Please tell me I'm not crazy [Best way to manage an EF?]

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Topic Author
koalb
Posts: 59
Joined: Sat Apr 17, 2010 12:28 pm

Please tell me I'm not crazy [Best way to manage an EF?]

Post by koalb » Fri May 15, 2020 9:08 pm

There's been a lot of conversations had with my wife about financial security and investment strategy given all the unknowns of COVID and it's impact on the economy over time, unemployment, etc.

We currently have enough cash on hand to support 4 months of living expenses (maintaining our current standard of living, which we'd look to scale back if I lost my job). I've always maintained – and this is the central part of the debate with my wife – that I HATE the idea of a 6-month cash rainy day fund. I just can't stand the idea of having that much cash sitting "idle." To that end, I have about 10 months worth of living expenses (at our current living standard) in a non-tax advantaged fund – comprised almost exclusively of VTSAX. I should also add that I have pretty high job security for the time being. I work for a publicly traded company, and COVID hasn't caused us to adjust our earnings forecast for 2020.

I've always said to her, if we needed extra cash, I'd just liquidate whatever we needed in VTSAX shares. But I don't want to withdraw from my position "just in case."

To summarize the respective positions.

Me:
Again – can't STAND the idea of 6 months worth of cash sitting around
Don't want to withdraw my various stock positions now, have been faithfully dollar cost averaging for 10+ years now
Besides, we already have 4 months cash on hand. Can't we be a little aggressive and just move forward 'as is'
As long as the stock market doesn't crater, I don't mind if it's flat right now - because we'll "win" when the NYSE rebounds

Her:
You better sell our shares now – before the stock market crumbles
We may be facing a new normal – what if there is no economy in 12-24 months' time?
Those shares won't be worth anything to us if they all drop to $0

TLDR: What's your degree of faith in the stock market as a viable investment opportunity – especially over the next 2-5 years?

ps – my wife is a super great lady, and I may have to show her your answers, so please be nice!
Last edited by koalb on Sat May 16, 2020 11:37 pm, edited 2 times in total.

cogito
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Re: Please tell me I'm not crazy

Post by cogito » Fri May 15, 2020 9:18 pm

If the stock market goes to zero, you should be putting your entire net worth into canned beans and assault rifles, right now.

KlangFool
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Re: Please tell me I'm not crazy

Post by KlangFool » Fri May 15, 2020 9:20 pm

OP,

Have you ever been unemployed in a recession? Please noted that we have 30+ million unemployed and counting.

Let's do a mental exercise and assume that you are unemployed next Monday and the stock market drop 50%.

A) You know that you have only 4 months of the emergency fund.

B) You know that beyond that 4 months, you will have to sell the stock at a 50% loss in order to feed your family.

3 months later, you have a lousy job offer with a 50% pay cut. You know that if you accept this job offer, it will set you back a few years in your career and pay. Do you accept the job offer?

1) You know that you only have 1 month of the emergency fund left.

2) You know that you will be losing a lot of money afterward.

Many folks in the 2008/2009 settle for the lousy jobs. They never recovered from their job downgrade. They have no choice because of their small emergency fund.

What is the cost of making 50% less for a few years or forever because of the 2 to 4 additional months of the emergency fund?

I had been there many times. I was unemployed for more than 1 year a few times. My emergency fund is 1 year. Many of my peers had to settle for less and they never recovered.

Please do not be penny wise and pound foolish.

KlangFool

P.S.: I am increasing my emergency fund from 18 months to 24 months over the next few months.
Last edited by KlangFool on Fri May 15, 2020 9:22 pm, edited 1 time in total.

7eight9
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Re: Please tell me I'm not crazy

Post by 7eight9 » Fri May 15, 2020 9:21 pm

Warren Buffett (BRK) is selling stock. And not just airlines. Kind of looks like he is being fearful when others are greedy.

I vote you listen to your wife.
I guess it all could be much worse. | They could be warming up my hearse.

jhsu802701
Posts: 148
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Re: Please tell me I'm not crazy

Post by jhsu802701 » Fri May 15, 2020 9:24 pm

Sorry, I'm with your wife on this. VTSAX sells for 2.5 times book value. It's overvalued! That alone is enough reason to sell.

Remember, it's better to sell on your terms than to have the terms dictated to you.

Nate7out
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Re: Please tell me I'm not crazy

Post by Nate7out » Fri May 15, 2020 9:26 pm

cogito wrote:
Fri May 15, 2020 9:18 pm
If the stock market goes to zero, you should be putting your entire net worth into canned beans and assault rifles, right now.
Bogleheads never try to time the market. You should always have canned beans and assault rifles.

mega317
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Re: Please tell me I'm not crazy

Post by mega317 » Fri May 15, 2020 9:27 pm

I think numerically your plan is good. I have faith that stocks are a good investment. I have much less faith because I don't know you that your employment and financial situation will remain stable and acceptable to your wife.

