Cash - Throw it all on the table!!!

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AtomicCash
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Re: Cash - Throw it all on the table!!!

Post by AtomicCash » Tue May 14, 2019 7:20 pm

abuss368 wrote:
Fri May 10, 2019 8:24 pm
Would be interested in updated responses from Bogleheads regarding cash.
...
I wasn't on the forum for the first round of this question, but I'll chime in now.

I'm retired. I've got about 20 years living expenses in cash (about a year in my neighborhood bank, another year in high yield online accounts, and the rest in a 2 year CD ladder with about a dozen rungs so a CD matures every few months). At my age, this is probably close to a lifetime of living expenses and represents about 1/3 of my portfolio. These funds are FDIC insured and I'm currently earning about 2.6% interest as a weighted average.

The remaining 2/3rds of my portfolio is in the standard low ER boring (in a good way) Boglehead stock/bond funds appropriate for my age.

To be clear, this wasn't the asset allocation I had when I was working. But not having to worry about the markets for a couple decades lets me sleep much better at night now that I don't have any earned income.

Marc

shell921
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Re: Cash - Throw it all on the table!!!

Post by shell921 » Wed May 15, 2019 9:34 am

I'm retired and here is my breakdown:

2 checking accounts with ~$3k each - no interest, for monthly bills
1 B&M saving account with $65k
1 credit union account with $25k
$40k in brokerage acct

I keep $100 in my purse
I have $600 cash in my cash box at home

I'd say close to $137k in cash available
Last edited by shell921 on Thu May 16, 2019 11:26 am, edited 1 time in total.

tampaite
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Re: Cash - Throw it all on the table!!!

Post by tampaite » Wed May 15, 2019 9:53 am

abuss368 wrote:
Wed Nov 05, 2014 10:14 am

How liquid are you or do you plan to be over time?
Aiming to have minimum of 2 years of annual expenses in CASH or CD.

Simple Simon
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Re: Cash - Throw it all on the table!!!

Post by Simple Simon » Wed May 15, 2019 3:42 pm

Having decided some years ago that I don't want bonds, I'm 50% cash, 50% VWRL in my non retirement investment accounts.

In addition I keep about 3 months of cash hand in a current account.

So quite a lot of cash here.

SQRT
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Re: Cash - Throw it all on the table!!!

Post by SQRT » Wed May 15, 2019 4:25 pm

Answers are all over the map. Without context not much use. Can someone develop a rational list of considerations that would go into a model that might help one decide how much cash to keep? Maybe we can move the discussion up a notch?

Maybe, things like risk appetite, asset allocation, sources of regular cash flow, whether you keep cash in reserve for security purchases, stage of life/age, health insurance, lumpy/large expenses, confidence of budgeting, security of job, debt levels, etc.
Last edited by SQRT on Thu May 16, 2019 4:28 am, edited 2 times in total.

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willthrill81
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Re: Cash - Throw it all on the table!!!

Post by willthrill81 » Wed May 15, 2019 6:03 pm

Since my job is very secure (i.e. long-term contract), our mortgage should be paid off in about a year, and we are well insured on all fronts, we personally have little need for liquidity and don't keep much cash on hand. If our house burned down, we'd be about $1k. If we totaled our car, we'd be out $500. We have almost two years of our maximum out-of-pocket expense for health insurance in our HSA alone.

The biggest 'source' of cash we have is a fund used non-monthly and irregular expenses (e.g. biannual HOA dues, clothing, gifts, home and auto maintenance). But we are no longer in the position of needing X months of expenses in cash. That said, we could live for a good decade on what's in our portfolio.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

shell921
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Re: Cash - Throw it all on the table!!!

Post by shell921 » Thu May 16, 2019 11:34 am

SQRT wrote:
Wed May 15, 2019 4:25 pm
Answers are all over the map. Without context not much use. Can someone develop a rational list of considerations that would go into a model that might help one decide how much cash to keep? Maybe we can move the discussion up a notch?

