Does anyone have $0 in cash (except for bills), not even an emergency fund?

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juliewongferra
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Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by juliewongferra » Mon Feb 13, 2017 1:14 pm

Hello fellow Bogleheads,

One of the very interesting conversations in another thread about how much cash one holds (viewtopic.php?f=1&t=210735&newpost=3236616)made me want to start this one.

I understand the purpose of cash, as a safety net. But there’s an opportunity cost. For example, if you expect stocks to return only 5% and bonds to return only 2% (which I consider/hope is the low end of expectations), that’s still 50X or 20X what you’re getting in your bank account.

Is there a portfolio that is “emergency-proof” where you don’t have cash, except for regular mortgage, rent, and bills (or if you’re specifically saving for near-term college or car or house payment)? For example, if your emergency fund, however defined, is $50K, but your assets are $3 million, you could argue that your portfolio could absorb a $50K emergency, even if it dropped 33%. (Hopefully, you have a diversified portfolio and even if the overall portfolio declines 33%, some asset classes increase, which could be the source of emergency funds.)

A dissenter could argue that in this example, $50K is so small that an extra 50X or 20X return is negligible. That’s true, but I could make the reverse argument that it’s so small that the portfolio could absorb an emergency.

(Note to site admins: I understand if this thread is too similar to the other one, and if you have to delete or merge it.)

Cheers!
Jwf

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TomatoTomahto
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by TomatoTomahto » Mon Feb 13, 2017 1:20 pm

I sometimes have cash, sometimes don't, but our portfolio is sufficiently large not to have an explicit emergency fund.

onourway
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by onourway » Mon Feb 13, 2017 1:21 pm

This is a pretty common question. Everyone has to assess their own risk tolerance and decide what makes them most comfortable. I also happen to think that for many people with established, reasonably secure jobs, perhaps a dual-income household, significant 401k/Roth IRA/Taxable accounts, etc. that the need to hold significant amounts in cash is sometimes over-stated. Others have experience or opinions that will lead them to choose a different path. There is no one right answer.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Dottie57 » Mon Feb 13, 2017 1:23 pm

juliewongferra wrote:Hello fellow Bogleheads,

One of the very interesting conversations in another thread about how much cash one holds (viewtopic.php?f=1&t=210735&newpost=3236616)made me want to start this one.

I understand the purpose of cash, as a safety net. But there’s an opportunity cost. For example, if you expect stocks to return only 5% and bonds to return only 2% (which I consider/hope is the low end of expectations), that’s still 50X or 20X what you’re getting in your bank account.

Is there a portfolio that is “emergency-proof” where you don’t have cash, except for regular mortgage, rent, and bills (or if you’re specifically saving for near-term college or car or house payment)? For example, if your emergency fund, however defined, is $50K, but your assets are $3 million, you could argue that your portfolio could absorb a $50K emergency, even if it dropped 33%. (Hopefully, you have a diversified portfolio and even if the overall portfolio declines 33%, some asset classes increase, which could be the source of emergency funds.)

A dissenter could argue that in this example, $50K is so small that an extra 50X or 20X return is negligible. That’s true, but I could make the reverse argument that it’s so small that the portfolio could absorb an emergency.

(Note to site admins: I understand if this thread is too similar to the other one, and if you have to delete or merge it.)

Cheers!
Jwf
Selling part of your portfolio could take a week or so. Cash is available immediately.

You have a life beyond investing. Set a goal for your investing. Set a goal for cash reserves / emergency funds.

Businesses have a cash reserve so should you.

Feel free to spend the money you don't invest. Or put it to short and medium term goals.

Investing for the future is important. But so is living your life.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by bigred77 » Mon Feb 13, 2017 1:32 pm

I did not have a dedicated emergency fund for the past 8/9 years. In an emergency I just figured I could use a credit card, HELOC, or sell invested assets within my Roth IRA and remove them. I didn't like the drag cash made on a portfolio. I preferred to pay down debt or invest all funds above and beyond what I needed for spending. I probably underestimate the value of liquidity and was fortunate to experience a rising market over this time frame.

I am just now starting to build a cash reserve in anticipation of moving from a dual income household to a single income household in the near future. My goal is about 20k by next summer and I'm about 25% of the way there. It's more to deal with cashflow issues (single income has lumpy bonus/equity component) than a true emergency fund.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by bloom2708 » Mon Feb 13, 2017 1:37 pm

Are you stating that you wouldn't even have a checking account?