Nothing any of us says matters. This is a relationship question. My own marriage is more important to me than the gap between how I feel and how my wife feels about 6 months in cash.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

zeal
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Re: Please tell me I'm not crazy

Post by zeal » Fri May 15, 2020 9:31 pm

Can't do it, sorry.

Happy wife, happy life.

The gains on 2-months'-worth of living expenses isn't worth an argument with my wife. If she likes the "6 months" number then keep 6 months' out of the market for your rainy day fund. Or maybe you both could compromise and hold 5 months'.

Do you have to sell VTSAX to get there though? Not necessarily. Build it up via your paycheck instead.

bugleheadd
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Re: Please tell me I'm not crazy

Post by bugleheadd » Fri May 15, 2020 9:33 pm

i recently changed my view also from having emergency cash sitting in a savings acct to just using my brokerage account as my emergency fund. i will continue funneling extra cash to my brokerage and buy into VTI or similar. even if my brokerage account drops 50-80%, dividends+withdrawals will last me a few years of living expenses

also want to add that my annual living expenses are probably about $12000 a year, and thats a small percentage of my brokerage account. so i dont mind if $12,000 stays in the market and not in cash.
Last edited by bugleheadd on Fri May 15, 2020 9:40 pm, edited 4 times in total.

Topic Author
koalb
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Joined: Sat Apr 17, 2010 12:28 pm

Re: Please tell me I'm not crazy

Post by koalb » Fri May 15, 2020 9:35 pm

zeal wrote:
Fri May 15, 2020 9:31 pm
Can't do it, sorry.

Happy wife, happy life.

The gains on 2-months'-worth of living expenses isn't worth an argument with my wife. If she likes the "6 months" number then keep 6 months' out of the market for your rainy day fund. Or maybe you both could compromise and hold 5 months'.

Do you have to sell VTSAX to get there though? Not necessarily. Build it up via your paycheck instead.
I'm not sure what her magic number is in terms of peace of mind. That's something we'll have to talk about.

Appreciate your point on building up to 6-months over time. We've discussed that as well.

absolute zero
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Re: Please tell me I'm not crazy

Post by absolute zero » Fri May 15, 2020 9:35 pm

This sounds pretty immaterial to me. Neither you nor your wife is “right.” I think both 4 months and 6 months each sound like reasonable levels of cash.

Why not split the difference and hold 5 months cash? Personally, I’d just go with 6 months to make her feel better.

KlangFool
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Re: Please tell me I'm not crazy

Post by KlangFool » Fri May 15, 2020 9:37 pm

OP,

The issue is not whether you should sell the stock. The problem is your emergency fund is too small.

KlangFool

Topic Author
koalb
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Joined: Sat Apr 17, 2010 12:28 pm

Re: Please tell me I'm not crazy

Post by koalb » Fri May 15, 2020 9:39 pm

Let me also highlight that I have four months in cash at our CURRENT standard of living. If for some reason I lost my job, we'd scale that back to only the essentials. So I imagine it could be 5-6 months right there.

Again, I just HATE the idea of selling VTSAX shares just to stick them into a savings account.

Appreciate the thoughts shared here, though. Much appreciated.

absolute zero
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Re: Please tell me I'm not crazy

Post by absolute zero » Fri May 15, 2020 9:41 pm

If it really drives you crazy, maybe you could sell bonds to raise that cash. In other words , if your asset allocation is 70/30 + 4 months cash, instead make it 72/28 and 6 months cash (or something along those lines). The risk and expected return of your portfolio would be nearly identical. But she could still have the comfort of knowing that you guys have a big stack of cash.

Topic Author
koalb
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Re: Please tell me I'm not crazy

Post by koalb » Fri May 15, 2020 9:41 pm

KlangFool wrote:
Fri May 15, 2020 9:37 pm
OP,

The issue is not whether you should sell the stock. The problem is your emergency fund is too small.

KlangFool
Perhaps – but I'd counter by saying that I've deliberately chosen to invest my rainy day fund in order to seek higher returns.

And yes, there's an increased level of risk associated with that.

Triple digit golfer
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Re: Please tell me I'm not crazy

Post by Triple digit golfer » Fri May 15, 2020 9:41 pm

Have an emergency plan that enables you to survive without an income for X months without selling equities.

You and your wife need to solve for X.

If taxable account is all equities and doesn't equal 2X, you should probably have some bonds or cash available outside of retirement accounts.

What does your overall portfolio look like? Any bonds in retirement accounts?

