Are we saving too much cash

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rage_phish
Posts: 178
Joined: Thu Jan 31, 2019 4:27 pm

Are we saving too much cash

Post by rage_phish »

When we should be investing more?
Ages: 36
2 kids
Gross income: $193,500
Liquid cash: $115,000 (this is more than a years worth of expenses and way more than a years worth if we stopped paying for daycare which our kids have not used for 6 months, but we have started paying for again in July to reserve their spot for when we’re ready to send them back.)

My retirement accounts (401k, rollover, Roth): $125,000 ($950 to 401k, $460 to roth monthly)
Her retirement accounts (Rollover, roth, 457): $60,000) ($200 to roth, $300 to 457 monthly)
She also has a pension as a county employee. Last time she inquired about her pension balance was a year ago and it was $45,000. Not sure how much is in there a year later but we haven’t tracked too much as (at this time) we don’t plan on touching the money if she leaves the job, and plan to take the disbursements - however much it calculates to be when she retires.

We currently save $515 a week into a HYS account. This is so high because we were saving weekly + saving additional to pay off a 0% interest loan for a new HVAC system which is now paid off. But then covid hit and we liked the idea of saving more cash so we just kept the weekly auto deposits. I’m now worried we are saving to much here and should instead be investing it as I feel we are behind in retirement savings.

Please let me know what pertinent info is missing.
Frugalbear
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Re: Are we saving too much cash

Post by Frugalbear »

My question:

What debt do you carry?
Topic Author
rage_phish
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Re: Are we saving too much cash

Post by rage_phish »

$425k mortgage. Home value $700k
UnitaryExecutive
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Re: Are we saving too much cash

Post by UnitaryExecutive »

I don't think you can ever save too much cash. Although, the question you're really asking is are you holding too much cash.

If you only have standard investments available to you, equities, fixed income, and savings, I kind of like holding more dry powder. The reason for this is a) valuations are high b) base rate of pandemic is higher now and c) a Biden win is looking more likely (not trying to be political). Reasons not to hold cash are fed money printer go brrrrrr and you want to be in assets if inflation shoots up.

We are an LP in several VC funds and value creation is value creation regardless of cycle, so that's where we're putting a lot of cash. We're also holding a lot of cash.
SQRT
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Re: Are we saving too much cash

Post by SQRT »

Ask yourself why do I need liquidity? Usually 3 possible reasons:
-emergency fund
-opportunistic investment decisions , ie “dry powder”
-regular operational needs, ie lumpy expenses or income

Sounds like you need to consider mostly objective #1 possibly #2

Sounds like an overly large emergency fund to me? Dry powder perhaps? Liquidity is very expensive especially in today’s very low interest rate environment. But if it makes you feel more secure might be worth it for you.
finite_difference
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Re: Are we saving too much cash

Post by finite_difference »

I think 1.5 years for an emergency fund is pretty good. But if your job is very unstable then more could be warranted.

Are you maxing out both your 401k and Roth IRAs? If not, I’d direct any excess funds to those.
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000
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Re: Are we saving too much cash

Post by 000 »

I used to hold a lot of cash. I've started to become concerned it won't retain purchasing power and have been reducing cash holdings.
HomeStretch
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Re: Are we saving too much cash

Post by HomeStretch »

The amount of cash to hold is a personal decision. 1 year of cash is not unreasonable IMO. Consider using a portion of the cash (~ $4k) to max out (2020 limit is $6k each) both Roth IRAs.
neverpanic
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Re: Are we saving too much cash

Post by neverpanic »

rage_phish wrote: Sun Aug 16, 2020 11:31 pm I’m now worried we are saving to much here and should instead be investing it as I feel we are behind in retirement savings.
I came to this forum a few months ago for exactly that reason. You're a lot younger than I am and way ahead of where I am in terms of the age of your retirement accounts and making regular contributions. By the numbers, it looks like you're right on schedule, but your money could be earning more for you.

I had studied the market, but had no clue how to put my money to work apart from cash real estate investments. But worse, I had no confidence and also had a crippling mindset with respect to "saving". That is, I had a literal belief that putting money into a savings account was how you protected it for old age.