It is the 15th, where does your paycheck go? Let's say you get a paper check. What do you do with it if you don't cash it or deposit it into your checking account? If you don't have a bank account, will a bank let you cash your paycheck and give you bills/paper money?

Are you saying your brokerage account is your only financial institution? Your clearing account is your only "cash" source? Your paycheck goes directly to your clearing account?

So you use your credit card for all spending (no cash). How do you pay your credit card balance?

In hindsight it seems like it would be quite difficult and cumbersome to remain at $0 cash. :|
Last edited by bloom2708 on Mon Feb 13, 2017 2:20 pm, edited 1 time in total.
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by The Wizard » Mon Feb 13, 2017 1:38 pm

I'm retired and haven't had an explicit emergency fund for decades.
Only cash I keep is $5-10k in checking, no savings account or CDs.
Now when I was saving to buy a new vehicle a few years back, I did use Ally Bank to save up cash, but I'm doing it different henceforth...
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by PandaBear » Mon Feb 13, 2017 1:41 pm

So I don't have $0 in cash. I have a small emergency fund that can cover about 3 to 4 months of expenses (closer to 3). That said, I feel like I'm living without a safety net and every month I've been socking away some more cash. Ideally, I would like to have enough cash to cover the deductible of my earthquake insurance.

Anyone else have an emergency fund that they consider insufficient and feel anxious over it?

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by MittensMoney » Mon Feb 13, 2017 1:48 pm

I don't carry anything in cash. The exception being that my direct deposit hits my bank account, and within a few days I pay rent & other monthly expenses prior to transferring the remainder to investment accounts.

The reasons I'm comfortable doing this: 1) 27 years old, single, expenses are predictable and minimal. 2) If something unexpected did happen, I have multiple options for a safety net (parents nearby, friends, etc.). 3) High credit limit and never carry a balance, I can pay up to $8,000 on the day of an emergency and pay that off 3 days later by taking funds out of taxable accounts.

There are plenty of arguments around why this could be problematic in worst-case-scenarios, but my thought is that the risk of something catastrophic + bad market conditions + taxable event aren't worth missing out on additional gains, at least at this time.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by whodidntante » Mon Feb 13, 2017 1:52 pm

Emergency funds became popular once financial planners got tired of seeing people dig a financial grave with their credit cards, each time something unexpected came up. Having a pile of cash also makes some people comfortable. For me, as long as I have lots of liquidity, I don't see a reason to carry a large cash position. But I won't try to convince anyone who sits on a year of cash to do what I do.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by mhc » Mon Feb 13, 2017 1:56 pm

I could go $0 cash, but I like having cash around. I think it makes life easier. I have 80/20 portfolio. I count my cash as part of the 20%. I keep 1.5% cash/18.5% bonds. I don't think I am losing out much by doing so. No dedicated emergency fund. I just make sure I have enough liquidity.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by auggiedoggies » Mon Feb 13, 2017 1:56 pm

Very interesting question, and one that I honestly struggle with myself.

I'll tell you my situation, and see what others think. I suspect that the amount of "risk" I am taking on is probably a bit much for most on the board.

Wife and I are both 27. We have stable jobs and live in a Midwest city with a very reasonable cost of living and a great job market. Gross HH income is 140k. We have a 360k mortgage on a house worth 425k in a stellar neighborhood. I am nearly finished with an MBA from a very well-respected public institution (top 30) that should expand my earnings potential significantly, both internally and externally. We also have a toddler.

We don't carry much cash at all. We have about 2 months of living expenses in a savings account, and tend to keep 1-2 months of living expenses in checking.

We do max our Roth IRAs, (have about 25k in there) and contribute about 12% total to our 401k (combined balances of 110k between the two of us).

We also have 10k in my company stock, and 7k in our HSA.


So, we don't really have much of an emergency fund. However, we do have assets that we could access if needed, and we have more than an annual OOP max in our HSA. But I still feel like we should have more in cash...but I'm not sure. Thoughts?