If the debate is just two more months and you have bonds in retirement accounts, then even if stocks drop by 50%, you have 5 months plus 4 in cash = 9 months available. If you need to liquidate the 5 in stocks, you can always exchange an equal amount from bonds to stocks in retirement accounts to effectively be selling only bonds.

You could also just sell the 2 months for cash and exchange bonds for stocks in retirement accounts. Net effect is exchanging 2 months of bonds for cash.

justsomeguy2018
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Re: Please tell me I'm not crazy

Post by justsomeguy2018 » Fri May 15, 2020 9:42 pm

koalb wrote:
Fri May 15, 2020 9:35 pm
zeal wrote:
Fri May 15, 2020 9:31 pm
Can't do it, sorry.

Happy wife, happy life.

The gains on 2-months'-worth of living expenses isn't worth an argument with my wife. If she likes the "6 months" number then keep 6 months' out of the market for your rainy day fund. Or maybe you both could compromise and hold 5 months'.

Do you have to sell VTSAX to get there though? Not necessarily. Build it up via your paycheck instead.
I'm not sure what her magic number is in terms of peace of mind. That's something we'll have to talk about.

Appreciate your point on building up to 6-months over time. We've discussed that as well.
I actually side with your wife on this one (sort of). I would do some combination of either building up to 8-months, or selling to get to 8-months. In fact what I would probably do is sell 2-months worth to get 6 months worth and save the rest. 4-months is too small an EF in this environment, IMO.

grettman
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Re: Please tell me I'm not crazy

Post by grettman » Fri May 15, 2020 9:44 pm

Nate7out wrote:
Fri May 15, 2020 9:26 pm
cogito wrote:
Fri May 15, 2020 9:18 pm
If the stock market goes to zero, you should be putting your entire net worth into canned beans and assault rifles, right now.
Bogleheads never try to time the market. You should always have canned beans and assault rifles.
Crappy planning if you don’t include 2-3 thousand rounds of ammo... IMHO..

muffins14
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Re: Please tell me I'm not crazy

Post by muffins14 » Fri May 15, 2020 9:46 pm

People are spending less discretionary income due to COVID. Why not say “yes, good idea to have 6 months emergency fund” Sell 1 months worth of stock to make her happy if necessary, and save up to 6 over the next few months

Topic Author
koalb
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Joined: Sat Apr 17, 2010 12:28 pm

Re: Please tell me I'm not crazy

Post by koalb » Fri May 15, 2020 9:47 pm

Triple digit golfer wrote:
Fri May 15, 2020 9:41 pm
Have an emergency plan that enables you to survive without an income for X months without selling equities.

You and your wife need to solve for X.

If taxable account is all equities and doesn't equal 2X, you should probably have some bonds or cash available outside of retirement accounts.

What does your overall portfolio look like? Any bonds in retirement accounts?

If the debate is just two more months and you have bonds in retirement accounts, then even if stocks drop by 50%, you have 5 months plus 4 in cash = 9 months available. If you need to liquidate the 5 in stocks, you can always exchange an equal amount from bonds to stocks in retirement accounts to effectively be selling only bonds.

You could also just sell the 2 months for cash and exchange bonds for stocks in retirement accounts. Net effect is exchanging 2 months of bonds for cash.
All my bonds are in retirement accounts. My understanding is that for taxation purposes, that's the smart thing to do.

This non-retirement VTSAX holding has always been my – "for whatever" fund.

Either big unplanned purchases (hasn't really ever happened yet)
Yes, salary substitute in the event of a layoff
Maybe a Porsche, you never know ;-)

What I always assumed with this strategy, is that even if I lost my job - logically, not EVERYONE would lose their job. But in walks COVID...

Although with two young kids, 9 and 11 – I figured I'd have to do something decisive with it before financial aid offices start sizing it up. Yes, have 529 funds for both of them.

KlangFool
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Re: Please tell me I'm not crazy

Post by KlangFool » Fri May 15, 2020 9:52 pm

koalb wrote:
Fri May 15, 2020 9:41 pm
KlangFool wrote:
Fri May 15, 2020 9:37 pm
OP,

The issue is not whether you should sell the stock. The problem is your emergency fund is too small.

KlangFool
Perhaps – but I'd counter by saying that I've deliberately chosen to invest my rainy day fund in order to seek higher returns.

And yes, there's an increased level of risk associated with that.
koalb,

1) You are underestimating the risk.

2) You are overestimating the reward.

The 2 months' reward is insignificant. But, if you need the money, the risk is significant.

Let's assume that the return is 10% per year and the loss is 50%. You need to be lucky for 7.2 years (rule of 72) in order to break even.

