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

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Grt2bOutdoors
Posts: 23056
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Please tell me I'm not crazy

Post by Grt2bOutdoors »

I got news for you - I worked for a publicly traded NYSE company too, they never cut their forecasts either in good/bad times but they also had no qualms about cutting people either. Your job is not secure unless you have three letters before it - do you? If you don’t you will go before they go.

You’d better listen to your wife - she’s super smart. Your 10 months of expenses could easily become 5 months or less worth of expenses in one or two trading days - yes, it’s that easy. All people have to do is hit the “sell” button en masse while people sit on the sidelines with their cash, idly biding their time.

I don’t know your age(s) or obligations, but if $600 or $1,000 a week in unemployment insurance is not enough to sustain your basic living standards for a period of 1-2 years (most unemployment runs out after 6 months and is fully taxable) you had better have enough banked on the side in cash to carry you through. Four months is not nearly enough, it may take you 1-2+ years to find a job.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
zeal
Posts: 246
Joined: Tue Dec 11, 2018 4:28 pm

Re: Please tell me I'm not crazy

Post by zeal »

I think it's safe to say that everyone is agreeing with your wife and recommending at least a compromise--her security is more important than your FOMO.

Any money that's intended for "the next 2-5 years" timeline should not be invested in the stock market. It is too volatile and chances are that, when you need the money, you will be forced to sell low. If this entire taxable amount is just "fun money," then you need to sell some of it to bring your emergency fund to a level that makes your wife feel secure, and maybe there will be some leftover for you to play with.
FishTaco
Posts: 145
Joined: Sat Jun 08, 2019 7:49 am

Re: Please tell me I'm not crazy

Post by FishTaco »

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.
Yeah, but the big question is should you buy a can of beans and an assault rifle every month over the next few years? Or lump sum all your cans of beans and assault rifles right now?
User avatar
Tamarind
Posts: 2226
Joined: Mon Nov 02, 2015 2:38 pm

Re: Please tell me I'm not crazy

Post by Tamarind »

Well, I don't agree with either of you, OP. But I disagree with you a bit more than your wife.

My wife and I hold an emergency fund equal to 12 months of required expenses. It sits in a CD earning 1.9%. I was never jobless during the last recession. Once I got laid off the same day as the CEO and had a new job start the next week. I had to hustle hard though (4 jobs in 3 years) and I will never forget it. My current industry is also subject to rapid change. My wife's job is extremely stable but there are a very small number of employers for it so if she needed to change fields she might have a long search or need to go back to school. I want to be able to invest aggressively despite what might happen to our jobs in the short term, and the EF allows me to do that.

My wife and I agree that the stock market is the only way to get to financial independence. It's a driver of growth and the fact that there may be more nasty shocks coming soon is not a reason to liquidate stock holdings. In this your wife is incorrect, but she's got the rest spot on.

I'd advise you to look at it this way. You are financial partners, you both need to be able to be comfortable with your level of risk. Either you use cash flow to beef up your emergency fund to 6-12 months - in lieu of new taxable contributions....

.....Or you put the emergency fund and some more of your existing cash to work but change your AA permanently to include at least 25% bonds (or 10% more than you have today, whichever is more). The bonds will cost you more gains over time as your nest egg grows.

Choose the bigger EF. :twisted:
Triple digit golfer
Posts: 5562
Joined: Mon May 18, 2009 5:57 pm

Re: Please tell me I'm not crazy

Post by Triple digit golfer »

Slowtraveler wrote: 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.
We have a little more than two years in bonds in pretax accounts. Couple months of cash in savings. Very similar situation as you. We use the S&P 500 index in taxable and Total Stock in pretax, currently.
mouses
Posts: 4217
Joined: Sat Oct 24, 2015 12:24 am

Re: Please tell me I'm not crazy

Post by mouses »

I haven't read all the replies, and I'm retired with a high % of my savings in fixed income, but if I were a young person in these times, I'd have a one year emergency fund. I know what it's like to be unemployed for a long time, and it can happen to anyone. It is very very nervous making in terms of having enough money to get through it. Plus you may have to take some terrible job just for the pay.
User avatar
vineviz
Posts: 7845
Joined: Tue May 15, 2018 1:55 pm

Re: Please tell me I'm not crazy

Post by vineviz »

koalb wrote: Fri May 15, 2020 9:08 pm
TLDR: What's your degree of faith in the stock market as a viable investment opportunity – especially over the next 2-5 years?
You should build your emergency plan based on an assumption that your stocks drop by 50% at the worst possible time. So if your 14 months of expenses in reserve drops to 9 months of expenses, how catastrophic would that feel?

I'm definitely on record as saying that "emergency funds" are a flawed concept: what you really need is an emergency "plan":
... a household should have enough financial capital withstand unexpected shocks (either a period of unemployment/underemployment or a major unplanned expenses) without undue stress.
Holding 6, 9, 12, or 24 months in cash just in case an emergency of unknown magnitude and unknown duration occurs at some unknown point in the future is just bad financial planning, IMHO. I'm not saying that your current taxable allocation of 70/30 is right (certainly doesn't sound right for your wife), but I agree with you that holding 14 months of cash is not right either.