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slayed
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by slayed » Mon Feb 13, 2017 1:58 pm

No emergency fund here. Each paycheck I pay whatever bills are due and the rest goes into my taxable mutual fund account. Most expenses get charged to a 0% APR credit card. I am perfectly fine with selling stocks if I ever have an emergency that I can't cover with credit.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Meg77 » Mon Feb 13, 2017 1:59 pm

My husband and I have been effectively operating without an emergency fund for the last month or so. Our checking account balance has only slightly exceeded our outstanding credit card balances (which are automatically paid in full monthly), for a net cash position of roughly nothing.

This isn't how we like to be indefinitely, but property taxes were paid in January, large gifts were given in December, and two vacations were recently booked in advance with the credit cards. Basically we've been living paycheck to paycheck, where our paychecks have simply been paying off spending we have already done on the credit cards.

This will continue as we max out our backdoor Roth IRAs with February's net pay, but beginning in March we plan to rebuild a substantial cash cushion (much of which we will plow into brokerage accounts when and if the market tumbles by over 10%).

We are comfortable with these periods of very low cash on hand because we can easily live on only one of our salaries, and it's very unlikely we will both lose our jobs - without any severance - simultaneously. In a true emergency we could cease maxing out retirement, use 0% credit cards, borrow from our 401ks, borrow from family or tap our brokerage accounts or sizeable Roth IRAs for cash. We also have a large HSA for any unexpected health expenses. But since we have very low expenses compared to our incomes, no dependents, multiple sources of income, as well as good health and disability insurance coverage, we really don't need an emergency fund.
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by livesoft » Mon Feb 13, 2017 2:11 pm

Dottie57 wrote:Selling part of your portfolio could take a week or so. Cash is available immediately.
As most forum readers will know I am a $0 in cash person.

I can get cash fairly quickly if needed. If I sell a Vanguard mutual fund and have the money sent to my checking account, it will be there in 2 business days. if I sell an ETF at WellsTrade, it will be in checking 3 business days. Indeed, I sold some ETF shares last week to pay an upcoming credit card bill, so the cash will be in checking tomorrow.

I suppose I could take out a cash-advance on my credit cards or have a relative wire me cash if we really needed it. In the meantime, I just charge expenses to a credit card and carry on life.

Maybe it is time to have another poll like this one or this one about how folks used their emergency funds?
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by avalpert » Mon Feb 13, 2017 2:14 pm

juliewongferra wrote:Hello fellow Bogleheads,

One of the very interesting conversations in another thread about how much cash one holds (viewtopic.php?f=1&t=210735&newpost=3236616)made me want to start this one.

I understand the purpose of cash, as a safety net. But there’s an opportunity cost. For example, if you expect stocks to return only 5% and bonds to return only 2% (which I consider/hope is the low end of expectations), that’s still 50X or 20X what you’re getting in your bank account.

Is there a portfolio that is “emergency-proof” where you don’t have cash, except for regular mortgage, rent, and bills (or if you’re specifically saving for near-term college or car or house payment)? For example, if your emergency fund, however defined, is $50K, but your assets are $3 million, you could argue that your portfolio could absorb a $50K emergency, even if it dropped 33%. (Hopefully, you have a diversified portfolio and even if the overall portfolio declines 33%, some asset classes increase, which could be the source of emergency funds.)

A dissenter could argue that in this example, $50K is so small that an extra 50X or 20X return is negligible. That’s true, but I could make the reverse argument that it’s so small that the portfolio could absorb an emergency.
My primary cash account currently earns 1% - it is 50x or even 20x - it is 2-3x long term treasury rates. It is not only negligible, the small extra yield is wholly irrelevant to my financial well being (and the little bit of account bonus chasing I do with a portion of that cash more than covers it anyway - come to think of it, you can easily beat the return on bonds with a small emergency fund just chasing bonuses). On the other hand, the convenience of it is valuable to me - far easier when I pick up for a few months of backpacking to manage cash through a bank than investment accounts.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by tuningfork » Mon Feb 13, 2017 2:15 pm

When I was working I kept only enough cash for 1-2 months of typical expenses. The rest of my paycheck was invested. The one time I did have an unexpected emergency expense I charged it to a credit card and took two months to pay it off instead of the usual immediate payoff.

During the 2008 financial crisis I realized my job may not be as safe as I thought, so I spent a few months building up a cash reserve to 6 months expenses in case I got laid off, in lieu of having to sell stocks at lows. Nothing bad happened, but I kept a slightly larger reserve from then on.