KlangFool

Triple digit golfer
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Re: Please tell me I'm not crazy

Post by Triple digit golfer » Fri May 15, 2020 9:53 pm

koalb wrote:
Fri May 15, 2020 9:47 pm
Triple digit golfer wrote:
Fri May 15, 2020 9:41 pm
Have an emergency plan that enables you to survive without an income for X months without selling equities.

You and your wife need to solve for X.

If taxable account is all equities and doesn't equal 2X, you should probably have some bonds or cash available outside of retirement accounts.

What does your overall portfolio look like? Any bonds in retirement accounts?

If the debate is just two more months and you have bonds in retirement accounts, then even if stocks drop by 50%, you have 5 months plus 4 in cash = 9 months available. If you need to liquidate the 5 in stocks, you can always exchange an equal amount from bonds to stocks in retirement accounts to effectively be selling only bonds.

You could also just sell the 2 months for cash and exchange bonds for stocks in retirement accounts. Net effect is exchanging 2 months of bonds for cash.
All my bonds are in retirement accounts. My understanding is that for taxation purposes, that's the smart thing to do.

This non-retirement VTSAX holding has always been my – "for whatever" fund.

Either big unplanned purchases (hasn't really ever happened yet)
Yes, salary substitute in the event of a layoff
Maybe a Porsche, you never know ;-)

What I always assumed with this strategy, is that even if I lost my job - logically, not EVERYONE would lose their job. But in walks COVID...

Although with two young kids, 9 and 11 – I figured I'd have to do something decisive with it before financial aid offices start sizing it up. Yes, have 529 funds for both of them.
If you are comfortable with 9 months, then you're set.

4 months in cash.
10 in stocks gives you cushion for a 50% drop and still leaves 5 months.

If you need the money, sell the stocks (and get your capital loss deduction!) and exchange from bonds to stocks in retirement account.

Or just hold the bonds in taxable. Holding stocks as an emergency fund just because you want to maintain tax efficiency is silly. Don't let the tax tail wag the investment dog, or however that saying goes. Bond yields are low anyway. It won't be a big deal.

bugleheadd
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Re: Please tell me I'm not crazy

Post by bugleheadd » Fri May 15, 2020 9:55 pm

can you sell any shares to tax loss harvest? or sell your most expensive shares tax lot, that way you are not giving up much gains.
Last edited by bugleheadd on Fri May 15, 2020 9:55 pm, edited 1 time in total.

runner540
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Re: Please tell me I'm not crazy

Post by runner540 » Fri May 15, 2020 9:55 pm

I’m with your wife. Very reasonable to have 6 months of cash. What do your expenses look like if you have to pay full Cobra health premiums? Might outweigh any cuts you make.

We continue to invest in retirement accounts with each paycheck but are holding on to cash that otherwise would be used to pay down mortgage, do home improvements and load up a 529, because liquidity is important.

delamer
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Re: Please tell me I'm not crazy

Post by delamer » Fri May 15, 2020 10:02 pm

TLDR: What's your degree of faith in the stock market as a viable investment opportunity – especially over the next 2-5 years?

Zero.

No money that is intended to be spent within the next 5 years should be in stocks. That includes emergency funds.
Last edited by delamer on Sat May 16, 2020 10:34 am, edited 1 time in total.

theorist
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Re: Please tell me I'm not crazy

Post by theorist » Fri May 15, 2020 10:04 pm

It would be helpful to know what the size of your equity holdings is, in “months of living expenses” units.

If it is very large, I’d definitely increase the 4 months to whatever makes your wife happy. In fact it just seems like prudence to have >4 months in holdings that are at least as safe as intermediate term high grade bonds. (I would want years, personally, if I had substantial holdings — we’ve been investing for quite a while and have 10+ years earning little but making us feel secure.)

If you have just started out investing and this would set you back significantly in terms of your stock holdings, I understand the psychology of your opposition more. I’d still probably increase the emergency fund invested totally safely (i.e. in cash + high quality fixed income). It is a risk vs reward thing. The period we are going through is the most dangerous economic time most of us have seen in somewhere between a decade and ever.

Good luck!
Last edited by theorist on Fri May 15, 2020 10:07 pm, edited 1 time in total.

psy1
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Re: Please tell me I'm not crazy

Post by psy1 » Fri May 15, 2020 10:06 pm

4 months rounds to zero in my book. When I drive around town, I see a bunch of people idling around, buildings closed, and very few people working. I am rooting for a good recovery as is everyone, but ...

I am with your wife.

If you are wrong, you will have some long decades with her!