My advice would be to have something in the middle: 2-3 months of expenses (above and beyond what you'd normally hold for month-to-month liquidity) in a high-yield savings account, 3-6 months of expenses in an intermediate or long-term bond fund like Vanguard Long-Term Bond Index Fund (VBLAX), and anything in excess of that in VTSAX or whatever.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
remomnyc
Posts: 845
Joined: Mon Jan 04, 2016 4:27 pm

Re: Please tell me I'm not crazy

Post by remomnyc »

Listen to your wife. If anything, I think 12 mos is more appropriate if you have 2 kids. The cost of Cobra at my company for a family was $3,800/month. No one I know paid less than $2k/mo for their family Cobra plan when they lost their jobs. If unemployment is +20% and the stock market drops 50% and your lose your job and need to buy health insurance, you will kick yourself for keeping only 4 mos. The upside earnings on 2 mos of equities is dwarfed by the downside risk of not having enough EF.
winterfan
Posts: 228
Joined: Mon Jan 05, 2015 11:06 am

Re: Please tell me I'm not crazy

Post by winterfan »

My husband and I have been married for a couple decades and have never really had one. We sold funds in our taxable account if we needed money for anything. I don't think there is much difference between a 4 and 6 month emergency fund. I would go ahead and fund six months, especially if you are a single earner family. I don't think that's unreasonable.
Topic Author
koalb
Posts: 59
Joined: Sat Apr 17, 2010 12:28 pm

Re: Please tell me I'm not crazy

Post by koalb »

So let me offer two follow-up posts – one a bit more tactical (which is this one here), and another one a bit more philosophical, because some of you are raising questions in my mind that I'd enjoy debating further.

So here's the cut and dried take.

After I logged off last night, I went upstairs and said something to the effect of "umm... I think they think you're right."

We brainstormed a bit, and decided to convert enough single stock holdings into cash (notably, my ESPP) to ensure that we had 6-months cash at a minimum, at our Current Standard of Living (CSOL). Both parties felt good about the negotiation.

So here's my next question – where should I put this 6-month EF? Some of you suggest bonds and such. Does that have the same security as cash? I'd be naturally inclined to put it into a Capital One high interest savings account. Would be curious to hear if there are better suggestions.

ps – we're creating this 6 months EF without having to sell any of my VTSAX shares.
HomeStretch
Posts: 4991
Joined: Thu Dec 27, 2018 3:06 pm

Re: Please tell me I'm not crazy

Post by HomeStretch »

Consider a 6-month emergency fund to accommodate spouse’s wishes. It’s a reasonable amount of cash. Don’t get caught up in a lot of emotion by “HATING” it.

We as a couple have maintained cash equal to a couple years (not months) of living expenses. This is an absolute necessity for spouse to literally sleep well at night. I would hold less but a joint investment strategy is a compromise.
qwertyjazz
Posts: 1225
Joined: Tue Feb 23, 2016 4:24 am

Re: Please tell me I'm not crazy

Post by qwertyjazz »

There is something missing from all of this. A basic understanding of bonds and stock location. How much bonds do you have in retirement account? If you want to move them out during a market drawdown, then you sell stock to that amount and in your retirement account buy the same amount of stock. IMO this thread is low on specifics and cannot give you good advice unless you list everything. Look at your portfolio as a whole and then list it. You may wind up at the same spot - maybe not. If you have 20 years of bond spending in retirement accounts, you will not. Although that is unlikely given how much you hate the idea of “wasted money.” But maybe? So what is your total portfolio?
G.E. Box "All models are wrong, but some are useful."
TheNightsToCome
Posts: 616
Joined: Fri Jun 30, 2017 11:48 pm

Re: Please tell me I'm not crazy

Post by TheNightsToCome »

delamer wrote: 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 such be in stocks. That includes emergency funds.
"No money that is intended to be spent within the next 5 years such be in stocks. That includes emergency funds."

... and this is always true, not just during a viral pandemic.
americanbull
Posts: 12
Joined: Sat Jun 23, 2018 8:43 pm

Re: Please tell me I'm not crazy

Post by americanbull »

koalb wrote: Sat May 16, 2020 7:09 am So let me offer two follow-up posts – one a bit more tactical (which is this one here), and another one a bit more philosophical, because some of you are raising questions in my mind that I'd enjoy debating further.

So here's the cut and dried take.

After I logged off last night, I went upstairs and said something to the effect of "umm... I think they think you're right."

We brainstormed a bit, and decided to convert enough single stock holdings into cash (notably, my ESPP) to ensure that we had 6-months cash at a minimum, at our Current Standard of Living (CSOL). Both parties felt good about the negotiation.

So here's my next question – where should I put this 6-month EF? Some of you suggest bonds and such. Does that have the same security as cash? I'd be naturally inclined to put it into a Capital One high interest savings account. Would be curious to hear if there are better suggestions.

ps – we're creating this 6 months EF without having to sell any of my VTSAX shares.
I'm glad to hear that you were able to come to a mutual resolution. I would keep the money in a high yield savings account. It is safer than bonds, IMO.
OnTrack2020
Posts: 654
Joined: Mon Mar 20, 2017 10:24 am

Re: Please tell me I'm not crazy

Post by OnTrack2020 »

koalb wrote: Sat May 16, 2020 7:09 am So let me offer two follow-up posts – one a bit more tactical (which is this one here), and another one a bit more philosophical, because some of you are raising questions in my mind that I'd enjoy debating further.

