How much cash do you really hold?

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barnaby444
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How much cash do you really hold?

Post by barnaby444 »

So, conventional wisdom is to set aside an emergency fund (EF) in cash and then invest any other savings. Number of months of expenses to put in the EF and how to invest other savings in will of course depend on preference and situation. But *aside* from the EF (and any other short-term cash needs like a down payment or day-to-day checking), something I've always been curious about is what percentage of "investable assets," if any, do people actually hold in cash (e.g. high yield savings, CDs, sweep account in brokerage, etc.)?

For example, if you say your "portfolio" is 80% equities and 20% bonds, do you literally mean that you have zero cash other than the fixed dollar amount in your EF? Meaning, as your portfolio grows, you actually have a decreasing percentage of total net worth in cash?

Or, do you hold a percentage of cash on the side for peace of mind, to slightly dampen market volatility, to buy dips, or any other reason? And if so, do you call this cash part of your "portfolio"?
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watchnerd
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Re: How much cash do you really hold?

Post by watchnerd »

barnaby444 wrote: Wed Apr 07, 2021 10:01 am So, conventional wisdom is to set aside an emergency fund (EF) in cash and then invest any other savings. Number of months of expenses to put in the EF and how to invest other savings in will of course depend on preference and situation. But *aside* from the EF (and any other short-term cash needs like a down payment or day-to-day checking), something I've always been curious about is what percentage of "investable assets," if any, do people actually hold in cash (e.g. high yield savings, CDs, sweep account in brokerage, etc.)?

For example, if you say your "portfolio" is 80% equities and 20% bonds, do you literally mean that you have zero cash other than the fixed dollar amount in your EF? Meaning, as your portfolio grows, you actually have a decreasing percentage of total net worth in cash?

Or, do you hold a percentage of cash on the side for peace of mind, to slightly dampen market volatility, to buy dips, or any other reason? And if so, do you call this cash part of your "portfolio"?
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MrJedi
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Re: How much cash do you really hold?

Post by MrJedi »

I include cash as part of the fixed income/bonds part of my portfolio. To me this is a more accurate reflection of risk. Otherwise somebody with $1000 in stocks, $0 in bonds, and $1MM in cash could say they are 100/0 allocation...I don't think that is an accurate representation of the risk they are taking.

Exception would be cash set aside for an upcoming and planned purchase. I consider that already "spent".
Last edited by MrJedi on Wed Apr 07, 2021 10:16 am, edited 1 time in total.
marie17
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Re: How much cash do you really hold?

Post by marie17 »

I have been pretty cash heavy for the last 2-3 years as I've been trying to find a house. I probably had been converting some of my stock holdings into cash at a profit i was happy with making cash about 10% of my total assets. When I talk about my "portfolio", I do not include cash in that portfolio. As you stated in your initial post, most folks will keep 6 months or a year (or in my case that PLUS what I wanted to put down for a home) in cash and then the rest is my "portfolio". So there are your assets (everything you own including real estate / jewelry / other property) and then your portfolio which is your invested assets. That's at least how i separate them in my mind.
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climber2020
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Re: How much cash do you really hold?

Post by climber2020 »

I keep about 1% of my portfolio in cash as an emergency fund. I also use this to pay for large purchases like cars and vacations, then gradually refill it over time. The cash counts toward my bond allocation.

It sits in a bank account earning nothing in interest, but since it's such a small percentage of my assets I don't worry about it.
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Kenkat
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Re: How much cash do you really hold?

Post by Kenkat »

I don’t do a percent. I typically have 3 months expenses in cash account which I do not include in my asset allocation. That’s grown now to over a year for various reasons - I will have to decide what to do with that at some point.

I then have another 3 months or so in a tax exempt bond fund and then there’s taxable equities worst case after that. That’s all included in my asset allocation / retirement savings.
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Re: How much cash do you really hold?

