m curious about your thoughts on the home country bias in all-in-one ETFs (typically 25-30%) towards the Canadian market which accounts for only about 3% of the global market. This would seem to introduce additional risk associated with overweighting a country and its market sectors (financials and energy in Canada’s case) as opposed to a true global market weighted ETF like VT. The arguments I’ve read in support of HCB are:
1. Reduce volatility from currency fluctuations
2. Reduce tax drag from foreign withholding tax
3. Avoid hassle and currency exchange costs associated with trading in USD ETFs
But for my particular situation I don’t find these arguments hold significant weight. A significant portion of my retirement income will come from a pension in Canadian dollars, offsetting the currency risk of my USD investments. By holding VT in RRSP and LIRA accounts I pay less withholding tax than I would for VEQT, and using Norbert’s Gambit once a year to convert between currencies is low cost and relatively simple.
Is there a flaw in my thinking that I’m missing?
Hi Jason, an appropriate domestic stock allocation can be as little as 3% or as high as 50%: https://pwlcapital.com/for-investors-a-little-home-country-bias-goes-a-long-way/
I don’t think your pension being paid in CAD is an argument to hold more foreign stocks though. The more foreign stocks you hold, the more you introduce currency risk to your portfolio (gains or losses just on the exchange rate between your home currency and USD, for better or worse.).
Your other arguments are valid, though, and so if you’re comfortable holding multiple funds and performing Norbert’s Gambit from time-to-time then what you’re doing sounds perfectly sensible to me.
Hi Robb, What HISA ETF do you recommend? I keep going back and forth on what the best etf is for my emergency fund, which I’m currently housing in my TFSA as I have the room. Right now I’m using CBIL but I don’t know if that is the most effective one. I would appreciate your thoughts on this!
Hi Leanne, I would not suggest using a HISA ETF for your emergency fund. First, you can get better interest rates at various online savings accounts (check out https://www.highinterestsavings.ca/chart/).
Second, money parked in a HISA ETF introduces unnecessary barriers to accessing your money because the funds are only accessible during market hours (M-F 9:30am to 4:00pm ET). What if you have an emergency on a Friday afternoon and can’t get to your funds?
Finally, I don’t really have a preference. CASH, CBIL, PSA all do the job just fine for my preferred use of a HISA ETF – a cash wedge to help facilitate withdrawals.
Thank you for replying, Robb!
I have a buffer amount + credit cards I could use while waiting to access my money if need be (I pay off my credit cards in full each month, too!).
At EQ where I bank I can get 2.75% interest but I figure it’s more worthwhile to have it in a TFSA so I’m not taxed on the interest. Am I flawed in my thinking here, if I have the barrier issue under control? I appreciate you helping me parse this out.
Personally, I think most people are better off using their TFSA for investing rather than for sheltering some tax on their emergency savings. But, if you have a lot of unused room that won’t be caught up for a while then it’s not a bad idea to temporarily hold your emergency fund inside the TFSA to save tax.
100% agree. Right now, I am focused on maxing my FHSA and then contributing to my RRSP, investment-wise. In a few years, once my FHSA is maxed fully, I’ll switch over to prioritizing my TFSA and when I need the room, I’ll time moving my emergency fund to a HISA.
My only comment is, shouldn’t the cash wedge be measured in terms of years (1, or maybe 2 or 3) of needed income, rather than a fixed 10%. With a fixed 10% you could end up with either an over-weight in it, when your RRIF is large(ish) at the start of your retirement, or an under-weight in it towards the end of retirement.
As the point of the cash wedge is to be able to withdraw income regardless of market conditions (i.e., no selling of assets when the market is down), then measuring it in terms of years rather than percentages just makes sense to me. If you’re conservative by nature, keep 3 years worth of cash wedge; if you’re more risk-tolerant, then go with 1 year.
Hi Jim, you’re right that the 10% allocation could be too much or too little depending on the account and timing of withdrawals. I find it’s a decent rule of thumb to give you 18-24 months’ worth of expected withdrawals – more if you turn off the DRIP on your equity fund.
For planning purposes I may adjust this up or down if warranted.
Kids are 5 and 12 and we have a combined family RESP off which 48% is presently in a money market (ZMMK) holding. Rest is held in VXC etc.
Given we will need the funds in 6 years for the older one, is this asset allocation appropriate or are we over de-risking it thereby loosing on growth potential (of course no one can predict the market or if we may be in a period of lows closer to when the funds are needed).
Would an approach such as this be middle ground – keep the 60k as-is within the safety of a MM fund but keep investing the $5000 annual contribution moving forward from next year on into ETFs.
Hi Rick, here’s the framework that I follow for the RESP: https://boomerandecho.com/the-most-difficult-account-for-investors-to-manage/
Hi Robb.
I find myself wondering about the necessity of a cash wedge. Advisors are saying you should not try to time the market, as no one can correctly predict the ups and downs. When we invest, we’re not advised to try to time the entry. Being consistent is more important. So why are we trying to time the exit, protecting ourselves from unpredictable, potential downturns? Shouldn’t we just withdraw when necessary, and the average will do the same wonders as when we invest?
Cash Wedges can often be sub-optimal on a spreadsheet, but perhaps their main benefit is to encourage folks to be able to spend their money and not curtail their lifestyle in a down market. It’s hard to express how important that is.
That is exactly what my plan is (retiring in 5 years), following the “no timing the market” strategy and thinking in average terms. Wonder what Robb’s answer is.
Hi Sylvain, a cash wedge is not necessary and can be considered “sub-optimal” as Sam noted in his reply. That’s because any amount of cash drags down the overall return on your portfolio and is only really useful during market declines. Since stocks are generally up more than down, it can seem unnecessary to hold cash.
Instead, a simple reverse dollar cost averaging approach works fine – withdrawing monthly (or at whatever frequency works for you) regardless of market prices.
I’ll just, say after working with hundreds of retirees, almost nobody is comfortable selling stocks when the market is down.
The cash wedge is a useful behavioural tool. Even though holding it is sub-optimal, it can help you facilitate withdrawals so you can enjoy retirement without agonizing over the market’s daily fluctuations.
Thanks Robb. So that’s a similar behavioural tool as investing in bonds to diminish the impact of a market downturn. If one is able to withstand those impacts and be fully invest in the market, you should be able to withdraw regardless of the market direction.
I’m still not retired, so it remains to see how I will react, but I’ve never sold when the market was down. Hopefully, the jitters of drawing down my investments will not change my attitude, but I can understand that it may happen.
Thanks Robb, for your excellent blog! My question is how to handle the large lump sum when selling a primary residence to move into a rental apartment. Keeping it safe in a GIC ladder or HISA seems like lost opportunity (and worse taxation), but we would like to keep our options open in the future about possibly buying a home again if we do not like renting (5 years from now possibly, maybe never if we like renting!). We’re thinking about keeping 20% in HISA for a possible future down payment and 80% in VEQT. If the market is down when we buy a house again, we will take on a mortgage for a while until the market recovers. VEQT would hopefully allow us to not fall behind if housing prices surge. What are your thoughts? (TFSA maxed out already in VEQT and working on melting down our RSPs, so this would be non-reg; we are in our late 50s) Thank you!