At retirement I switched to a very different financial model. I now keep over a year of expenses at hand, to pay normal expenses and emergencies. I prefer the convenience of having money available rather than repeatedly selling investments every time I have to pay bills. When I had a large unplanned emergency expense last year I didn't flinch. Well actually I did flinch but my bank account didn't. 8-)

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by aristotelian » Mon Feb 13, 2017 2:17 pm

I like to keep $10k or so in my checking account -- enough cushion to make sure I do not need to keep a checkbook and track every penny to avoid overdrafts.

On top of that, I do think it is important to keep an amount of very liquid and stable funds for both emergency situations and any near-term savings goals (car, house downpayment, etc). We have about $30K in a high interest savings account.

However, I have thought about using a short-term or even intermediate-term bond fund for that purpose, given that such funds are likely to lose at most a few % of the capital in the event of a downturn.

Pros:
Higher long-term return

Cons:
-Risk of periodic negative returns
-Taxable event for every transfer
-Transfers may take a day or two longer to process
-Yields would be taxable, cutting into returns (although you could consider tax-free)

The cons are not terrible, but are they worth it for maybe 1-2% extra? At the end of the day, I do think it is useful to have a savings account for instantaneous transfers that don't create a taxable event. But I also think one could consider bond funds in taxable to be part of one's emergency portfolio. You could have, say, your first $10K in checking, second $10k in savings, and everything over $20k in a bond fund that you consider to be your "backup emergency" fund separate from your retirement savings. This does make sense especially in a low interest rate environment when it is very difficult to get any return on savings. Hmmm, I might go and do this right now...
Last edited by aristotelian on Mon Feb 13, 2017 2:18 pm, edited 1 time in total.

juliewongferra
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by juliewongferra » Mon Feb 13, 2017 2:18 pm

bloom2708 wrote:Are you stating that you wouldn't even have a checking account?
Good question, for clarification, when I said "except for regular mortgage, rent, and bills" I meant no cash aside for a nominal amount in a bank account or checking account for the purpose of paying utilities, or rent, or mortgage--regular, reasonably anticipated ongoing costs. And when I said saving for near-term expenses, that could be especially targeted to a new appliance, car, vacation...anything with a clear goal.

I was focusing on whether people have an "emergency fund" for an unknown, perhaps never happening emergency--and if risk tolerance is related to portfolio size or not.

cheers,
jwf

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Nearly A Moose » Mon Feb 13, 2017 2:22 pm

I'm not zero cash, but I don't keep a particularly large emergency fund in cash. Most of my cash is queuing up to be spent in various ways (e.g. Monthly set asides to cover annual insurance bills, fica tax on my nannys pay). I have a small "emergency/infrequent large purchases fund". The biggest exception to this practice is i on a monthly basis Fund a vacation fund. That way, I can take a vacation guilt fee.

The only downside is you do need to be pretty attentive to cash flow.
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juliewongferra
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by juliewongferra » Mon Feb 13, 2017 2:24 pm

whodidntante wrote:Emergency funds became popular once financial planners got tired of seeing people dig a financial grave with their credit cards, each time something unexpected came up.
whodidntante,

This is an EXCELLENT point that I didn't think of. Not all of finance is math, some of it is behavioral. If someone doesn't do a good job of defining/planning for emergencies, they may use credit cards too often, not pay it off, and go into debt. So in this scenario, holding cash isn't so much about *missing* the 5% growth that you might expect in a stock return, it's really about *avoiding* the 20% debt that you might get from a credit card.

Excellent, excellent point!

cheers,
jwk

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by onourway » Mon Feb 13, 2017 2:36 pm

juliewongferra wrote: This is an EXCELLENT point that I didn't think of. Not all of finance is math, some of it is behavioral. If someone doesn't do a good job of defining/planning for emergencies, they may use credit cards too often, not pay it off, and go into debt. So in this scenario, holding cash isn't so much about *missing* the 5% growth that you might expect in a stock return, it's really about *avoiding* the 20% debt that you might get from a credit card.

