Emergency Fund vs Working Capital Fund -- Too Huge?

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Sandtrap
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Emergency Fund vs Working Capital Fund -- Too Huge?

Post by Sandtrap » Thu Nov 23, 2017 10:36 am

Retired R/E investor/businessman. Married. No debts.

I have about 10x annual expenses (about 1 mil) in my emergency fund in CD's. It tend to think of it as a "working capital" account in case a great buy on income property should come up. IE: bank auction, foreclosure, etc. Cash talks in these deals so I set aside a substantial sum to either pay cash or put down or otherwise play with.

FWIW I also keep about 1x or more annual expense in MM which is for the coming year for DW and I personally. I am able to keep large amounts because the accounts are in my trust so the FDIC will insure 250k per named beneficiary.

Question:
While there's good sleep factor in CD's the opportunity cost of these funds not in my allocation bothers me a bit.
Would I be better off keeping the 10x "emergency fund/working capital fund in my portfolio as part of my allocation instead of CD's (it would certainly earn more but perhaps with a bit more risk to principal)?

Happy Thanksgiving
Thanks of your help and tips.
j :D

livesoft
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by livesoft » Thu Nov 23, 2017 11:13 am

Are you going to ever make one of these deals again? Why?

As long as the CDs are paying more than the rate for US Treasuries, I don't see a problem, but call this investment part of your fixed income asset allocation.
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Sandtrap
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by Sandtrap » Thu Nov 23, 2017 11:35 am

livesoft wrote:
Thu Nov 23, 2017 11:13 am
Are you going to ever make one of these deals again? Why?

As long as the CDs are paying more than the rate for US Treasuries, I don't see a problem, but call this investment part of your fixed income asset allocation.
"lifesoft", you have a unique and wonderful insight. :shock:
Again, you have me wired. Either it's tough to get out of the "game" or it's an R/E investors buyer's compulsion, or. . . a sound business decision. . or a poor retirement decision.
The Scottsdale/Tempe business corridor is overvalued and I missed the timing by 2-3 years. Hawaii is bubbled out. But the VRBO market in upper scottsdale is doing very well and the area is a bit flush from overbuilding so there are deals appearing. It's been 3 years since I bought something. So my radar is buzzing. Maybe I should get off of Loopnet and Zillow and stop drooling. :shock:
Perhaps the route would be to take the 1 mil CD coming out soon and put it in my "Bogleheadville" portfolio and see how it feels. A bit of "livesoft" secret sauce?
j :D

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randomizer
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by randomizer » Thu Nov 23, 2017 12:08 pm

Your emergency fund is bigger than my entire set of investible assets, and at 10x annual expenses, you have about 10x the number of years covered by your emergency fund than mine does. I'd say you could easily afford to grab some of this "opportunity cost" and still have enough flexibility to convert back to cash at short notice.

chevca
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by chevca » Thu Nov 23, 2017 12:43 pm

If you're looking for real estate deals, are you really retired? :happy

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Sandtrap
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by Sandtrap » Thu Nov 23, 2017 12:49 pm

chevca wrote:
Thu Nov 23, 2017 12:43 pm
If you're looking for real estate deals, are you really retired? :happy
Hobby :D

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cfs
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by cfs » Thu Nov 23, 2017 3:47 pm

Good job!

I don't see your cash as an emergency fund.

It should be counted as part of your overall portfolio [the FI part], and note, if this worked for you in the past then I would not change a thing.

The pre/post election market rallies are tempting and you need to be strong.

Good luck with your decision.

Happy Thanksgiving, Merry Christmas, thanks for reading.
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Sandtrap
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by Sandtrap » Thu Nov 23, 2017 9:06 pm

cfs wrote:
Thu Nov 23, 2017 3:47 pm
Good job!

I don't see your cash as an emergency fund.

It should be counted as part of your overall portfolio [the FI part], and note, if this worked for you in the past then I would not change a thing.

The pre/post election market rallies are tempting and you need to be strong.

Good luck with your decision.

Happy Thanksgiving, Merry Christmas, thanks for reading.
Thanks, "cfs" for astute input as always. I've always been anchored in income property and done well. Perhaps a comfort zone even in retirement to at least keep one foot/toe in the water. The question is "how many toes"?
Happy Thanksgiving.
j :D

mega317
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by mega317 » Fri Nov 24, 2017 12:40 pm

Why think of it as a multiplier of expenses? It's money for a purchase with an uncertain but possibly very short timeline. Then I think your question becomes like all the threads asking about investing a down payment.

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Sandtrap
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by Sandtrap » Fri Nov 24, 2017 10:40 pm

mega317 wrote:
Fri Nov 24, 2017 12:40 pm
Why think of it as a multiplier of expenses? It's money for a purchase with an uncertain but possibly very short timeline. Then I think your question becomes like all the threads asking about investing a down payment.
Good point.
Thanks.
j :D

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Sandtrap
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by Sandtrap » Fri Nov 24, 2017 10:43 pm

livesoft wrote:
Thu Nov 23, 2017 11:13 am
Are you going to ever make one of these deals again? Why?

As long as the CDs are paying more than the rate for US Treasuries, I don't see a problem, but call this investment part of your fixed income asset allocation.
After reading some back threads on similar topics, I see your point.
Whether earning 2.5% in a CD or 6% CAP in income property, it's still fixed income asset allocation.
Is that correct?

thanks,
j :D

pepperz
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by pepperz » Sat Nov 25, 2017 1:26 am

That’s a fantastic situation to be in. Congratulations.

Only you can answer this (and maybe not even at this moment)— but do you think it’s probable you will look hard over the next 1-2 years for an opportunity that makes sense and invest?

I don’t know your history but if the answer is “probably YES” or “I cannot imagine going that long and NOT purchasing something” then I’d leave it where it is in anticipation of the right deal.

If not, what about investing the cash in something relatively safe and taking out a HELOC to have the power to pull the trigger with cash at any time? (I assume your home is paid off or other RE properties you can borrow against.)

Sounds like the leverage to snag a great deal is there no matter what direction you take.

Best of luck!

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Sandtrap
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Re: Emergency Fund vs Working Capital Fund -- Too Huge?

Post by Sandtrap » Sat Nov 25, 2017 1:39 am

pepperz wrote:
Sat Nov 25, 2017 1:26 am
That’s a fantastic situation to be in. Congratulations.

Only you can answer this (and maybe not even at this moment)— but do you think it’s probable you will look hard over the next 1-2 years for an opportunity that makes sense and invest?

I don’t know your history but if the answer is “probably YES” or “I cannot imagine going that long and NOT purchasing something” then I’d leave it where it is in anticipation of the right deal.

If not, what about investing the cash in something relatively safe and taking out a HELOC to have the power to pull the trigger with cash at any time? (I assume your home is paid off or other RE properties you can borrow against.)

Sounds like the leverage to snag a great deal is there no matter what direction you take.

Best of luck!
Thanks, "pepperz".
I'm a retired R/E businessman with still a few toes in the market waters. R/E has been fairly overvalued these past several years but some bubbles may be popping in a variety of areas as investors, speculators, and owners, get a reality check of true worth, thus either driving prices down or forcing more foreclosures, defaults, and bank auctions. I've always worked with cash so there's no need for leveraging. As "livesoft" had alluded to earlier, either I move it to fixed income assets or retire from R/E completely and add it to my overall portfolio allocation.

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