JamesDean44
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Re: Please tell me I'm not crazy

Post by JamesDean44 » Fri May 15, 2020 10:08 pm

absolute zero wrote:
Fri May 15, 2020 9:41 pm
If it really drives you crazy, maybe you could sell bonds to raise that cash. In other words , if your asset allocation is 70/30 + 4 months cash, instead make it 72/28 and 6 months cash (or something along those lines). The risk and expected return of your portfolio would be nearly identical. But she could still have the comfort of knowing that you guys have a big stack of cash.
If I had your proclivities and preferences, I'd do what absolute zero recommended.

Herekittykitty
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Location: Flyover Country

Re: Please tell me I'm not crazy

Post by Herekittykitty » Fri May 15, 2020 10:10 pm

koalb wrote:
Fri May 15, 2020 9:41 pm
KlangFool wrote:
Fri May 15, 2020 9:37 pm
OP,

The issue is not whether you should sell the stock. The problem is your emergency fund is too small.

KlangFool
Perhaps – but I'd counter by saying that I've deliberately chosen to invest my rainy day fund in order to seek higher returns.

And yes, there's an increased level of risk associated with that.

"A rainy day or rainy day fund is a reserved amount of money to be used in times when regular income is disrupted or decreased in order for typical operations to continue." Wikipedia

If Wikipedia is giving an accurate description of what a rainy day fund is, then one wonders why a person would take risk with such a fund.
I don't know anything.

nix4me
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Re: Please tell me I'm not crazy

Post by nix4me » Fri May 15, 2020 10:16 pm

Save the cash and move on. Cash is good right now.

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TheTimeLord
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Re: Please tell me I'm not crazy

Post by TheTimeLord » Fri May 15, 2020 10:18 pm

koalb wrote:
Fri May 15, 2020 9:41 pm
KlangFool wrote:
Fri May 15, 2020 9:37 pm
OP,

The issue is not whether you should sell the stock. The problem is your emergency fund is too small.

KlangFool
Perhaps – but I'd counter by saying that I've deliberately chosen to invest my rainy day fund in order to seek higher returns.

And yes, there's an increased level of risk associated with that.
Klangfool is right, and your wife deserves to sleep peacefully at night as well as to have her opinion respected. IMHO, 6 months is still too small.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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mmmodem
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Re: Please tell me I'm not crazy

Post by mmmodem » Fri May 15, 2020 10:21 pm

I can't really tell you what you should do. I can only tell you what we did. I never had an EF while single. All savings were invested aggressively. I was young and lived at home.

When we got married, we decided to have a 6 month EF in a high yield savings account. This slowly increased to 12 months as we started a family. And recently we made enough money to have a taxable account. Our total taxable amount grew to over 24 months of expenses. That's when DW very reluctantly allowed me to invest everything. I hate seeing my hard earned cash sit in a savings account.

So assuming 50% drop in the market I still have 12+ months to live on. I'll probably have 26 weeks of unemployment but this is doomsday scenario so consider I was fired for negligence or died. I can sell the second home to pay off our primary home and have no mortgage and cash out another year or two worth of equity to live off of. Without having to pay mortgages my expenses drop considerably, so now my 4 years is closer to 8 years of living expenses. Then I have my Roth IRA and 401k using 72T and yada yada yada to retirement.

TL;DR save multiples more in taxable than your 6 month EF.

Topic Author
koalb
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Re: Please tell me I'm not crazy

Post by koalb » Fri May 15, 2020 10:21 pm

theorist wrote:
Fri May 15, 2020 10:04 pm
It would be helpful to know what the size of your equity holdings is, in “months of living expenses” units.

If it is very large, I’d definitely increase the 4 months to whatever makes your wife happy. In fact it just seems like prudence to have >4 months in holdings that are at least as safe as intermediate term high grade bonds. (I would want years, personally, if I had substantial holdings — we’ve been investing for quite a while and have 10+ years earning little but making us feel secure.)

If you have just started out investing and this would set you back significantly in terms of your stock holdings, I understand the psychology of your opposition more. I’d still probably increase the emergency fund invested totally safely (i.e. in cash + high quality fixed income). It is a risk vs reward thing. The period we are going through is the most dangerous economic time most of us have seen in somewhere between a decade and ever.

Good luck!
I've got about 10 months worth of living expenses in equity. But that's maintaining our current standard of living.

Likely 15 months, probably more if we scaled back our expenses.

mega317
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Re: Please tell me I'm not crazy

Post by mega317 » Fri May 15, 2020 10:24 pm

mmmodem wrote:
Fri May 15, 2020 10:21 pm
this is doomsday scenario so consider I was fired for negligence or died.
You need more insurance if death is a doomsday scenario.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

psy1
Posts: 175
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Re: Please tell me I'm not crazy

Post by psy1 » Fri May 15, 2020 10:25 pm

koalb wrote:
Fri May 15, 2020 10:21 pm
theorist wrote:
Fri May 15, 2020 10:04 pm
It would be helpful to know what the size of your equity holdings is, in “months of living expenses” units.