Maybe, things like risk appetite, asset allocation, sources of regular cash flow, whether you keep cash in reserve for security purchases, stage of life/age, health insurance, lumpy/large expenses, confidence of budgeting, security of job, debt levels, etc.
As I said, I am retired - I have pension income, no debt & a paid off mortgage. My largest single expense in the last 4 years was solar panels-cost
was $28k. Used cash to pay for that. I need cash periodically for things like having my front and garage doors refinished every 2-3 years at a cost of about $1200. Spa repairs - sometimes can be $2000 in a year. Bought some new patio umbrellas and an area rug last year for $2000. Took a 2 week cruise a year ago-cost was $2800. Gifted a relative $14,000 in 2017.

If I want a new car, I can buy one. If I want to travel, I can. If I want to give a fancy catered party, or treat friends to meals out, or a concert, I can. If I want to gift my niece with some $$ I can do that. I like knowing I can pay for things.

acenj11
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Re: Cash - Throw it all on the table!!!

Post by acenj11 » Thu May 16, 2019 12:01 pm

I usually hold 2 months worth, enough for me to find another job if I lost my current one.

SQRT
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Re: Cash - Throw it all on the table!!!

Post by SQRT » Fri May 17, 2019 7:13 am

After thinking about this issue a little more, it seems to me that there are basically 3 reasons to hold cash.

1) Emergency fund. This would be most important for younger people who rely on employment income. Unemployment would be their biggest risk. Often a precarious financial position that would be mitigated by having say 6 months of expenses held as cash.

2) Part of an investment strategy. This would relate to people who want their asset allocation to include some cash (or near cash) assets. Either to reduce overall risk or to allow for opportunistic equity purchases.

3)Operational needs. This would simply be the requirement to hold enough cash to allow for lumpy expenses or perhaps smooth out lumpy income like dividends. This would allow someone to cover say a car purchase, expensive trip, or health care expense, without selling non cash assets.

As a retiree, I find the third objective the most important one.

Since holding cash has an opportunity cost associated with it, it makes sense to analyze your individual needs and hold only an appropriate level of cash.
Last edited by SQRT on Sat May 18, 2019 6:00 am, edited 1 time in total.

FI4LIFE
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Re: Cash - Throw it all on the table!!!

Post by FI4LIFE » Fri May 17, 2019 7:36 am

Only 1-2 months. My HELOC is my emergency fund. I do keep some cash in retirement accounts, about 7% of assets at the moment.

Coltrane75
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Re: Cash - Throw it all on the table!!!

Post by Coltrane75 » Fri May 17, 2019 10:52 am

I have:
1. One month of expenses in a high savings FDIC insured account paying 2.1% at a credit union
2. 12 months in 4 week treasury bills paying 2.5% TEY
3. 2 months in I Bonds
4. 1 month in a Vanguard Money Market that rotates money to/fro a company ESPP account buying stocks at 15% discount and selling at settlement date.

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FrugalProfessor
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Re: Cash - Throw it all on the table!!!

Post by FrugalProfessor » Fri May 17, 2019 6:50 pm

I hold $1k of cash (specifically SPRXX yielding 2.23%) to cover checks (piano lessons, etc).

If an emergency comes up, I put it on a credit card giving me 45ish days of float, then pay for with next paycheck by temporarily ramping down savings rate.

If an emergency comes up that I can't swipe on a card, I would sell some of my brokerage account, preferably at a loss to harvest the capital loss. This has never happened to me but could be easily accomplished via a couple mouse clicks.

I've never understood emergency funds. In contrast, I understand very well the power of sizable assets (i.e. index funds) that can be liquidated at a moment's notice.
I blog. Taxes are the lowest hanging source of alpha.

azianbob
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Re: Cash - Throw it all on the table!!!

Post by azianbob » Fri May 17, 2019 7:24 pm

I currently hold more cash than I would since I am considering buying a home soon so want to have it liquid and not suseptible to any market downturn.

Normally, I keep about $2000 in checking after I have paid all my monthly bills, then $10k in Purepoint Savings (2.35% interest) for any sudden big purchase I want to make. I keep about $100k in Purepoint No Penalty CD (2.5%) as backup for any emergencies.

Rest of taxable money is in VTI. Each month after I pay off my bills all money left over in checking other than $2000 is used to buy more VTI.

pascalwager
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Re: Cash - Throw it all on the table!!!

Post by pascalwager » Tue May 21, 2019 11:48 pm

I'm retired and have about $236k in cash, separate from my portfolio. It amounts to a few years living expenses, I guess, but that's what most advisors/authors seem to recommend for retirees. For example, Rick Ferri recommends 24 months cash expense coverage and Jonathan Clements recommends five years coverage.