Excellent, excellent point!

cheers,
jwk
It seems clear to me that this is the root of the emergency fund dogma. For most people who have few liquid assets and are not terribly disciplined with their financial habits, an emergency fund is an important backstop for them. I suspect the average boglehead has far less of a need for such a fund other than personal preference.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by livesoft » Mon Feb 13, 2017 2:40 pm

I also never worry about "selling stocks low or at a loss" because I will never have to do that in reality. This is something that is practically unbelievable by many readers of the forum, but it's true. From years on the forum, I understand that many people cannot grasp the concept, but I present it again:

1. If I need money for expenses (or an emergency) and my equity funds in my taxable accounts are down in value, I sell them anyways. At the same time I exchange from a bond fund into an equity fund in my tax-advantaged accounts. This is described in this wiki article. Sure, bond funds could be down as well, but probably less than the tax-savings I would get from tax-loss harvesting.

2. If stock funds are up when I need money for expenses, I sell at a gain. The gains are either not taxed because of offsetting tax-loss harvesting losses or not taxed because I am in the 15% marginal income tax bracket and LTCG are taxed at a rate of 0%.

I will further state that just because one has a cash emergency fund does NOT prevent one's stock funds from losing money when the stock market goes down. The idea of "locking in one's losses" is a false one. Even unrealized losses are real to me. I almost always exchange from bond funds into equity funds when stock funds drop in value in an act of rebalancing.

At this stage of my life, I have plenty of investments in both taxable and tax-advantaged, so that I just don't worry about losses after learning about avoiding the loss aversion behavioral finance trap.
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by avalpert » Mon Feb 13, 2017 2:52 pm

livesoft wrote:I also never worry about "selling stocks low or at a loss" because I will never have to do that in reality. This is something that is practically unbelievable by many readers of the forum, but it's true.
Is it really 'practically unbelievable' to many readers here that you don't sell stocks at a loss because you sell your bonds instead? I'm guessing nearly everyone here has no problem accepting that. I'm pretty sure everyone understands that if you have enough fixed income investments to cover your spending needs then really anything you do on the equity side is mostly irrelevant.

Now if you were also claiming to be 100% equities you might start to get some strange looks.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Kevin M » Mon Feb 13, 2017 3:08 pm

juliewongferra wrote: I understand the purpose of cash, as a safety net. But there’s an opportunity cost. For example, if you expect stocks to return only 5% and bonds to return only 2% (which I consider/hope is the low end of expectations), that’s still 50X or 20X what you’re getting in your bank account.
You must have a lousy bank account. My worst bank account earns 1%, so the 2% figure you list for bonds is only 2X the return on risk-free cash. My best bank account earns 3% (but only on a limited amount), so that's 1.5X the bond figure.

Would you consider a Treasury Bill to be a bond? Yield on the 1-year Treasury is 0.81%, so my bank account with less term risk earns more. If we wind the clock back to mid-2016, the yield on the 3-year Treasury was less than 0.7% and yield on even the 5-year Treasury was less than 1% at one point, while my bank account was still earning 1% with much less risk.

Having said that, I agree that once you have enough wealth, there's no need to hold cash. I pay most bills with a credit card, and my credit utilization is only about 3%, so I could easily meet way more than my typical spending needs by using more credit. Of course I'll want to pay that off before I incur any interest, but I could easily do that by selling shares of stock or bond funds.

I do hold cash though, because I like to time the market a bit, and sell shares of stock and bond funds at a time of my choosing, not right when I need the cash. With stocks, I do this by rebalancing back to target when stocks are over target, and I see additional spending on the horizon (I'm retired). With bonds, I just consider it as reducing my term risk a bit, since I'm just shifting fixed income from longer-term to shorter-term. When the 5-year Treasury yield is less than the yield I can easily earn on cash, I'm inclined to shift some money out of bonds and into either cash or a good CD.

I see some home improvement projects on the horizon, so I recently rebalanced back to target by selling shares of some stock funds. Bond prices went down a fair amount since late last year, and I don't like to sell after something has gone down (unless tax-loss harvesting), so I haven't sold any bond shares since last year before the decline. Admittedly there's some cognitive bias here (loss aversion), so I have no criticism of those who prefer to hold no cash if they can afford not to.