Post by Jack FFR1846 »

Putting the money in buckets, saying "this $50k is emergency fund, this $10k is vacation fund, this $5k is cash for everyday stuff" is not really separate stuff. In this example, you have $65k in cash.

I also consider my $395k of paper savings bonds to be cash because I know first hand that I can go to my credit union and cash them. My account has the deposit, fully available before I open to door to leave the branch.

I am planning to retire the end of this year, maybe beginning of next. I do plan to spend some money for a car (a fun car, not a beige Camry) and to do a bunch of put off projects on my house. Because of this, I'm building up to $100k in cash in my checking account.
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flyingaway
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Re: How much cash do you really hold?

Post by flyingaway »

When the market crashes, you wish you had more cash.
GG1273
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Re: How much cash do you really hold?

Post by GG1273 »

Jack FFR1846 wrote: Wed Apr 07, 2021 10:24 am Putting the money in buckets, saying "this $50k is emergency fund, this $10k is vacation fund, this $5k is cash for everyday stuff" is not really separate stuff. In this example, you have $65k in cash.

I also consider my $395k of paper savings bonds to be cash because I know first hand that I can go to my credit union and cash them. My account has the deposit, fully available before I open to door to leave the branch.

I am planning to retire the end of this year, maybe beginning of next. I do plan to spend some money for a car (a fun car, not a beige Camry) and to do a bunch of put off projects on my house. Because of this, I'm building up to $100k in cash in my checking account.
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Quick question about the checking account. Would you consider using a second bank for the cash build up? A few years ago, we set up an additional checking account (no fees with $100+ balance) and we use it for paper checks and some on-line bills. I felt uncomfortable with having my main checking numbers floating around when someone tried to take my account numbers. We also completely avoid automatic payments due to some bad experiences with one service provider.

It only takes me 20 minutes to pay everything each month, normally on a Monday evening.
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Re: How much cash do you really hold?

Post by geerhardusvos »

barnaby444 wrote: Wed Apr 07, 2021 10:01 am So, conventional wisdom is to set aside an emergency fund (EF) in cash and then invest any other savings. Number of months of expenses to put in the EF and how to invest other savings in will of course depend on preference and situation. But *aside* from the EF (and any other short-term cash needs like a down payment or day-to-day checking), something I've always been curious about is what percentage of "investable assets," if any, do people actually hold in cash (e.g. high yield savings, CDs, sweep account in brokerage, etc.)?

For example, if you say your "portfolio" is 80% equities and 20% bonds, do you literally mean that you have zero cash other than the fixed dollar amount in your EF? Meaning, as your portfolio grows, you actually have a decreasing percentage of total net worth in cash?

Or, do you hold a percentage of cash on the side for peace of mind, to slightly dampen market volatility, to buy dips, or any other reason? And if so, do you call this cash part of your "portfolio"?
I only hold enough cash in my checking account to pay my bills. Otherwise, dollars get invested immediately.

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Beach
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Re: How much cash do you really hold?

Post by Beach »

I'm only holding onto cash right now because we are getting ready to move. Otherwise, I would only keep about 6 months of expenses liquid.
spottedchococow
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Re: How much cash do you really hold?

Post by spottedchococow »

Enough to pay my bills at the beginning of every month (without having to transfer from savings) + 6 months expenses. This comes out to be ~5%.
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Re: How much cash do you really hold?

Post by humblecoder »

barnaby444 wrote: Wed Apr 07, 2021 10:01 am So, conventional wisdom is to set aside an emergency fund (EF) in cash and then invest any other savings. Number of months of expenses to put in the EF and how to invest other savings in will of course depend on preference and situation. But *aside* from the EF (and any other short-term cash needs like a down payment or day-to-day checking), something I've always been curious about is what percentage of "investable assets," if any, do people actually hold in cash (e.g. high yield savings, CDs, sweep account in brokerage, etc.)?

For example, if you say your "portfolio" is 80% equities and 20% bonds, do you literally mean that you have zero cash other than the fixed dollar amount in your EF? Meaning, as your portfolio grows, you actually have a decreasing percentage of total net worth in cash?