Speaking only from my own experience as I'm not a professional and have very little financial knowledge (but I know how to save!), it is my opinion you have too much cash and that yes, you should be investing more. It's also my opinion you have come to the best forum available to help guide you on how to go about setting up your investment strategies and figuring out the asset allocation that works for you.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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dogagility
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Re: Are we saving too much cash

Post by dogagility »

rage_phish wrote: Sun Aug 16, 2020 11:31 pm Liquid cash: $115,000 (this is more than a years worth of expenses and way more than a years worth if we stopped paying for daycare which our kids have not used for 6 months, but we have started paying for again in July to reserve their spot for when we’re ready to send them back.)

Please let me know what pertinent info is missing.
Hi,
Only you know your risk tolerance and financial resiliency to a job loss, but an emergency fund of that size is sufficiently large in my opinion. (would be too large for me)

Another poster mentioned "dry powder". The idea of keeping "dry powder" to invest when the "market is cheaper" smacks of market timing. It will likely lead to lower returns over time. https://actuaryonfire.com/dry-powder/

My suggestions.
  • invest all of your liquid cash that is not part of your EF at your chosen asset allocation
  • ensure you are taking advantage of your entire tax deferred space (including HSA, 401k, IRA, 529, etc
  • relax and enjoy life
  • :beer
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
investingdad
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Re: Are we saving too much cash

Post by investingdad »

If it were me, I'd trim to 12 months.

The rest would be invested.
foo.c
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Re: Are we saving too much cash

Post by foo.c »

Saving, no. Holding, yes (IMO).
sycamore
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Re: Are we saving too much cash

Post by sycamore »

I think you're saving too much cash in taxable.

As noted by other posters, max out your 401k / 457 accounts - at your income and tax bracket it makes sense to contribute as much as you can. Certainly contribute enough to get any company max. And contribute the max to Roth IRAs so you don't give up the tax-free space. Roth IRAs are better than taxable because you can withdraw contributions (if you need to).

Whether you invest those contributions in stocks or bonds or money market is a separate question. Without knowing all your family finance particulars, it sounds reasonable to put half your $515/week toward your investment Asset Allocation (stocks and bonds). I think some of that $515 could go into increased 401k/457/Roth contributions, and that's where you'd buy more stocks/bonds instead of high-yield savings.
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vineviz
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Re: Are we saving too much cash

Post by vineviz »

rage_phish wrote: Sun Aug 16, 2020 11:31 pm When we should be investing more?
Ages: 36
2 kids
Gross income: $193,500
Liquid cash: $115,000 (this is more than a years worth of expenses and waVanguard Target Retirement 2045 Fund (VTIVX)y more than a years worth if we stopped paying for daycare which our kids have not used for 6 months, but we have started paying for again in July to reserve their spot for when we’re ready to send them back.)

My retirement accounts (401k, rollover, Roth): $125,000 ($950 to 401k, $460 to roth monthly)
Her retirement accounts (Rollover, roth, 457): $60,000) ($200 to roth, $300 to 457 monthly)
She also has a pension as a county employee. Last time she inquired about her pension balance was a year ago and it was $45,000. Not sure how much is in there a year later but we haven’t tracked too much as (at this time) we don’t plan on touching the money if she leaves the job, and plan to take the disbursements - however much it calculates to be when she retires.
Since you both have Roth IRA accounts, holding "more than a years worth of expenses" in cash in a savings account doesn't strike me as the best financial plan. Because you can withdraw your contributions from a Roth IRA any time without tax or penalty, my advice would be to figure out how much of you $115k in cash is truly earmarked as an emergency fund (versus a cash reserve for medium-term expenses you expect to have) and then move most of the cash into the Roth IRAs as quickly as your contribution limits will allow.