If it is very large, I’d definitely increase the 4 months to whatever makes your wife happy. In fact it just seems like prudence to have >4 months in holdings that are at least as safe as intermediate term high grade bonds. (I would want years, personally, if I had substantial holdings — we’ve been investing for quite a while and have 10+ years earning little but making us feel secure.)

If you have just started out investing and this would set you back significantly in terms of your stock holdings, I understand the psychology of your opposition more. I’d still probably increase the emergency fund invested totally safely (i.e. in cash + high quality fixed income). It is a risk vs reward thing. The period we are going through is the most dangerous economic time most of us have seen in somewhere between a decade and ever.

Good luck!
I've got about 10 months worth of living expenses in equity. But that's maintaining our current standard of living.

Likely 15 months, probably more if we scaled back our expenses.
15 months. Maybe I am getting old. But 15 months could easily change to 7-8 months in a short time. If you lose your job, if you have debts, etc. that is not much buffer. Your wife is your friend.

BeneIRA
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Re: Please tell me I'm not crazy

Post by BeneIRA » Fri May 15, 2020 10:26 pm

If you are into sports metaphors: your ceiling is somewhat high and your floor is very low (market crash and/or salary cut). Maybe you hit a home run, which would be a 10-20% increase in current stock prices. But you could also lose half of your stock value.

Your wife's strategy is a very high floor but an extremely low ceiling. Saving up an emergency fund and selling stocks isn't going to massively increase your wealth, but it is very defensive and you probably won't lose money (except possibly to inflation, but we'll pretend that doesn't exist for now).

I was going to suggest the compromise of saving 6-7 months of an emergency fund and then continuing to invest. Odds of you needed more than 6-7 months of living expenses with absolutely no money coming in is low. You would grab another job, your spouse would grab another job, unemployment, etc. If you have a long time horizon, your stocks will probably be fine in the long-term. I also wouldn't rule out the possibility of a salary cut of 20% which seems to be popular these days.

I personally see much more downside to your approach. If I was your wife, I would be somewhat bitter if any volatility in the market occurs and I expect volatility.

Patzer
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Re: Please tell me I'm not crazy

Post by Patzer » Fri May 15, 2020 10:32 pm

Sell down to have at least 6 months on hand.

You "hating" having cash idle, is about as relevant as if you hated paying your mortgage.
You still need an emergency fund and you still need to pay your mortgage.

Think about it this way.
1. If you go through life never needing to use your emergency fund, you are almost certainly in great shape, having had an uninterrupted career and made a ton of money. Will extra returns on 2 extra months expenses worth of stock really matter?
2. However, if at some point in your life you do get laid off for an extended period, you will be a lot better off having had a larger emergency fund.

psy1
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Re: Please tell me I'm not crazy

Post by psy1 » Fri May 15, 2020 10:33 pm

10-20% chance of winning with your risk level.
50+% chance of striking out with your risk level.
100% chance of irritating your wife with volatility.

hmm...

One thing to factor in is the cost of divorce. Not many people talking about it, but the divorce rate is likely to increase during all of this. Financial issues/disagreements are a leading cause of divorce. I would look at the big picture.

theorist
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Re: Please tell me I'm not crazy

Post by theorist » Fri May 15, 2020 10:41 pm

koalb wrote:
Fri May 15, 2020 10:21 pm
theorist wrote:
Fri May 15, 2020 10:04 pm
It would be helpful to know what the size of your equity holdings is, in “months of living expenses” units.

If it is very large, I’d definitely increase the 4 months to whatever makes your wife happy. In fact it just seems like prudence to have >4 months in holdings that are at least as safe as intermediate term high grade bonds. (I would want years, personally, if I had substantial holdings — we’ve been investing for quite a while and have 10+ years earning little but making us feel secure.)

If you have just started out investing and this would set you back significantly in terms of your stock holdings, I understand the psychology of your opposition more. I’d still probably increase the emergency fund invested totally safely (i.e. in cash + high quality fixed income). It is a risk vs reward thing. The period we are going through is the most dangerous economic time most of us have seen in somewhere between a decade and ever.

Good luck!
I've got about 10 months worth of living expenses in equity. But that's maintaining our current standard of living.

Likely 15 months, probably more if we scaled back our expenses.
Well now I understand your attachment to the equities. You’re closer to the start of investing than the end. But I think you shouldn’t think of it as losing months of hard earned equity investments. You should think of it as laying a stable foundation so you’re sure to have safe opportunities to invest much more in the future.

I’d convert several of the months of equities to high quality bonds, to complement your emergency fund. If you have 15 months of stock, shifting to a 75/25 asset allocation would let you add 4 months to fixed income right there.