Or, do you hold a percentage of cash on the side for peace of mind, to slightly dampen market volatility, to buy dips, or any other reason? And if so, do you call this cash part of your "portfolio"?
We hold cash in our day-to-day checking account and in our savings account for emergency fund and short term planned expenses (i.e. need to replace central A/C within the next 1-2 years). I don't consider these investible assets or part of my portfolio.

For investable assets, we keep very little in cash equivalents. There might be a little in a sweep account temporarily as dividends get paid out (I manually reinvest as I use the dividends to rebalance), but that's generally it. So yes, as our net worth grows, our total net worth percentage in cash decreases.

Yes I know it is all just mental accounting... blah blah blah. I really don't care. Deal with it! :beer
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Re: How much cash do you really hold?

Post by sailaway »

I subtract the cash on hand from the bond portion. So, on the day we rebalance, we are literally 70% stocks, the other 30% is bonds + cash. We have held roughly the same amount of cash since we started tracking, which means it has been an ever decreasing % during accumulation. It also means our portfolio is somewhat more aggressive than someone with the same AA who holds their cash apart, but we also put all new monies to equities, so we were always going to be as aggressive as a 70/30 split can be.
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mhc
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Re: How much cash do you really hold?

Post by mhc »

I have $0 in my investible assets (ignoring the $0.02 in my Roth settlement account).

We have a checking account for monthly bills, and a small savings account with our "just in case" money. Our cash is usually about 0.5% of our net worth.
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TheTimeLord
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Re: How much cash do you really hold?

Post by TheTimeLord »

I am always intrigued by the BH fascination with this mystical thing called cash. If your money is in something that generates a return it is invested imho. What BH like to call cash is just ultra short duration. So to me cash is what's in my wallet and anything held in a way that doesn't generate a return. That said by what I understand the BH definition of cash to be, the majority of my Fixed Income allocation likely would be considered cash or near cash. I currently see little or no value in holding intermediate or longer term Fixed Income assets. So I am currently erroring by holding increased equity and shorter term fixed income.
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Re: How much cash do you really hold?

Post by whereskyle »

barnaby444 wrote: Wed Apr 07, 2021 10:01 am So, conventional wisdom is to set aside an emergency fund (EF) in cash and then invest any other savings. Number of months of expenses to put in the EF and how to invest other savings in will of course depend on preference and situation. But *aside* from the EF (and any other short-term cash needs like a down payment or day-to-day checking), something I've always been curious about is what percentage of "investable assets," if any, do people actually hold in cash (e.g. high yield savings, CDs, sweep account in brokerage, etc.)?

For example, if you say your "portfolio" is 80% equities and 20% bonds, do you literally mean that you have zero cash other than the fixed dollar amount in your EF? Meaning, as your portfolio grows, you actually have a decreasing percentage of total net worth in cash?

Or, do you hold a percentage of cash on the side for peace of mind, to slightly dampen market volatility, to buy dips, or any other reason? And if so, do you call this cash part of your "portfolio"?
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radiowave
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Re: How much cash do you really hold?

Post by radiowave »

I consider my NWP CDs in taxable as part of my bond fund; checking and savings as cash . Holding a little over a year expenses in both as I transition to retirement next month and saving up for new retirement home down payment in a year or two (or whenever the real estate market cools down).
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IMhooked
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Re: How much cash do you really hold?

Post by IMhooked »

sailaway wrote: Wed Apr 07, 2021 11:03 am I subtract the cash on hand from the bond portion. So, on the day we rebalance, we are literally 70% stocks, the other 30% is bonds + cash. We have held roughly the same amount of cash since we started tracking, which means it has been an ever decreasing % during accumulation. It also means our portfolio is somewhat more aggressive than someone with the same AA who holds their cash apart, but we also put all new monies to equities, so we were always going to be as aggressive as a 70/30 split can be.
We're in the same boat. We have lumpy 1099 incomes and have held 70/30 stocks/bonds+cash. Our cash buckets have remained the same amounts and from these being full we invest larger contract payouts in equities and bonds as needed. We rebalance 1x per year formally if needed due to stretching beyond 5% bands, but usually do nothing because we do quicker asset allocation snapshots upon receiving income and simply keep things in balance (domestic stock/intl stock/bonds) with new monies on an ongoing basis.