So here's the cut and dried take.

After I logged off last night, I went upstairs and said something to the effect of "umm... I think they think you're right."

We brainstormed a bit, and decided to convert enough single stock holdings into cash (notably, my ESPP) to ensure that we had 6-months cash at a minimum, at our Current Standard of Living (CSOL). Both parties felt good about the negotiation.

So here's my next question – where should I put this 6-month EF? Some of you suggest bonds and such. Does that have the same security as cash? I'd be naturally inclined to put it into a Capital One high interest savings account. Would be curious to hear if there are better suggestions.

ps – we're creating this 6 months EF without having to sell any of my VTSAX shares.
A high-interest savings account is fine.

I agree with others and encourage you to beef up that EF even more or come up with a solid plan if you were to ever get laid off how to incorporate plans to pay for COBRA, if necessary, or to pay for a medical plan on ACA--even out-of-pocket amounts are fairly high.

You are on the right path.
Topic Author
koalb
Posts: 59
Joined: Sat Apr 17, 2010 12:28 pm

Re: Please tell me I'm not crazy

Post by koalb »

Ok, here's the slightly longer, more philosophical discussion for those that are interested:

I didn't intend to do a full, financial portfolio review. I thought this was a simple question(!). But here's a few things that may be helpful to know. I'm 46 yo. All of my thinking and comments have been in reference to my one, non-retirement Vanguard account that features my VTSAX holdings plus some other random single stock holdings that I'll highlight in a moment. I haven't mentioned 401k and retirement holdings because in my mental model they simply don't exist – beyond needing to make the necessary contributions on an annual basis. Set it and forget it, if you will. But overall, across all accounts, I'm roughly 80/20 – with all of my bond holdings in tax advantaged accounts.

I don't think of myself as a foolishly "risky" person. But aggressive, yes. I've got an umbrella insurance policy. Have a decent life insurance policy, etc. These protections could always benefit from being increased, I'm sure. As far as investment strategy goes, back in 2005, when we first got married – was when my eyes were opened to the wisdom of John Bogle and others – I read ARWDWS – and it clarified my investment philosophy for life. I've been following the fundamental principles ever since. DCA, focus on index funds, featuring diversification across asset classes, geography and market cap.

And yes, I read all the financially planning advice saying "make sure you've got a 6 month cash as an emergency fund." And my inner monologue rejoinder would always be "I do have 6 months, just not in cash." And I think my desire to be aggressive was what caused this thinking. Because cash yields 0% return over time. Not a great way to grow a portfolio over time. So let's put that money to work somewhere else. Yada, yada, yada. You get the idea.

So here's a few questions I'd pose back to the group after reading the comments:

For those of you that advocate having greater than a 6-month EF in cash... Why? Having 12, or 24 months makes sense if it's just a small percentage of your overall portfolio, I could see how that makes sense. But if this 12 - 24 month EF represents more than 20% of your overall portfolio, I'd argue that you're not fully leveraging your available assets.

My position to my wife was that on the spectrum of risk – cash is most secure, index funds are next, and single stock holdings are least secure. Therefore, given our present reality, we should liquidate all single stock holdings first, and see where that gets us in regards to EF, before we consider vacating our VTSAX position. Anyone want to tell me I'm wrong?

Surprised that the consensus is in favor of my wife. Let me highlight to you just how much of a doomsday oracle she's being right now. She believes that in a world of massive unemployment, service sectors grinding to a halt, or simply disappearing altogether, political strife, coupled with negative interest rates – that all bets are off. I'm pretty sure she's got a post-apocalyptic vision along the lines of the Walking Dead or Mad Max dancing in her head right now. She'd encourage you all to sell everything now, because there likely won't be a functioning stock market in 5 years – if all the worst-case scenarios come true. She's a terrific lady. Tons of fun. A fantastic cook, and knows how to sew a mean quilt. But her outlook is black. I mean, black hole black.
HomeStretch
Posts: 4991
Joined: Thu Dec 27, 2018 3:06 pm

Re: Please tell me I'm not crazy

Post by HomeStretch »

koalb wrote: Sat May 16, 2020 7:09 am ... We brainstormed a bit, and decided to convert enough single stock holdings into cash (notably, my ESPP) to ensure that we had 6-months cash at a minimum, at our Current Standard of Living (CSOL). ...
Good to hear that you and spouse reached a compromise.

Consider selling shares purchased pursuant to an ESPP immediately upon purchase. View it as a bit of additional income rather than holding it in your portfolio. Holding individual stocks is risky. Holding employer individual stocks is extra risky.
User avatar
Sandtrap
Posts: 11765
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Please tell me I'm not crazy

Post by Sandtrap »

3X Retirement Annual expenses in diversified fixed “outside of portfolio” for EF and working capital.