Being aggressive with allocation at the start of an investing career is great, but this is a dangerous time, and the wife’s happiness is more important than a 4 month reallocation that puts you at a still aggressive AA anyhow.

Just my two cents worth as a stranger on the internet (but, well meaning).

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mmmodem
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Re: Please tell me I'm not crazy

Post by mmmodem » Fri May 15, 2020 10:42 pm

mega317 wrote:
Fri May 15, 2020 10:24 pm
mmmodem wrote:
Fri May 15, 2020 10:21 pm
this is doomsday scenario so consider I was fired for negligence or died.
You need more insurance if death is a doomsday scenario.
Just enough to so that there is no suspicion on the surviving spouse. :mrgreen:

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celia
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Re: Please tell me I'm not crazy

Post by celia » Fri May 15, 2020 10:42 pm

koalb wrote:
Fri May 15, 2020 9:47 pm
Although with two young kids, 9 and 11.
Finally, some new information! This is not for the security of one person other than you, but for 3 other people!

But you both are focusing on the wrong topic, in my opinion. Covid will only be here for a year or two while there are bigger disasters you both need to plan for. They have nothing to do with your job security either.

Suppose there was a 9-11 disaster near you or an Oklahoma City bombing. Or a hurricane or earthquake or tornado took out your living area. Or maybe fire, flood, sinking earth wiped out your town. Or worse yet (for your family), what if you were hit by a drunk driver, had a heart attack, or were in the wrong place at the wrong time when a shooting occured? It DOES happen. Almost every day. But we don’t hear of it now with this covid thing taking up all the news.

So where does that leave you financially? Hopefully you and your wife both have adequate life insurance for starts. It is relatively cheap just because the chances are that you will live until your kids are grown. But you also need to have a safety cushion of 12-24 months of safe (fairly liquid) living expenses. It is up to both of you how to create that.

I speak from experience in that DH and I were both laid off the same month and were out of work for a year. We had kids in a church-based school for which we were paying tuition and had a mortgage. Those two items were top priority for us to be paid each month. Everything else was cut to the bone and the kids knew they weren’t going to ask for things we usually paid for. We survived, but it was sort of a change of lifestyle, but not as strict as Staying at Home, like we are doing now. Your future experience with the unexpected will be different than ours and different than current events currently dictate for you. But you will get through it a lot easier if you are financially prepared for a disaster.

We certainly understand that you would HATE to sell VTSAX. You made that clear. So what else can you do to build up your much-needed Emergency Fund AND make your portfolio less risky? Since your wife is a big part of this conservation, it needs to work for both of you, rather than for Bogleheads. I think you are quite fortunate to have a dear wife who wants to keep everyone safe and healthy during not only covid-19 but to be prepared for the unexpected. Listen to her and I’m sure you two can come up with something new that satisfies both of you going forward.

Slowtraveler
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Re: Please tell me I'm not crazy

Post by Slowtraveler » Fri May 15, 2020 10:47 pm

Triple digit golfer wrote:
Fri May 15, 2020 9:53 pm

If you need the money, sell the stocks (and get your capital loss deduction!) and exchange from bonds to stocks in retirement account.
How many years of expenses do you have in bonds?

I do the same as you. I keep 1-2 months of expenses in cash and a few years of expenses in bonds in tax advantaged accounts.

If I needed cash, I'd sell the bonds for stocks in the pretax account to replace any stocks I sold in taxable. Make sure the stocks bought aren't substantially similar to what was sold.

Still haven't had the need once.

Furthermore, I could drastically cut my expenses if need be.

birnhamwood
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Re: Please tell me I'm not crazy

Post by birnhamwood » Fri May 15, 2020 10:48 pm

If Mama ain't happy, ain't nobody happy!

Monsterflockster
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Re: Please tell me I'm not crazy

Post by Monsterflockster » Fri May 15, 2020 10:57 pm

koalb wrote:
Fri May 15, 2020 9:39 pm
Let me also highlight that I have four months in cash at our CURRENT standard of living. If for some reason I lost my job, we'd scale that back to only the essentials. So I imagine it could be 5-6 months right there.

Again, I just HATE the idea of selling VTSAX shares just to stick them into a savings account.

Appreciate the thoughts shared here, though. Much appreciated.
How much wine are you buying? How are you spending so much during a shelter in place?

Slim down now and build up your emergency fund. Listen to your wife. Her sleeping better is worth the investment my man.