As net worth grows every year our cash percentage naturally decreases. Currently 59.5 domestic/10.5 intl, 10% bonds, 20%cash. Last year we were 59.5/10.5, 5, and 25 but cash bucket values have stayed the same. As of TODAY if we were to receive the next payout on a current contract our spreadsheet shows we'd be lumping about 17k into VTI so we would without hesitation because that's what our plan dictates...no posting here asking for an opinion on "are stocks overvalued, are bonds dead, should I have 5% play money and put in bitcoin instead, or should I DCA the 17k, etc. JUST EXECUTE and move on with life!
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Re: How much cash do you really hold?

Post by KlangFool »

barnaby444,

<<For example, if you say your "portfolio" is 80% equities and 20% bonds, do you literally mean that you have zero cash other than the fixed dollar amount in your EF? Meaning, as your portfolio grows, you actually have a decreasing percentage of total net worth in cash? >>

A) I only keep CASH in my EF. It is a fixed amount. I do not keep CASH in my portfolio

<<as your portfolio grows, you actually have a decreasing percentage of total net worth in cash? >>

B) Not exactly. When my portfolio grew, I increase my EF too since I am closer to FI/Retirement.

<<Or, do you hold a percentage of cash on the side for peace of mind>>

C) I do not use percent. My EF is at 3 years of my expense now.

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Topic Author
barnaby444
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Re: How much cash do you really hold?

Post by barnaby444 »

Thanks all for the replies. Good range of answers, but main takeaway for me is that I should shrink my emergency fund. Currently it's about 2 years of expenses or 15% of NW. The EarlyRetirementNow article about having zero EF actually makes a lot of sense to me.

Thanks again!
SimplicityNow
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Re: How much cash do you really hold?

Post by SimplicityNow »

The meaning of "cash" will vary widely from person to person.

We have no EF as 1) I'm retired and 2) I feel it is mostly mental accounting.

We are 60% Stocks 40% Fixed income assets. Some of the fixed income is in bonds funds and stable value funds in our retirement accounts. Some is invested in high yield savings accounts. Do I consider the HYSA cash? Yes. Is it invested? Yes.

The only cash which I consider not invested and is not counted towards my asset allocation is the amount covering two months of expenses I keep in our checking account.
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Re: How much cash do you really hold?

Post by Sandtrap »

Perhaps “X” in annual expenses might be a better metric for some folks.

And different if one is in an income earning pre retirement stage or post retirement non working.

In my case as a retiree, 2x.

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Conch55
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Re: How much cash do you really hold?

Post by Conch55 »

Currently have 5 years of cash sitting in a bank, some of which I plan to use for Roth conversions. It could be used for emergencies too. I like having it available.
pasadena
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Re: How much cash do you really hold?

Post by pasadena »

I don't hold any cash in my investable assets. At most my settlement fund is a few $100's waiting to be invested in bulk.

My EF is 6 months of living expenses. I also *currently* have about 3.5 months worth of monthly expenses in my savings account, but that's because I'm front-loading my 401(k) and Mega Backdoor this year, which means near-zero paychecks until July. This is money that would otherwise have been invested.
invest4
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Re: How much cash do you really hold?

Post by invest4 »

Checking: typically 25k so it handles whatever comes as far as bills and I don’t think about it.

HYSA: Approx 150k for the unexpected and cash flow for college not covered by 529 (family of 6). Currently also lowering this cash a bit as I am making significant contributions via Mega Backdoor Roth which requires me to shift some to checking as paychecks are lower (3rd year...not sure how long I will keep it up).