Happy wife.😃😃

This is the Way👍
j

*Every “employee“ is expendable.
Wiki Bogleheads Wiki: Everything You Need to Know
Topic Author
koalb
Posts: 59
Joined: Sat Apr 17, 2010 12:28 pm

Re: Please tell me I'm not crazy

Post by koalb »

HomeStretch wrote: Sat May 16, 2020 8:05 am
koalb wrote: Sat May 16, 2020 7:09 am ... We brainstormed a bit, and decided to convert enough single stock holdings into cash (notably, my ESPP) to ensure that we had 6-months cash at a minimum, at our Current Standard of Living (CSOL). ...
Good to hear that you and spouse reached a compromise.

Consider selling shares purchased pursuant to an ESPP immediately upon purchase. View it as a bit of additional income rather than holding it in your portfolio. Holding individual stocks is risky. Holding employer individual stocks is extra risky.
Agree. I do consider ESPP to effectively be extra income, with all the benefit of discounts and lookbacks to maximize earnings.

Again, my Boglehead bona fides are firm, but what do you do when your ESPP actually increases over time. That's an apple that's too tempting to not bite into. But consider it gone. It's EF now!
KlangFool
Posts: 17784
Joined: Sat Oct 11, 2008 12:35 pm

Re: Please tell me I'm not crazy

Post by KlangFool »

koalb wrote: Sat May 16, 2020 7:09 am So let me offer two follow-up posts – one a bit more tactical (which is this one here), and another one a bit more philosophical, because some of you are raising questions in my mind that I'd enjoy debating further.

So here's the cut and dried take.

After I logged off last night, I went upstairs and said something to the effect of "umm... I think they think you're right."

We brainstormed a bit, and decided to convert enough single stock holdings into cash (notably, my ESPP) to ensure that we had 6-months cash at a minimum, at our Current Standard of Living (CSOL). Both parties felt good about the negotiation.

So here's my next question – where should I put this 6-month EF? Some of you suggest bonds and such. Does that have the same security as cash? I'd be naturally inclined to put it into a Capital One high interest savings account. Would be curious to hear if there are better suggestions.

ps – we're creating this 6 months EF without having to sell any of my VTSAX shares.
koalb,

EF should be in CASH. Bond just drop 10% in March.

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

Re: Please tell me I'm not crazy

Post by koalb »

For whatever it's worth, I do sleep really well at night.

And my marriage is pretty good. Could always be better. It took me about 10 years to figure out how to be a good partner in life – listening, empathy, acting selflessly.

Yes, reader, my wife is very patient.
KlangFool
Posts: 17784
Joined: Sat Oct 11, 2008 12:35 pm

Re: Please tell me I'm not crazy

Post by KlangFool »

koalb wrote: Sat May 16, 2020 7:58 am

So here's a few questions I'd pose back to the group after reading the comments:

For those of you that advocate having greater than a 6-month EF in cash... Why? Having 12, or 24 months makes sense if it's just a small percentage of your overall portfolio, I could see how that makes sense. But if this 12 - 24 month EF represents more than 20% of your overall portfolio, I'd argue that you're not fully leveraging your available assets.
koalb,

<< I'd argue that you're not fully leveraging your available assets.
>>

Versus survival? In a normal recession, a person could be unemployed for up to 2 years. We have 30+ million unemployed now. This is over 2 months. This is more than the total unemployment over the whole 2008/2009 GFC. So, how long do you think you will be unemployed if it goes really bad this time? The correct answer should be you don't know.

You have to survive in order to succeed. If you do not survive financially, there is no long-term return for you.

If the economy recovers in 14 months but you are wiped out in 10 months, it won't matter to you.

KlangFool
psy1
Posts: 193
Joined: Thu Jan 31, 2019 1:40 am

Re: Please tell me I'm not crazy

Post by psy1 »

My wife and I have about 3 years in our "EF." Might seem ridiculous but we sleep at night. I think the "why" is precisely why you are asking the question. We are 58, semi-retired, have enough money that we could retire and never have to work. That is assuming no major downtrend. So imagine waking up next week, as a couple, and seeing our portfolio down 20/30/40%? Instead of being comfortably well-to-do we would be in the didn't save enough for retirement camp. The advice to just give it time would not help. We would realize that we don't have so many productive years of work left and our first impulse would be to return to work - exactly the opposite of our goal.

In addition to our impulse to return to work, our other impulse would be to sell. It would occur to us naturally that what goes down can go down further so let's get out while we can. It is one thing to have a go long attitude when you are younger but as you approach retirement age faith can dwindle.

So our EF is also an insurance policy against our own psychology. In fairness, you have 10 more years than I do to accumulate and might not worry so much.
KlangFool
Posts: 17784
Joined: Sat Oct 11, 2008 12:35 pm

Re: Please tell me I'm not crazy

Post by KlangFool »

koalb wrote: Sat May 16, 2020 8:12 am
For whatever it's worth, I do sleep really well at night.
koalb,

Have you ever been unemployed in a recession? Perhaps, you have never been tested. Ignorant is bliss.

I "Sleep Well At Night" (SWAN) through 2008/2009 GFC. My employer laid off 50% of its employees on 1/1/2009. Through Telecom Bust, my employer laid off 5% to 8% of its employees every quarter for 5 years.