Meanwhile, I'd suggest allocating whatever portion of the $115k you truly consider to be the emergency fund as follows (split across the Roth IRAs and taxable as needed):

2 months of expenses in high-yield savings account;
5 months of expenses in a conservative allocation fund [e.g.the Vanguard LifeStrategy Conservative Growth Fund (VSCGX)];
Remainder in stocks [e.g. Vanguard Total World Stock Index Fund (VTWAX)]
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
lostdog
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Re: Are we saving too much cash

Post by lostdog »

vineviz wrote: Mon Aug 17, 2020 8:09 am
rage_phish wrote: Sun Aug 16, 2020 11:31 pm When we should be investing more?
Ages: 36
2 kids
Gross income: $193,500
Liquid cash: $115,000 (this is more than a years worth of expenses and waVanguard Target Retirement 2045 Fund (VTIVX)y more than a years worth if we stopped paying for daycare which our kids have not used for 6 months, but we have started paying for again in July to reserve their spot for when we’re ready to send them back.)

My retirement accounts (401k, rollover, Roth): $125,000 ($950 to 401k, $460 to roth monthly)
Her retirement accounts (Rollover, roth, 457): $60,000) ($200 to roth, $300 to 457 monthly)
She also has a pension as a county employee. Last time she inquired about her pension balance was a year ago and it was $45,000. Not sure how much is in there a year later but we haven’t tracked too much as (at this time) we don’t plan on touching the money if she leaves the job, and plan to take the disbursements - however much it calculates to be when she retires.
Since you both have Roth IRA accounts, holding "more than a years worth of expenses" in cash in a savings account doesn't strike me as the best financial plan. Because you can withdraw your contributions from a Roth IRA any time without tax or penalty, my advice would be to figure out how much of you $115k in cash is truly earmarked as an emergency fund (versus a cash reserve for medium-term expenses you expect to have) and then move most of the cash into the Roth IRAs as quickly as your contribution limits will allow.

Meanwhile, I'd suggest allocating whatever portion of the $115k you truly consider to be the emergency fund as follows (split across the Roth IRAs and taxable as needed):

2 months of expenses in high-yield savings account;
5 months of expenses in a conservative allocation fund [e.g.the Vanguard LifeStrategy Conservative Growth Fund (VSCGX)];
Remainder in stocks [e.g. Vanguard Total World Stock Index Fund (VTWAX)]
This is what I do. If I use some of VSCGX for the short term that's ok. I'd rather have most of that short/medium term money atleast try to beat inflation over time.
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rage_phish
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Re: Are we saving too much cash

Post by rage_phish »

HomeStretch wrote: Mon Aug 17, 2020 2:40 am The amount of cash to hold is a personal decision. 1 year of cash is not unreasonable IMO. Consider using a portion of the cash (~ $4k) to max out (2020 limit is $6k each) both Roth IRAs.
Mine was already on track to max out. Last night we lowered HYS deposits and increased wife’s Roth’s to max hers out as well
Topic Author
rage_phish
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Re: Are we saving too much cash

Post by rage_phish »

As far as job security I feel pretty good about it

Wife is a union government (county) employee

I work for a major telecom who has handled covid exceptionally well. While I work in recruiting and we aren’t doing any hiring really, the company has been good at reassigning people to areas where help is needed. And from higher ups there has been messages to my boss that there will not be layoffs (and the company as a whole us not done any yet). Though obviously that could change at any time
Topic Author
rage_phish
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Re: Are we saving too much cash

Post by rage_phish »

vineviz wrote: Mon Aug 17, 2020 8:09 am
rage_phish wrote: Sun Aug 16, 2020 11:31 pm When we should be investing more?
Ages: 36
2 kids
Gross income: $193,500
Liquid cash: $115,000 (this is more than a years worth of expenses and waVanguard Target Retirement 2045 Fund (VTIVX)y more than a years worth if we stopped paying for daycare which our kids have not used for 6 months, but we have started paying for again in July to reserve their spot for when we’re ready to send them back.)