Cash Equivalents: only in 401k. Amount varies as I am utilizing stable value fund (2% yield) in lieu of purchasing more bonds (BND) right now and build up of new monies still to be deployed in equities (VTI / VXUS). CAPE 35+ too rich for me for new equity investments.
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dogagility
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Re: How much cash do you really hold?

Post by dogagility »

We only hold enough in cash (i.e. checking account) so we can comfortably pay bills without overdrawing. It's about 2 months of expenses.

Everything else is invested in stocks or bonds.
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runninginvestor
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Re: How much cash do you really hold?

Post by runninginvestor »

Too much, and yet, never enough :)

<<"For example, if you say your "portfolio" is 80% equities and 20% bonds, do you literally mean that you have zero cash other than the fixed dollar amount in your EF? Meaning, as your portfolio grows, you actually have a decreasing percentage of total net worth in cash?

Or, do you hold a percentage of cash on the side for peace of mind, to slightly dampen market volatility, to buy dips, or any other reason? And if so, do you call this cash part of your "portfolio"?">>

We don't blend out AA across retirement/non-retirement/EF like others suggest. We steer towards asset-liability matching with our cash in our EF, hold an AA of stocks & bonds in our no retirement account, and a combined AA across our retirement accounts. So kind of like e buckets.

Our EF is for purchases that we can't cash flow in a given month after expenses and monthly savings allotment. This is held in a HYSA. It's enough cash to cover rent + utilities for 1 year. Since we rent, we feel most comfortable having that cash equal to our certain rent liability in case of income loss.

Our taxable for savings is 70/30 Short term bonds (VG short term federal) and Total Stock market (30%). It's what we felt comfortable as historical drawdowns didn't exceed the depth and time of what our cash EF could provide if we didn't want to spend from it in a downturn.

Then Retirement accounts are allocated to stocks and bonds per our retirement goals.

So as far as cash, we hold what we need to cash flow each month for monthly expenses, plus the EF allocated to cash above for liability matching. Then I suppose the 70% in short term bonds could be thought as a cash equivalent in extended savings.
JPatch
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Re: How much cash do you really hold?

Post by JPatch »

Mid-30s. Married, 3 children.

$586K portfolio, and $40K of that is cash in a savings account. Helps me sleep at night.
Broken Man 1999
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Re: How much cash do you really hold?

Post by Broken Man 1999 »

According to Vanguard Portfolio Watch, we hold ZERO. Apparently the percent we hold is less than the program's minimum to register.

56% STOCKS
0% SHORT TERM RESERVES
44% BONDS
0% OTHER

We actually do have some cash, less than .5%, as I am doing some rebalancing. I am letting dividends accumulate a bit.

I have never held a lot of cash, the cash I hold is for transactional purposes. Thus, the cash is short-lived in our portfolio. Cash is not held for emergencies, we don't have an emergency fund.

For my purposes, I consider the $$ in our settlement accounts as cash. In our banking accounts, the cash is added each month to pay expenses, except the odd deposit from other than our investment accounts, like the stimulus payments. After paying bills, our banking accounts are virtually empty.

Having the bare minimum of held cash means holding an asset that doesn't require much management. I don't need to find the best home for it as the amount I hold will never give much of a return, because it is held for such a short period of time. No worries about interest rate declines in those High Yield Savings accounts. All I have to do is ensure there is enough in place when bills are due. That is an easy task.

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UM2009
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Re: How much cash do you really hold?

Post by UM2009 »

Would y'all handle an EF differently if fixed income (pension, ss) covered all expenses? Limit EF to possible big purchases (e.g., new furnace)?
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jason2459
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Re: How much cash do you really hold?

Post by jason2459 »

I include my EF in my AA.

My targets

For cash is high yield savings/NP-CDs <5% currently at 3.54%
For short term bonds/i-bonds ~5% currently at 4.82%
Checking account paycheck to paycheck so ~0%

My cash holdings I don't mind depleting to 0% during bear markets and RBDs. Last March I was around 5% cash and 5% short bonds. By mid April I was near 0 for both.