I am prepared. I hope that I can SWAN this time.

KlangFool
ScubaHogg
Posts: 718
Joined: Sun Nov 06, 2011 3:02 pm

Re: Please tell me I'm not crazy

Post by ScubaHogg »

It’s only two more months worth of cash. Even if you could peer into the future and know you are right, which you can’t of course, I’d still bump up my cash to six months just to make my wife feel better about the entire set up.
“Unexpected Returns dominate the Expected Returns” - Ken French
MotoTrojan
Posts: 10661
Joined: Wed Feb 01, 2017 8:39 pm

Re: Please tell me I'm not crazy

Post by MotoTrojan »

jhsu802701 wrote: 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.
So just put it all into RZV instead? :twisted:
OnTrack2020
Posts: 654
Joined: Mon Mar 20, 2017 10:24 am

Re: Please tell me I'm not crazy

Post by OnTrack2020 »

koalb wrote: Sat May 16, 2020 7:58 am
So here's a few questions I'd pose back to the group after reading the comments:

For those of you that advocate having greater than a 6-month EF in cash... Why? Having 12, or 24 months makes sense if it's just a small percentage of your overall portfolio, I could see how that makes sense. But if this 12 - 24 month EF represents more than 20% of your overall portfolio, I'd argue that you're not fully leveraging your available assets.

My position to my wife was that on the spectrum of risk – cash is most secure, index funds are next, and single stock holdings are least secure. Therefore, given our present reality, we should liquidate all single stock holdings first, and see where that gets us in regards to EF, before we consider vacating our VTSAX position. Anyone want to tell me I'm wrong?

Surprised that the consensus is in favor of my wife. Let me highlight to you just how much of a doomsday oracle she's being right now. She believes that in a world of massive unemployment, service sectors grinding to a halt, or simply disappearing altogether, political strife, coupled with negative interest rates – that all bets are off. I'm pretty sure she's got a post-apocalyptic vision along the lines of the Walking Dead or Mad Max dancing in her head right now. She'd encourage you all to sell everything now, because there likely won't be a functioning stock market in 5 years – if all the worst-case scenarios come true. She's a terrific lady. Tons of fun. A fantastic cook, and knows how to sew a mean quilt. But her outlook is black. I mean, black hole black.
Even having 5% or 10% in cash/EF can add up to a fairly large sum. I think 20% of overall portfolio may be more of a comfort level for many people who have been through a previous extended crisis of sorts. Why 12-24 months? Job loss, and, more importantly, extended job loss; health crisis; disability; being able to pay for COBRA, if needed, for 18 months; being able to pay out-of-pocket, deductible, and premiums for ACA, if needed.

These 30+ million jobs that have been lost over the past few months are simply not going to all come back in the same form. I have my hopes up that more manufacturing will take place in the U.S.
Topic Author
koalb
Posts: 59
Joined: Sat Apr 17, 2010 12:28 pm

Re: Please tell me I'm not crazy

Post by koalb »

KlangFool wrote: Sat May 16, 2020 8:23 am
koalb wrote: Sat May 16, 2020 8:12 am
For whatever it's worth, I do sleep really well at night.
koalb,

Have you ever been unemployed in a recession? Perhaps, you have never been tested. Ignorant is bliss.

I "Sleep Well At Night" (SWAN) through 2008/2009 GFC. My employer laid off 50% of its employees on 1/1/2009. Through Telecom Bust, my employer laid off 5% to 8% of its employees every quarter for 5 years.

I am prepared. I hope that I can SWAN this time.

KlangFool
I was laid off from my first job after grad school.

Moved to NYC in June of 2001. Unemployed as of October 25, 2001. You can likely surmise the bulk of that story. Struggled for about 2 years before I finally found career and financial footing. As my Dad always said, "scar tissue makes you tougher." So I've got some, I'll say.
OnTrack2020
Posts: 654
Joined: Mon Mar 20, 2017 10:24 am

Re: Please tell me I'm not crazy

Post by OnTrack2020 »

koalb wrote: Sat May 16, 2020 8:29 am
KlangFool wrote: Sat May 16, 2020 8:23 am
koalb wrote: Sat May 16, 2020 8:12 am
For whatever it's worth, I do sleep really well at night.
koalb,

Have you ever been unemployed in a recession? Perhaps, you have never been tested. Ignorant is bliss.

I "Sleep Well At Night" (SWAN) through 2008/2009 GFC. My employer laid off 50% of its employees on 1/1/2009. Through Telecom Bust, my employer laid off 5% to 8% of its employees every quarter for 5 years.

I am prepared. I hope that I can SWAN this time.

KlangFool
I was laid off from my first job after grad school.