Kevin
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by inbox788 » Mon Feb 13, 2017 4:36 pm

I've played fast and loose with my emergency fund. At times not having one taking the risk of having to liquidate equities during a crash. Other times, I have cash sitting around beyond an emergency funds and being very inefficient. Those periods of not having a designated emergency fund, even though taxable investments are very liquid had been more stressful. Having too much in cash feels wasteful. I've set minimum cash thresholds, which are currently out of compliance and I've considered loading up on short term bonds (municipal in taxable) as a big bin of bond allocation and 2nd/3rd tier emergency fund, but haven't done so yet and that plan is in the slow lane. The thing is, how many times would one expect to have to tap the emergency fund? Once, twice, three times or more? It's a very rare event, so unless one is particularly vigilant, they won't be optimally situated. Some preparation that's adequate is sufficient for me, and I make occasional adjustments towards idea, but don't fret about it. Zero is acceptable if not at times unconformable, so some is desired and I sleep better.
Last edited by inbox788 on Mon Feb 13, 2017 4:38 pm, edited 1 time in total.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by oldzey » Mon Feb 13, 2017 4:37 pm

I try to keep the cash in my portfolio to no more than 1% (for bills).

The first tier of my "emergency fund" consists of 2 credit cards with $40,000 in available credit. These have always been paid off each month for almost 20 years now. I've never paid a penny in interest and I get a modest cashback award each month.

The second tier is my taxable account, consisting of mutual funds, which can be sold and transferred to my bank account in 2 days. I've never had to tap into this.

The third tier is my Roth IRA, which predates my taxable account. So far, I've never had to tap into this, either (well, at least since 2009, when I did tap into it to pay for my final year of grad school during the recession, but that's another story, long before my current career).

If things really hit the fan, then I could take a loan from my 403b for my fourth tier.
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Jack FFR1846 » Mon Feb 13, 2017 4:47 pm

I keep little in cash beyond expected bills and some padding. But I've got layers of safety nets set up where I can get cash anywhere from instantly to about a week.

Stage 1: HELOC. I write a check ($40k)
Stage 2: Ally CD with 180 days of interest penalty ($10k)
Stage 3: US Savings bonds (old enough to be available) ($355k)

We can also quickly move money between family accounts to cover any of the immediate need events to avoid HELOC interest.

I guess we don't have a traditional "year of spending in an Ally account" setup. I do tend to also float a decent amount of money for savings account bonuses ($10k currently tied up till mid March for a $400 bank account), gift card purchases for gas discounts and such. I guess I could add the float my ESPP that is instantly sold when bought.....but then typically either used to pay an expected bill or invested in the taxable account.
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englishgirl
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by englishgirl » Mon Feb 13, 2017 4:55 pm

I have a lot of cash, both as emergency funds, and in savings accounts to pay for various things (car, vacation, property tax). My employment income is not totally stable and I don't get things like paid vacation days like I used to, so it helps me to be more comfortable spending if I have a dedicated account for certain things. I do not have a taxable account, and cannot easily tap my retirement accounts without penalty so a cash cushion makes a lot of sense to me.

Having said that, I like the idea of getting down to zero cash once I am retired and living off my portfolio. Most of my money is invested in balanced funds of stocks + bonds and I imagine that that will continue, so it's not even like I'd have to rebalance between stocks and bonds. Once you can just move money from your retirement accounts as needed, then an emergency fund seems unnecessary. Whatever is left in the account will go back up (or not) as the market moves again. My plan is to spend down my cash in the first year or two of retirement.
Sarah

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laidback_and_relaxed
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by laidback_and_relaxed » Mon Feb 13, 2017 5:09 pm

Lots of cash (12%), thinking of moving most of the cash to rolling, short term FDIC insured CDs in my IRA.

3 month CDs, FDIC insured, earning 70 basis points beats the pants off the 1 or 2 basis points I get in MM or other FDIC insured accounts. I'm also looking at 3 month AA rated corporate bonds, currently yielding 70 to 100 basis points, but they're much more complicated with trading fee ($1/bond), spreads, accrued interest and aren't FDIC insured, but still beating the pants off MM options.

Closer I get to retirement, the closer I look at a few hundred $$ here and there, where it can be done with a few clicks.

The Wizard
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by The Wizard » Mon Feb 13, 2017 5:10 pm

The only emergency I ever worried about was Job Loss.
And I didn't worry about that too much.
Now in retirement, I worry about it not at all.

I have insurances to cover other would be financial calamities.