By January this year I replenished with new money in my cash and bonds back to near 5% each again. Past couple months have had some RBDs. I infused some cash and now building it back up.
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Re: How much cash do you really hold?

Post by Broken Man 1999 »

UM2009 wrote: Wed Apr 07, 2021 12:12 pm Would y'all handle an EF differently if fixed income (pension, ss) covered all expenses? Limit EF to possible big purchases (e.g., new furnace)?
Honestly, we don't physically or mentally allocate portions of our portfolio for spending. Our entire portfolio is available for any reason: a large health care bill, a new roof, a new vehicle, a new heat pump (just bought one), whatever is needed.

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Normchad
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Re: How much cash do you really hold?

Post by Normchad »

I have 12 months worth of expenses sitting in my checking account. To me, that is cash.

And when I talk about my portfolio, I don’t include my checking account. But when I talk about my net worth, I include everything.

In my portfolio, I have some money in a money market fund. That’s close enough to call cash for me. So in the portfolio, I’m probably 2% cash. In terms of overall net worth, I’m at about 5% cash.

My portfolio is also roughly 40% bonds.
livesoft
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Re: How much cash do you really hold?

Post by livesoft »

This is a frequently asked question. Generally, we hold only enough cash to pay the bills for the next 2 weeks. We have no savings accounts, no CDs, no money at Treasury Direct. Our cash is found in our checking account and in the cash settlement accounts of our various investing accounts. While we try to keep cash in our investing accounts to zero, it rises for a day or two when dividends are paid and sometimes when I sell shares because I don't get around to buying bond fund shares nor equity fund shares right away. But that's only for a day or two and not a week.

Furthermore, our investment accounts are essentially fully liquid in that we can sell shares and have the cash proceeds appear in our checking account 2 days later for ETFs or the next day for mutual funds since we are over age 60 and would have no penalties for doing so.
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Re: How much cash do you really hold?

Post by AerialWombat »

12 months of actual cash as EF. This is based on PITI, property management, and maintenance for all rental properties + PITI on personal residence + personal living expenses.

EF is part of AA. It makes no sense to me to not include it. It’s only earning 0.4% to 1.05% (HYS and CD ladder), but it’s still earning some amount of fixed income.
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pasadena
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Re: How much cash do you really hold?

Post by pasadena »

UM2009 wrote: Wed Apr 07, 2021 12:12 pm Would y'all handle an EF differently if fixed income (pension, ss) covered all expenses? Limit EF to possible big purchases (e.g., new furnace)?
I would. Right now I'm thinking in terms of "how many months of living expenses" so it's more of an income replacement fund, and I don't really have any big emergencies likely to happen beyond that (and potential relocation) as I don't own my home.

If I were retired with fixed income (SS) covering my expenses and a homeowner (that's the goal), I would probably keep a "house fund" for bigger expenses that may come up (appliances, leaks...), plus some "buffer money" held in cash for those months when you just spend more than you should.

As it is, I don't expect my fixed income in retirement to cover my expenses, so I'll probably hold a lot more cash then, to protect against market crashes and currency variations. In that case I'll probably think in terms of "how many years of expenses beyond SS".
whoshighpitch
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Re: How much cash do you really hold?

Post by whoshighpitch »

$52,490 in savings account
$2,857 in brokerage account money market
The rest in stock index funds
radiowave
Posts: 2644
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Re: How much cash do you really hold?

Post by radiowave »

OP, a few years ago, I used a strategy to get cash balance down to just a couple hundred after paying monthly bills and any residual went to VTSAX or NWP CDs. I had my paycheck spread across 3 accounts, one for mortgage, another for bill pay, the third I liked how easy it was to transfer $ from checking to credit card. It was a lot of work and infrequently I would have to cash in a NWP CD because I cut the account too low. Once I was late for a credit card payment because the ACH transfer was late getting there and got hit with interest. So I changed my cash strategy and consolidated all bill pay to one bank account (with a backup site if needed) and keep several months cash in reserve for bill pay. I don't worry about having cash sit idle now that rates are 0.50% or less 8-)
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Marseille07
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Re: How much cash do you really hold?