One critic of this policy would be Javier Estrada. His portfolio studies using historical data show that keeping cash outside one's portfolio is less efficient and productive and results in more retirement failures. The use of cash isn't the main issue, but removing it from the rebalancing process reduces the purchase of more stocks in down markets.

I can probably easily survive this possible inefficiency, but someone with a smaller margin for error might want to compare the two contrary policies before deciding to maintain a large, separate cash reserve.

If I were to change, I would probably use most of the cash to buy bond funds and keep only 2% cash in my portfolio.

pascalwager
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Re: Cash - Throw it all on the table!!!

Post by pascalwager » Wed May 22, 2019 12:10 pm

pascalwager wrote:
Tue May 21, 2019 11:48 pm
I'm retired and have about $236k in cash, separate from my portfolio. It amounts to a few years living expenses, I guess, but that's what most advisors/authors seem to recommend for retirees. For example, Rick Ferri recommends 24 months cash expense coverage and Jonathan Clements recommends five years coverage.

One critic of this policy would be Javier Estrada. His portfolio studies using historical data show that keeping cash outside one's portfolio is less efficient and productive and results in more retirement failures. The use of cash isn't the main issue, but removing it from the rebalancing process reduces the purchase of more stocks in down markets.

I can probably easily survive this possible inefficiency, but someone with a smaller margin for error might want to compare the two contrary policies before deciding to maintain a large, separate cash reserve.

If I were to change, I would probably use most of the cash to buy bond funds and keep only 2% cash in my portfolio.
abuss368 wanted the whole cash story, so here's a little more:

I also keep a local bank checking account with about 5 to $10k for paying bills. This is linked to my pension and investment company main cash reserve money market fund. I do remind myself that my pension is dependent on stock market performance, so it's not as certain as SS (which I don't have).

How did I end up with such a large amount of cash? When still working, I was making the maximum contributions to my 100%-stock, tax-advantaged accounts, but still had a surplus each month. This slowly expanding surplus was kept in low-interest bank accounts and money market funds for emergency savings. Considering my very stable work situation, this cash accumulation was probably excessive and largely should have been invested in stocks. (I also have investments in taxable accounts and a variable annuity dating back to 1995 when I did a large lump-sum from T-bills to stocks.)

One final thing: financial advisors recommend ignoring low yields on cash investments and not increasing term-risk to reach for more yield. In other words, don't take any risks with your cash.

sschoe2
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Re: Cash - Throw it all on the table!!!

Post by sschoe2 » Wed May 22, 2019 12:30 pm

I keep about 1 years expenses ~$40k in a 2% savings account. Everything else is stocks with a minimal amount of bonds in my 401k Vanguard Target 2045. I have deep anxiety about how long or even if I will be able to find another decent job as a Chemist. It might involve a long job search or retraining vs taking the crappy $15-20/hour contract no benefits jobs which is the majority of what is available in my so called profession.

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peterinjapan
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Re: Cash - Throw it all on the table!!!

Post by peterinjapan » Wed May 22, 2019 12:47 pm

I just sold a condo in San Diego and keep $60k in my emergency fund, more than I would usually need, in case the tax bite is higher than I think it will be. Plus some cash in my trading account.

ER2023
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Re: Cash - Throw it all on the table!!!

Post by ER2023 » Thu May 23, 2019 9:38 am

CDs: $264k earning 2.8%. Enough for me at this time, but I may end up investing it later

Savings Acct: $30k

targetconfusion
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Re: Cash - Throw it all on the table!!!

Post by targetconfusion » Thu May 23, 2019 9:53 am

We have ~one month's expenses in checking-account cash. Big debits inevitably sent it negative a few times a year, which triggers an automatic margin loan from the linked (Schwab) brokerage account. Then, sell however much SCHB is needed to close the shortfall. Margin loan rates are high (8 or 9% now?) but the duration of the loan is short (2-3 days) and the balance modest (a few $k) so total annual interest cost <$20.

Obvious Risk: big unexpected expense or job loss coinciding with major market implosion.
Obvious Reward: leaving more invested in equities that most of us on this forum believe tend to long-run rise.
Less Obvious Reward: not having to plan for irregular expenses.

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