Unexpected expenses are just that, not emergencies. If your net income exceeds your routine expenses by a good amount, you can just pay as you go for certain things...
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Toons
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Toons » Mon Feb 13, 2017 5:17 pm

I keep five figures in cash.
I don't call it an emergency fund.
I like having it there just in case,
Knowing me,,,I might get up one morning and go buy a new car
:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by rmelvey » Mon Feb 13, 2017 5:20 pm

I basically don't have an emergency fund. I have two months worth of expenses in a checking account and the rest in US equities. I sleep better now than when I had a more conservative approach... I have enough in taxable and ROTH to draw down on if need be. Part of what makes this work is that I am renter so I don't have many large one off expenses I need to worry about.
Last edited by rmelvey on Mon Feb 13, 2017 5:23 pm, edited 2 times in total.

WhiteMaxima
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by WhiteMaxima » Mon Feb 13, 2017 5:21 pm

It's your money, you do whatever you like. I see people borrow money (negative cash) to invest. Things can happen both ways as we all learn from previous experence.

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Sandtrap
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Sandtrap » Mon Feb 13, 2017 5:24 pm

Toons wrote:I keep five figures in cash.
I don't call it an emergency fund.
I like having it there just in case,
Knowing me,,,I might get up one morning and go buy a new car
:mrgreen:
I don't call cash by any "fund" name such as "emergency cash" and so forth.
Like "Toons", I keep a very significant pile . . just in case.
Maybe I am insecure, or been in poverty, or OCD, or . . . . ? :shock:

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Grt2bOutdoors » Mon Feb 13, 2017 5:28 pm

In 2008-2009, I was in my office hearing from contacts that without fed intervention there would be no cash to pay vendors, customers who were selling mutual fund shares, no cash to make payroll, banks with no cash, yeah, just think about your atm cards not working. Not holding cash is a risk you take at your own peril. Don't say it could not happen again, it most certainly could only this time someone may really get hurt.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

WhiteMaxima
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by WhiteMaxima » Mon Feb 13, 2017 5:32 pm

Cash can be in many forms. Like CD, money market, or high quality short term bond. You just need to ladder it.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by JoMoney » Mon Feb 13, 2017 5:40 pm

It helps me sleep at night knowing I could easily cover my living expenses for a prolonged period, or a big 'emergency' without thinking about whether or not the stock market is up or down.
But some people do keep $0 in cash, some people run their life at a deficit (even without other assets) getting by on credit from one paycheck to the next. Running a debt or zero balance may work out well if it's parlayed into investments with higher returns than the interest rate on cash/debt, but it's playing with fire, sooner or later you're going to get burned.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by RudyS » Mon Feb 13, 2017 5:59 pm

When I see "$0 in cash and no emergency fund" I think of TRUE emergencies. Like a major weather disaster cutting off electricity, internet, ATMs, etc. Some gas stations have generators, but can't take credit cards. Maybe the same for food. I keep a couple hundred in real cash for that reason. I don't know what OP meant by "except for bills", maybe that's what I'm trying to say.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by barnaclebob » Mon Feb 13, 2017 6:01 pm

I have no cash except for $10k in a money market fund to use as a credit card buffer. 80/20 stock bonds otherwise.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by toto238 » Mon Feb 13, 2017 6:18 pm

I keep enough cash in my checking account to completely pay off my credit card bills at any time I choose (I always pay off whatever is due at the end of the month to avoid every paying any interest). Besides that, I have sufficient liquidity in my investments such as my Roth IRA that in case of a real emergency I could quickly muster up whatever funds I would need within 1 week to pay for what I need.

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Toons » Mon Feb 13, 2017 6:21 pm

Sandtrap wrote:
Toons wrote:I keep five figures in cash.
I don't call it an emergency fund.
I like having it there just in case,
Knowing me,,,I might get up one morning and go buy a new car
:mrgreen:
I don't call cash by any "fund" name such as "emergency cash" and so forth.
Like "Toons", I keep a very significant pile . . just in case.
Maybe I am insecure, or been in poverty, or OCD, or . . . . ? :shock:

Have experienced(ing) both. :mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

juliewongferra
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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by juliewongferra » Mon Feb 13, 2017 6:34 pm