Post by Marseille07 »

I try to hold as little as possible while still being able to pay Uncle Sam. Paying Uncle Sam is expected but the amount is unexpected :oops: so I just keep track of the highest watermark.
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Leif
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Re: How much cash do you really hold?

Post by Leif »

I'm retired, but not yet collecting social security/RMD. I have a yearly CD ladder to last me until SS/RMD.

For that reason I hold around 1 year worth of cash until my next CD matures.
CMLAW1
Posts: 156
Joined: Sun Sep 06, 2015 8:22 pm

Re: How much cash do you really hold?

Post by CMLAW1 »

I keep zero cash. My wife has an annuity and I have a very stable job...
UpperNwGuy
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Re: How much cash do you really hold?

Post by UpperNwGuy »

I have a very narrow definition of "emergency fund," so my emergency fund is probably smaller than average. For me, true emergencies are unexpected and mostly relate to loss of income or major problems in my adult children's lives.

I also hold cash for other non-emergency expenses: the next vacation, auto repair and replacement, technology replacement, home maintenance and repair, condo special assessments. I don't consider any of those costs to be "emergencies" because they're all inevitable and very expected.

I don't consider any of the above to be part of my investment portfolio, so it doesn't factor into my asset allocation target.
Johm221122
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Re: How much cash do you really hold?

Post by Johm221122 »

Less than 1% cash. Maybe 6 weeks of my bills/spending money.
I do have 6% of my money in I Bonds but I consider them long term bonds. I use to hold EE bonds to but sold at 20 year anniversary
Doc7
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Re: How much cash do you really hold?

Post by Doc7 »

I have 6 months expenses (though, as a thread I posted earlier this week concluded, I will be dropping to 4.5 months, as I did not plan on the sudden loss of liquidity when I hit my 6 month target and put my E-Fund on LOCKDOWN) in Emergency Fund.

That is $36K. $2K at local bank,$16K on online savings account (0.40% apr) and $18k in March 2021 I-BONDS.

I include this $36k in my Net worth calculation (which is for fun only, really) and not in my 70/30 AA.

I do not include the $2000-$10K in my other checking accounts (which is our Checking account to which our paychecks deposit, my and her fun money accounts to which we transfer $112 per month, our 2023-2024 vacation accounts to which we transfer $40/mo, my annual hunt club dues savings to which i transfer $62.50/mo, our retirement savings [for sweeping into Roth IRA, HSA] to which we transfer $700/mo, etc) in my AA or my Net worth.

Just like I don't go on and put all my credit card current balance on my net worth (it is paid in full in auto each month), i don't see a need to put these liquid accounts on there. As someone else noted, if there is an off-setting liability, you either include both or neither. I have offsetting liabilities of $112 of fun money per month, a vacation in a few years, etc, for all the liquid cash at our online bank. The off-setting liability rule is also why I do not include my 529 plan savings in my NW.

So at a given time depending on how long since last paycheck was, we having between $38,000 and $50-55K in "Cash", but only 36K is included in the Net worth and $0 of it is included in the asset allocation.

For what it is worth, $36K would be approx 5% of our NW right now, so if you truly believe in including liquid checking accounts and e-funds in your AA, i am skewing 3-5% more conservative than my "70/30" would indicate. This has no impact on how I have or will rebalance to my AA though, but I respect other opinions.
dboeger1
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Re: How much cash do you really hold?