Moved to NYC in June of 2001. Unemployed as of October 25, 2001. You can likely surmise the bulk of that story. Struggled for about 2 years before I finally found career and financial footing. As my Dad always said, "scar tissue makes you tougher." So I've got some, I'll say.
Struggling when you are young in your 20s is not necessarily the same as struggling when you are older and married with kids. When you are in your 20s, you don't mind living off ramen noodles and it almost becomes an adventure of sorts. It's just not that much fun when you are nearing 50 years of age.
User avatar
anon_investor
Posts: 3552
Joined: Mon Jun 03, 2019 1:43 pm

Re: Please tell me I'm not crazy

Post by anon_investor »

koalb wrote: Sat May 16, 2020 8:29 am
KlangFool wrote: Sat May 16, 2020 8:23 am
koalb wrote: Sat May 16, 2020 8:12 am
For whatever it's worth, I do sleep really well at night.
koalb,

Have you ever been unemployed in a recession? Perhaps, you have never been tested. Ignorant is bliss.

I "Sleep Well At Night" (SWAN) through 2008/2009 GFC. My employer laid off 50% of its employees on 1/1/2009. Through Telecom Bust, my employer laid off 5% to 8% of its employees every quarter for 5 years.

I am prepared. I hope that I can SWAN this time.

KlangFool
I was laid off from my first job after grad school.

Moved to NYC in June of 2001. Unemployed as of October 25, 2001. You can likely surmise the bulk of that story. Struggled for about 2 years before I finally found career and financial footing. As my Dad always said, "scar tissue makes you tougher." So I've got some, I'll say.
OP maybe you should split the difference and for yout emergency fund have a few months of expenses in cash and the rest in long term treasuries. Check out this thread about long term treasuries as an emergency fund:
viewtopic.php?t=305547

Personally I started shifting my emergency fund to I Bonds and long term treasuries as my no penalty CDs expired. I plan to always keep about 3 months of expenses in cash (HYS and CDs), but I had over 10 months of expenses in cash before, probably down to 6 months now.
Topic Author
koalb
Posts: 59
Joined: Sat Apr 17, 2010 12:28 pm

Re: Please tell me I'm not crazy

Post by koalb »

OnTrack2020 wrote: Sat May 16, 2020 8:34 am
koalb wrote: Sat May 16, 2020 8:29 am
KlangFool wrote: Sat May 16, 2020 8:23 am
koalb wrote: Sat May 16, 2020 8:12 am
For whatever it's worth, I do sleep really well at night.
koalb,

Have you ever been unemployed in a recession? Perhaps, you have never been tested. Ignorant is bliss.

I "Sleep Well At Night" (SWAN) through 2008/2009 GFC. My employer laid off 50% of its employees on 1/1/2009. Through Telecom Bust, my employer laid off 5% to 8% of its employees every quarter for 5 years.

I am prepared. I hope that I can SWAN this time.

KlangFool
I was laid off from my first job after grad school.

Moved to NYC in June of 2001. Unemployed as of October 25, 2001. You can likely surmise the bulk of that story. Struggled for about 2 years before I finally found career and financial footing. As my Dad always said, "scar tissue makes you tougher." So I've got some, I'll say.
Struggling when you are young in your 20s is not necessarily the same as struggling when you are older and married with kids. When you are in your 20s, you don't mind living off ramen noodles and it almost becomes an adventure of sorts. It's just not that much fun when you are nearing 50 years of age.
Fair point.
SethJane42
Posts: 55
Joined: Sat May 09, 2020 5:38 pm

Re: Please tell me I'm not crazy

Post by SethJane42 »

Deleted--I was wrong
Last edited by SethJane42 on Mon Jun 08, 2020 6:55 am, edited 2 times in total.
Dave55
Posts: 796
Joined: Tue Sep 03, 2013 2:51 pm

Re: Please tell me I'm not crazy

Post by Dave55 »

koalb wrote: 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!
Give your wife what she wants, especially because she is a super great lady. I have the same fortune as you and for 32 years I gave my wife what she wants, and it makes for a wonderful life. BTW, I had my own company for 23 years, I kept 3 years of living expenses in cash and I was lectured by a few financial planners that I had in my 40's and 50's. Still came out OK when I hit retirement at 53. If I were you I would have a year in cash. It's insurance. Protection against a catastrophic event; losing your job. It gives you time to find another job (in the event you lose yours) without breaking a sweat or losing sleep.

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

Re: Please tell me I'm not crazy

Post by koalb »

Ok. True confession time for anyone that's still reading/interested.

I've only got two individual holdings, beyond my ESPP, which I've now decided to liquidate to EF:

BRK.B
Bought these shares about a year ago primarily because I grew up in Omaha, and I said to my wife, wouldn't it be fun to attend the shareholders meeting. we could stay with my parents, etc. And, there's an emotional angle here. As a Nebraska native. I like having a very tiny stake in Warren's empire. We were planning to go this year, but then COVID happened... I'm down about 4% from my original purchase price.