BeneIRA
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Re: Please tell me I'm not crazy

Post by BeneIRA » Fri May 15, 2020 11:00 pm

birnhamwood wrote:
Fri May 15, 2020 10:48 pm
If Mama ain't happy, ain't nobody happy!
Somebody posted on here a while back "happy spouse, happy house" and I loved that. If one half of a couple is miserable, is the other one ever really going to be happy? My point is, if the OP feels so passionately about this emergency fund situation that they will lose sleep over it or become miserable, then maybe they are willing to live with the consequences, positive or negative, and feel stronger about it than their spouse.

index245
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Re: Please tell me I'm not crazy

Post by index245 » Fri May 15, 2020 11:09 pm

I think she's right. Sell the stock, and build the emergency fund to at least 6 months.

Then, if the job remains stable, increase your dollar cost averaging (if possible) into the taxable account in the coming months.

I have great faith in stocks as a good investment over a 20+ year timeline. I have zero faith in the 2 to 5 year timeline you mentioned.

bampf
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Re: Please tell me I'm not crazy

Post by bampf » Fri May 15, 2020 11:23 pm

I think it all depends on where you are in your financial journey. Right now I have enough invested to do just fine. I also know that we could be facing ugly times with 30 million unemployed. I always want the market to go up, but, if it doesn't I have time to wait for it to go up. I also have a lot more liquid than I have ever had. Didn't really plan it that way, but, it worked out ok and I can live for quite some time at current expenses with no additional income.

I think everyone has a point here, but, ultimately it all comes down to you. What are you comfortable with? What will you do when bad things happen? Bad things will happen, we just don't know when.

I don't think anyone could have reasonably predicted that the whole world would be collectively holding our breath waiting for this super bug to go away. To be clear, reasonable to predict a pandemic. Not reasonable to call the date/time group. Thats just liquor and guessing.

Beans. Gold. Cash. Pasta. Whatever you got to do to survive. I want as few external dependencies on luck and fortune as possible whilst be poised to benefit if things go north quickly. Nobody knows nothing. Make your bed, place your bets and win or lose, its all up to you. Good luck and wash your hands!

redrum
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Re: Please tell me I'm not crazy

Post by redrum » Fri May 15, 2020 11:27 pm

koalb wrote:
Fri May 15, 2020 9:39 pm
Let me also highlight that I have four months in cash at our CURRENT standard of living. If for some reason I lost my job, we'd scale that back to only the essentials. So I imagine it could be 5-6 months right there.

Again, I just HATE the idea of selling VTSAX shares just to stick them into a savings account.

Appreciate the thoughts shared here, though. Much appreciated.
How long will it take you to save up 2 extra months of expenses?
If the above takes too long, you should consider listening to your spouse. What percentage of your portfolio does this additional amount represent?

I'm personally uncomfortable with less than 6 months and have about a year on reserve right now.

typical.investor
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Re: Please tell me I'm not crazy

Post by typical.investor » Sat May 16, 2020 3:19 am

koalb wrote:
Fri May 15, 2020 9:08 pm

Me:
Again – can't STAND the idea of 6 months worth of cash sitting around
Don't want to withdraw my various stock positions now, have been faithfully dollar cost averaging for 10+ years now
Besides, we already have 4 months cash on hand. Can't we be a little aggressive and just move forward 'as is'
As long as the stock market doesn't crater, I don't mind if it's flat right now - because we'll "win" when the NYSE rebounds

Her:
You better sell our shares now – before the stock market crumbles
We may be facing a new normal – what if there is no economy in 12-24 months' time?
Those shares won't be worth anything to us if they all drop to $0

TLDR: What's your degree of faith in the stock market as a viable investment opportunity – especially over the next 2-5 years?

ps – my wife is a super great lady, and I may have to show her your answers, so please be nice!
Dude, you are CRAZY to disagree with your wife. It's not going to get you anyplace. In my case it was necessary to create win-win for my wife.

To keep the stock allocation as you believe is best, I think you will have to agree to just take full responsibility if it goes to zero.

For it me it was listening to her concerns, saying "I understand your concerns", and agreeing to accept 100% responsibility if things turn out the way she worries about.

So if things go bad, not only would you be broke but you would probably be forced to do everything she wants you to do in the exact way she deems fit.

If the economy does well, she wins $$. If it does poorly, she wins (total and absolute) control. That was the only way I could get what I wanted which was to stay invested. So I am at risk of being micromanaged in terms of organization, time management, and even what I say to others for things that involve us both. I am praying for economic recovery.

Maybe your wife is different, but agreeing to accept responsibility if things didn't work out as hoped was the only thing that worked for me. Just joking about your being crazy ... maybe that more describes us.

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Re: Please tell me I'm not crazy

Post by mortfree » Sat May 16, 2020 3:41 am

You keep referring to current standard of living if you lose your job.

Yes you can cut some things but with job loss what will you do for medical insurance?

That would be an added expense right?

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