My retirement accounts (401k, rollover, Roth): $125,000 ($950 to 401k, $460 to roth monthly)
Her retirement accounts (Rollover, roth, 457): $60,000) ($200 to roth, $300 to 457 monthly)
She also has a pension as a county employee. Last time she inquired about her pension balance was a year ago and it was $45,000. Not sure how much is in there a year later but we haven’t tracked too much as (at this time) we don’t plan on touching the money if she leaves the job, and plan to take the disbursements - however much it calculates to be when she retires.
Since you both have Roth IRA accounts, holding "more than a years worth of expenses" in cash in a savings account doesn't strike me as the best financial plan. Because you can withdraw your contributions from a Roth IRA any time without tax or penalty, my advice would be to figure out how much of you $115k in cash is truly earmarked as an emergency fund (versus a cash reserve for medium-term expenses you expect to have) and then move most of the cash into the Roth IRAs as quickly as your contribution limits will allow.

Meanwhile, I'd suggest allocating whatever portion of the $115k you truly consider to be the emergency fund as follows (split across the Roth IRAs and taxable as needed):

2 months of expenses in high-yield savings account;
5 months of expenses in a conservative allocation fund [e.g.the Vanguard LifeStrategy Conservative Growth Fund (VSCGX)];
Remainder in stocks [e.g. Vanguard Total World Stock Index Fund (VTWAX)]

Currently cash holdings are as follows

Emergency fund: $90k
A kids fund (to be used for kids costs down the line like camps and what not. We also put day care costs in here for months we didn’t have to pay when they were closed): $13k
Short term savings for random larger expenses: $6k
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Solair of Astora
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Re: Are we saving too much cash

Post by Solair of Astora »

I feel like the real win here is having access to a 457. If you want to put that additional money somewhere other than cash, but would like to have access to it in case of job loss, the 457 has your back. You get tax deferral benefits the same as a 401k, and if you lose the job (or just leave for whatever reason) you gain full access to the account (gains included) with no penalties. Some employers even offer a Roth 457.
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Grt2bOutdoors
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Re: Are we saving too much cash

Post by Grt2bOutdoors »

Sure, you can invest it but there is a whole range of riskiness you can take while investing to keep it relatively accessible without excess volatility:
Certificate of Deposit
Series I savings bonds
Total Bond Market Index
Total Stock Market Index
Small cap value index
Sector funds.

Many ways to scratch the itch of wanting to invest while having accessibility to a good portion of it at any one point in time by adjusting asset allocation. As for the comment on holding cash being expensive, if you put $10K in a bond fund, you could lose $500 if rates moved 1% up, if the stock market crashes you could lose $3k or more. You have to ask yourself what level of risk you are willing to take if you really need the funds more than the “FOMO” factor.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
HomeStretch
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Re: Are we saving too much cash

Post by HomeStretch »

rage_phish wrote: Mon Aug 17, 2020 9:02 am
HomeStretch wrote: Mon Aug 17, 2020 2:40 am The amount of cash to hold is a personal decision. 1 year of cash is not unreasonable IMO. Consider using a portion of the cash (~ $4k) to max out (2020 limit is $6k each) both Roth IRAs.
Mine was already on track to max out. Last night we lowered HYS deposits and increased wife’s Roth’s to max hers out as well
Good move. What is your mortgage rate?
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rage_phish
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Re: Are we saving too much cash

Post by rage_phish »

3.365
Waiting on notary to close at 2.75
Topic Author
rage_phish
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Re: Are we saving too much cash

Post by rage_phish »

Since this thread we have made changes to:

Max out wife’s Roth
Increase her 457 contribution to $500/ month
Increase each boys monthly 529 contribution by $100 each

This will still have us saving about $1,300 a month to cash savings
hightower
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Re: Are we saving too much cash

Post by hightower »

rage_phish wrote: Sun Aug 16, 2020 11:31 pm When we should be investing more?
Ages: 36
2 kids
Gross income: $193,500
Liquid cash: $115,000 (this is more than a years worth of expenses and way more than a years worth if we stopped paying for daycare which our kids have not used for 6 months, but we have started paying for again in July to reserve their spot for when we’re ready to send them back.)

My retirement accounts (401k, rollover, Roth): $125,000 ($950 to 401k, $460 to roth monthly)
Her retirement accounts (Rollover, roth, 457): $60,000) ($200 to roth, $300 to 457 monthly)
She also has a pension as a county employee. Last time she inquired about her pension balance was a year ago and it was $45,000. Not sure how much is in there a year later but we haven’t tracked too much as (at this time) we don’t plan on touching the money if she leaves the job, and plan to take the disbursements - however much it calculates to be when she retires.