Grt2bOutdoors wrote:In 2008-2009, I was in my office hearing from contacts that without fed intervention there would be no cash to pay vendors, customers who were selling mutual fund shares, no cash to make payroll, banks with no cash, yeah, just think about your atm cards not working. Not holding cash is a risk you take at your own peril. Don't say it could not happen again, it most certainly could only this time someone may really get hurt.
But if you had cash in the bank, and your ATM cards didn't work, then it's basically as illiquid as any other stock or bond investments anyway, right? SO the only way around that would be to have paper money in the house.

cheers
jwf

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by juliewongferra » Mon Feb 13, 2017 6:37 pm

RudyS wrote:When I see "$0 in cash and no emergency fund" I think of TRUE emergencies. Like a major weather disaster cutting off electricity, internet, ATMs, etc. Some gas stations have generators, but can't take credit cards. Maybe the same for food. I keep a couple hundred in real cash for that reason. I don't know what OP meant by "except for bills", maybe that's what I'm trying to say.
RudyS,

By bills, I meant $0 in cash (as in an emergency fund) except for cash that goes to a bank or checking account to pay utility bills, credit card bills, grocery bills, home or student loans, and other predictable expenses. (I didn't mean dollar bills, although I recognize that I should have been clearer.)

At this point, it doesn't matter because a lot of people, including you, have shared some great insight, but I just wanted to respectfully respond to you since you took the time to contribute to this thread. Many thanks!

cheers,
jwf

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by KlangFool » Mon Feb 13, 2017 6:46 pm

juliewongferra wrote:Hello fellow Bogleheads,

One of the very interesting conversations in another thread about how much cash one holds (viewtopic.php?f=1&t=210735&newpost=3236616)made me want to start this one.

I understand the purpose of cash, as a safety net. But there’s an opportunity cost. For example, if you expect stocks to return only 5% and bonds to return only 2% (which I consider/hope is the low end of expectations), that’s still 50X or 20X what you’re getting in your bank account.

Is there a portfolio that is “emergency-proof” where you don’t have cash, except for regular mortgage, rent, and bills (or if you’re specifically saving for near-term college or car or house payment)? For example, if your emergency fund, however defined, is $50K, but your assets are $3 million, you could argue that your portfolio could absorb a $50K emergency, even if it dropped 33%. (Hopefully, you have a diversified portfolio and even if the overall portfolio declines 33%, some asset classes increase, which could be the source of emergency funds.)

A dissenter could argue that in this example, $50K is so small that an extra 50X or 20X return is negligible. That’s true, but I could make the reverse argument that it’s so small that the portfolio could absorb an emergency.

(Note to site admins: I understand if this thread is too similar to the other one, and if you have to delete or merge it.)

Cheers!
Jwf
juliewongferra,

<< For example, if your emergency fund, however defined, is $50K, but your assets are $3 million, you could argue that your portfolio could absorb a $50K emergency, even if it dropped 33%. (Hopefully, you have a diversified portfolio and even if the overall portfolio declines 33%, some asset classes increase, which could be the source of emergency funds.)>>

I understand your argument. But, it normally works the other way. Wealth preservation is more important than return when you have enough. I have 1 year of EF. $500 to 1 thousand in cash. And, a few thousand in gold jewelry. So, this is how normally people with certain level of wealth behave.

KlangFool

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Re: Does anyone have $0 in cash (except for bills), not even an emergency fund?

Post by Dottie57 » Mon Feb 13, 2017 6:56 pm

livesoft wrote:
Dottie57 wrote:Selling part of your portfolio could take a week or so. Cash is available immediately.
As most forum readers will know I am a $0 in cash person.

I can get cash fairly quickly if needed. If I sell a Vanguard mutual fund and have the money sent to my checking account, it will be there in 2 business days. if I sell an ETF at WellsTrade, it will be in checking 3 business days. Indeed, I sold some ETF shares last week to pay an upcoming credit card bill, so the cash will be in checking tomorrow.

I suppose I could take out a cash-advance on my credit cards or have a relative wire me cash if we really needed it. In the meantime, I just charge expenses to a credit card and carry on life.

Maybe it is time to have another poll like this one or this one about how folks used their emergency funds?
My dad was in a physical hospice in early december. He went in over the weekend. We needed to pay the hospice when he was admitted. No credit cards payments. I was exceedingly happy to have the money in savings - moved it to checking in 10 minutes and wrote the check. My dad deserved the excellent care he received.

There are instances where quick cash is needed.

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