Post by dboeger1 »

I like to think of my emergency fund in terms of absolute size rather than a percentage of my portfolio. I'm a pretty adamant believer that readily accessible cash, both physical and in easily (and quickly) accessible savings accounts provides important benefits that things like CD/bond ladders or stock/bond mutual funds don't, namely quick access and the ability to move around preemptively without incurring fees. I'm always amazed when Bogleheads say they're fine with 1% in cash or they just treat their investment portfolio as an emergency fund. Maybe we just live totally different lifestyles. I've been in car accidents during violent thunderstorms in the middle of nowhere at night on weekends when everything was closed and the only way to resolve issues was to pay a bunch of people immediately in cash to help out on their off days. I've been in foreign countries where certain savings accounts weren't readily accessible or charged exorbitant fees and I would be traveling without reliable Internet access, so I moved large enough sums of money into multiple bank accounts just in case. I've had surprise expenses pop up because a family member suddenly needed help or my wife and I weren't on the same page about upcoming bill payments and things got scheduled for the same day and dropped our account balances dangerously low. I realize many of these things can be mitigated, and there is somewhat of an opportunity cost to holding cash in order to address them, but it also buys a certain amount of comfort and flexibility. I don't really see how it's all that different conceptually to being able to pay basic bills out of a checking account. The only difference really is that I feel it's worth being able to cover somewhat larger but less frequent surprise expenses as well, just because I've been in enough of those situations in my lifetime. Does anybody really size their bill account precisely according to their typical expenses? I imagine most people know an approximate amount they're comfortable with, and when they get paid or the account is running a little low, they top it up to that level.

For me, the amount I'm currently comfortable with is about $40k. $5k-$10k of that is in our primary checking account at any given time and used to cover daily expenses or fund investment accounts when it grows too large. The rest sits is spread across a number of savings accounts, either high-yield or generating a sign-up or referral bonus. That is admittedly somewhat high, approximately 1 year of expenses for us, but again, the reason has more to do with being able to cover certain potential emergency scenarios. We owe my father-in-law some money after he helped out with a house down payment, and he recently had brain surgery, so I felt it prudent to hold some extra cash just in case something went wrong and we needed to wire some of that money abroad. We're also preparing to have our first child and I want to have enough of a safety net without worrying about tying up funds or minimizing fees. I'm also hopefully on the cusp of a new job and would like to take some vacation time off between jobs so I don't want to worry about what markets will do in the short term. Lastly, my side of the family has a number of relatives who are not super financially stable and would be more likely to request some assistance, so in some sense the emergency fund is sized for others as well. If/when things stabilize more and I settle into a higher-paying job, that's when I would reduce the size of our emergency fund according to the risks I'd like to defend against at that time.
Visitor76
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Re: How much cash do you really hold?

Post by Visitor76 »

flyingaway wrote: Wed Apr 07, 2021 10:28 am When the market crashes, you wish you had more cash.
Not if you're making bi-weekly contributions. :beer
Wealth is not about having a lot of money; it's about having a lot of options.
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jason2459
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Re: How much cash do you really hold?

Post by jason2459 »

Visitor76 wrote: Wed Apr 07, 2021 1:49 pm
flyingaway wrote: Wed Apr 07, 2021 10:28 am When the market crashes, you wish you had more cash.
Not if you're making bi-weekly contributions. :beer
You can have the cake and eat it too.
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
phxjcc
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Re: How much cash do you really hold?

Post by phxjcc »

flyingaway wrote: Wed Apr 07, 2021 10:28 am When the market crashes, you wish you had more cash.
I agree.

1 year normal expenses plus any extra ordinary purchases.

Think of it as an insurance premium against market loss.

That $120,000 you need next year can easily cost you $200,000 in a down market.
Grt2bOutdoors
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Re: How much cash do you really hold?

Post by Grt2bOutdoors »

jason2459 wrote: Wed Apr 07, 2021 1:56 pm
Visitor76 wrote: Wed Apr 07, 2021 1:49 pm
flyingaway wrote: Wed Apr 07, 2021 10:28 am When the market crashes, you wish you had more cash.
Not if you're making bi-weekly contributions. :beer
You can have the cake and eat it too.
Lose your job - there goes the cake and your appetite!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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