We currently save $515 a week into a HYS account. This is so high because we were saving weekly + saving additional to pay off a 0% interest loan for a new HVAC system which is now paid off. But then covid hit and we liked the idea of saving more cash so we just kept the weekly auto deposits. I’m now worried we are saving to much here and should instead be investing it as I feel we are behind in retirement savings.

Please let me know what pertinent info is missing.
What you need to answer this question for yourself is an IPS. Investment Policy Statement: https://www.bogleheads.org/wiki/Investm ... _statement

You're currently holding around 35% of your investable assets as cash. Which means you're missing out on a LOT of potential growth. That cash is likely to lose purchasing power over time because it's barely keeping up with inflation if at all.
What you need to decide is how much cash you feel you need for the long haul. An emergency fund is important if you're not financially independent and can't withdraw from retirement accounts yet, so I think it's reasonable to hold some cash. But, 115k seems a bit high if you've got stable employment. But, that's just me.
In other words, the answer to your question is actually a personal one.

Also, there's no such thing as a "HYS aka High Yield Savings" account these days;) 1% interest is not high yield in my book. After taxes, you're looking at maybe 0.6-0.7%, lol. It's literally a joke right now. I remember in 2006 when I first opened an Ally account, the interest rate on their savings accounts was like 4%. Now it's as if you don't get any interest.
Last edited by hightower on Mon Aug 17, 2020 3:13 pm, edited 1 time in total.
as9
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Re: Are we saving too much cash

Post by as9 »

Some might say "can't this wait til I'm old, can't I live while I'm young?" but alas...

Looks like you're in great shape. Personally I'd put some % of the 90k EF to work. Maybe like 10-20% in VTI. We now have the back ~25% of our EF in NTSX.
tashnewbie
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Re: Are we saving too much cash

Post by tashnewbie »

I agree with another poster that you need to decide what your personal philosophy is going to be. I personally think 12 months of expenses is sufficient for an EF. In my mind, one of the biggest financial risks is unemployment. Seems like your wife has almost ironclad employment. What are the odds that you're both unemployed at the same time? Of course, there are other risks too like a medical emergency that requires you to pay a big deductible or your annual out-of-pocket maximum. You need to factor all of that into your decision about how big to keep your EF.

I would make sure I'm maxing all available tax-advantaged space (401k, 457, HSA, Roth IRA). After that, I would divert any extra savings into a low-cost equity index fund in a taxable brokerage account.
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Solair of Astora
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Re: Are we saving too much cash

Post by Solair of Astora »

rage_phish wrote: Mon Aug 17, 2020 2:55 pm Since this thread we have made changes to:

Max out wife’s Roth
Increase her 457 contribution to $500/ month
Increase each boys monthly 529 contribution by $100 each

This will still have us saving about $1,300 a month to cash savings
Good on you for upping the 457!

I'd like to think the reason it's so flexible is because so many employers that offer them seem to also have pensions. Being able to retire with a pension as a 50 y/o is good, but having access to supplementary funds to get you between then and social security is even better.
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Topic Author
rage_phish
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Re: Are we saving too much cash

Post by rage_phish »

as9 wrote: Mon Aug 17, 2020 3:11 pm Some might say "can't this wait til I'm old, can't I live while I'm young?" but alas...

Looks like you're in great shape. Personally I'd put some % of the 90k EF to work. Maybe like 10-20% in VTI. We now have the back ~25% of our EF in NTSX.
YES!
Compound
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Re: Are we saving too much cash

Post by Compound »

rage_phish wrote: Mon Aug 17, 2020 2:55 pm Since this thread we have made changes to:

Max out wife’s Roth
Increase her 457 contribution to $500/ month
Increase each boys monthly 529 contribution by $100 each

This will still have us saving about $1,300 a month to cash savings
Consider upping the 457 contribution even more (perhaps to the max).
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