AMZN
Bought one, ONE, EXACTLY ONE share a month ago. Mostly just to prove to myself that I've got enough intestinal fortitude to zig when others are zagging. Plus, I was looking to have a little fun with a very small amount of "play money." I'm not well-versed in stock fundamentals, which is why I'm a Boglehead. But I figured, if any company is primed to be successful if everything goes in the tank, it's gonna be Amazon. Plus, look at the change in share price from mid-March! YOWEE! Down about .5% from the original purchase price.
Last edited by koalb on Sat May 16, 2020 8:58 am, edited 1 time in total.
New Providence
Posts: 290
Joined: Fri Mar 27, 2020 7:10 am

Re: Please tell me I'm not crazy

Post by New Providence »

KlangFool wrote: 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.
Yes, this is a good example. 4-month emergency fund is better than no emergency fund. But in the current uncertain environment 4 months is not long enough by any means.
epictetus
Posts: 604
Joined: Sat Mar 10, 2007 6:43 pm

Re: Please tell me I'm not crazy

Post by epictetus »

i think you made the right move.

would also encourage you to work toward having at least 1 year's worth of expenses in cash/online savings account/etc. and with a spouse and 2 children maybe 2 year's worth of expenses in cash/online savings account/CD/etc

when the world feels like it is coming apart at the seams it helps to know you have that kind of backstop.

years ago i read that microsoft had enough in cash that they could operate for one year as is without having any income. that really struck me as a good idea.

none of us know how bleak this will become over the next few years.
Last edited by epictetus on Sat May 16, 2020 9:05 am, edited 1 time in total.
Focus on what you can control
SchruteB&B
Posts: 362
Joined: Mon Jul 02, 2018 7:48 am

Re: Please tell me I'm not crazy

Post by SchruteB&B »

SethJane42 wrote: Sat May 16, 2020 8:46 am
Now, if one cashes everything out and socks it in one's Bank Of America savings account earning .0000000000003% interest, and if her worst case scenario manifests, it wouldn't be safe at all, despite promises of federal insurance--it will all be gone, as even the too-big-too-fail banks fail.

I think this is a good thing to point out to your wife. At a certain point, nothing is safe.
random_walker_77
Posts: 1183
Joined: Tue May 21, 2013 8:49 pm

Re: Please tell me I'm not crazy

Post by random_walker_77 »

I'm with your wife on this one. You've got dependents, and 4 months is at the low end of an EF. Don't get greedy -- get a solid EF built up. That's the foundation that keeps you from having to sell at the bottom.

I like the notion of a 12month EF in cash equivalents. An alternative might be 4-6 months in cash, and enough bonds to bring you up to ~14 months. That way, even after the bonds take a small haircut, you've got 12 months of cash available to you. This is important, b/c if things go badly and you've used up 3 months of EF cash, if you've got another 9months worth, you'll probably be able to resist cashing out your stocks while they're down.

If you're down to 1 month of EF, unemployed, and your wife is insisting you sell stocks before they go down even further... well, that's how people end up selling at the bottom. No one wants to buy high sell low, but people get forced to sell low.
mega317
Posts: 4582
Joined: Tue Apr 19, 2016 10:55 am

Re: Please tell me I'm not crazy

Post by mega317 »

FishTaco wrote: Sat May 16, 2020 5:39 am
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.
Yeah, but the big question is should you buy a can of beans and an assault rifle every month over the next few years? Or lump sum all your cans of beans and assault rifles right now?
Would you sell all your current beans and assault rifles and DCA back into them over a few years?
https://www.bogleheads.org/forum/viewtopic.php?t=6212
HomeStretch
Posts: 4991
Joined: Thu Dec 27, 2018 3:06 pm

Re: Please tell me I'm not crazy

Post by HomeStretch »

koalb wrote: Sat May 16, 2020 7:09 am So here's my next question – where should I put this 6-month EF? Some of you suggest bonds and such. Does that have the same security as cash? I'd be naturally inclined to put it into a Capital One high interest savings account. Would be curious to hear if there are better suggestions.
Consider putting your EF in a high yield savings account like CapOne (there is a bonus available now) and/or into several no-penalty Ally or Marcus CDs to lock in the rate as savings account rates have been dropping recently at CapOne/Marcus/Ally. Other good places for an EF are short-term T-Bills and brokerage money market funds but their rates are not as competitive right now.

When you have a large portfolio, it’s fine IMO not to have a dedicated emergency fund. The fixed income portion of your portfolio (such as bonds) can suffice.
Last edited by HomeStretch on Sat May 16, 2020 9:20 am, edited 1 time in total.
bubbadog
Posts: 920
Joined: Wed Mar 26, 2014 9:17 pm
Location: Cincinnati,Ohio

Re: Please tell me I'm not crazy

Post by bubbadog »

With approximately 10 months of living expenses at your disposal, you are probably in better shape than 90% of the US. Congrats on that account!

In a COVID-19 world, I would not be comfortable with a 4 month cash/6 month VTSAX taxable account as my backstop.

If you had a taxable account that could sustain several years of expenses, then I would agree with your position.

I am with the wife on this one.

Best of luck with your discussion with the wife! :sharebeer
printer86
Posts: 204
Joined: Mon Apr 25, 2016 8:45 am

Re: Please tell me I'm not crazy

Post by printer86 »

I copied a previous post of mine as I think it is relevant to the OP.

I've shared this story before on Bogleheads. In 2006, I had an unexpected professional setback where I had to completely rebuild my sales career. It took about 20 months for me to become cashflow positive again. I relied on my emergency fund to cover any income shortfalls during those 20 months.

Having that money available allowed me to find the right job and build my income stream back up again. It worked out so well that I just announced my plans to retire this fall at 56 years old.

My emergency fund wasn't designed to make money. In my case, it was designed to allow me to make money.
livesoft
Posts: 73369
Joined: Thu Mar 01, 2007 8:00 pm

Re: Please tell me I'm not crazy

Post by livesoft »

I'd like to know how the OP felt around March 16 to 23 and whether they bought more equities during those days by exchanging from fixed income (cash or bond funds) into equity funds. The answers to those questions will help tell me about whether the OP is crazy or not.

And if they want to expand a little bit on the above, then what moves did they do in their portfolio around April 1? April 29?

Thank you.
Wiki This signature message sponsored by sscritic: Learn to fish.
printer86
Posts: 204
Joined: Mon Apr 25, 2016 8:45 am

Re: Please tell me I'm not crazy

Post by printer86 »

Let me also add that compromise isn't always the best advice in a marriage. Sometimes, having the the ability to accept your spouse's position without compromise is the right answer.
User avatar
Ralph Furley
Posts: 78
Joined: Fri Nov 29, 2019 10:42 am

Re: Please tell me I'm not crazy

Post by Ralph Furley »

koalb wrote: Sat May 16, 2020 7:09 am So let me offer two follow-up posts – one a bit more tactical (which is this one here), and another one a bit more philosophical, because some of you are raising questions in my mind that I'd enjoy debating further.

So here's the cut and dried take.

After I logged off last night, I went upstairs and said something to the effect of "umm... I think they think you're right."

We brainstormed a bit, and decided to convert enough single stock holdings into cash (notably, my ESPP) to ensure that we had 6-months cash at a minimum, at our Current Standard of Living (CSOL). Both parties felt good about the negotiation.

So here's my next question – where should I put this 6-month EF? Some of you suggest bonds and such. Does that have the same security as cash? I'd be naturally inclined to put it into a Capital One high interest savings account. Would be curious to hear if there are better suggestions.

ps – we're creating this 6 months EF without having to sell any of my VTSAX shares.
Bro, smart move. If she was asking you to go completely to cash across the board, I might suggest sleeping on the sofa for some period of time while you work this out. But increasing from 4 to 6 months cash reserves is a no brainer - especially given that it will make your wife feel better. For me, 6 months in cash is a MINIMUM, not a maximum. To take it a step further, I have kept one month in greenbacks... mostly double sawbucks and some C-notes... since the last time we all thought the apocalypse was nigh (it's really not that much money to me...and no, I don't care about the missed minuscule interest earnings). As far as where to keep your reserves, I agree with the others who say high yield savings account (FDIC insured). Feels great once you make a decision and you can move on with life, right?!

-Furles
User avatar
galeno
Posts: 2107
Joined: Fri Dec 21, 2007 12:06 pm

Re: Please tell me I'm not crazy

Post by galeno »

As retirees following the 4% rule we always start the year with 5% of port in CASH.

I prefer a 60/40 AA for retirement. Aggressive. My wife prefers 40/60. Conservative. We hold 50/50. Moderate.

As Americans would say. "This isn't our first rodeo ". This is the 4th BEAR for us.

1987 scared her. 2000-2002 scared us both. 2008 scared her. 2020 concerns her.
Last edited by galeno on Sat May 16, 2020 10:10 am, edited 2 times in total.
J295
Posts: 2631
Joined: Sun Jan 01, 2012 11:40 pm

Re: Please tell me I'm not crazy

Post by J295 »

Six month decision… Excellent

Online savings account is a very reasonable choice
delamer
Posts: 10544
Joined: Tue Feb 08, 2011 6:13 pm

Re: Please tell me I'm not crazy

Post by delamer »

TheNightsToCome wrote: Sat May 16, 2020 7:38 am
delamer wrote: 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 such be in stocks. That includes emergency funds.
"No money that is intended to be spent within the next 5 years such be in stocks. That includes emergency funds."

... and this is always true, not just during a viral pandemic.
Agreed.
Topic Author
koalb
Posts: 59
Joined: Sat Apr 17, 2010 12:28 pm

Re: Please tell me I'm not crazy

Post by koalb »

livesoft wrote: Sat May 16, 2020 9:31 am I'd like to know how the OP felt around March 16 to 23 and whether they bought more equities during those days by exchanging from fixed income (cash or bond funds) into equity funds. The answers to those questions will help tell me about whether the OP is crazy or not.

And if they want to expand a little bit on the above, then what moves did they do in their portfolio around April 1? April 29?

Thank you.
I didn't do anything, in a sense.

Just let my automatic exchanges play out as they do every month, transferring money from my PMM fund into various retirement and non-retirement accounts across various Vanguard holdings.

And i purchased one share of Amazon. Just for fun.
delamer
Posts: 10544
Joined: Tue Feb 08, 2011 6:13 pm

Re: Please tell me I'm not crazy [What to do with "idle" cash?]

Post by delamer »

Cash, as in high yield savings or money market fund, for your emergency fund.

Bond prices can fluctuate, even short-term bond prices. And I almost can guarantee that they’ll drop just when you need to make a withdrawal. :?
Post Reply