Cash On Hand vs Market

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JWalterWeatherman
Posts: 11
Joined: Thu Mar 08, 2018 8:47 am

Cash On Hand vs Market

Post by JWalterWeatherman »

Hello! We're a two income household far away from retirement with pretty stable full time jobs and no intention of moving or switching jobs anytime soon. We have roughly $6500 of fixed recurring monthly expenses. Right now I'm thinking to have a rough rule-of-thumb e-fund/savings account of 12*$6500 = $78k. My gut feel is that this seems pretty conservative to keep on hand, especially since we do have other non-retirement index funds that we could sell in some sort of pinch.

We're already funding our 401ks, HSAs, and roth IRAs so retirement is covered right now. We're also putting a little money towards 529 accounts (to at least maximize state deducation) as well.

Currently we have a bit more than this amount in checking/ savings accounts so I'm planning on taking money past this threshold and putting it in a combination of a stock market index fund, and some into our house (low interest rate but almost equivalent to 'investing in bonds' in my mind).

I know this is largely a 'comfort level' type of question but does my logic seem sound? My concern is that something could popup that would possibly deplete this holding (e.g. emergency new roof; unexpected job loss) but then again thats the point of the fund, right? Also given emergency situations we could probably reduce spending a decent amount. Any thoughts / feedback?

Thanks,
livesoft
Posts: 76576
Joined: Thu Mar 01, 2007 8:00 pm

Re: Cash On Hand vs Market

Post by livesoft »

Take a look at using a "Tiered" emergency fund as described in
https://bogleheads.org/wiki/Emergency_fund
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dbr
Posts: 35902
Joined: Sun Mar 04, 2007 9:50 am

Re: Cash On Hand vs Market

Post by dbr »

In general you are fine and doing good things.

A quibble is that the measure of whether "retirement is covered" is not that you are maxing opportunities to contribute to accounts with special tax provisions that have ended up labelled as "retirement" accounts. The issue is are you saving enough to meet whatever objective you have for when you want to retire and at what standard of living. You could even be saving too much, depending on where you want to go.

It is also a fair answer that it is too soon to tell and just carry on. Probably a full twelve months expenses for two fully employed people is excessive unless you work for the same company in the same jobs. At some point one's assets are large enough that you can cope with emergencies without doing something you really don't want to do, like let your house get foreclosed. You can think a little about what would be an emergency and how to deal with it.
wetgear
Posts: 212
Joined: Thu Apr 06, 2017 10:14 am

Re: Cash On Hand vs Market

Post by wetgear »

It is sort of a comfort level question but here is a rundown of the consensus/lack there of regarding EFs:

The minimum most folks around here will suggest is a 3 month EF with most agreeing that at least 6 months is better.
Between 6 & 24 months worth of EF you'll see a few people talk about opportunity costs of not having that extra money invested and at > 24 months almost everyone agrees you should be investing the extra (possible exception here is for those in early retirement).
The final group is the no EF group who mostly all have sizeable portfolios where they don't really keep anything other than their working capital on hand and just plan on drawing down their portfolio while maintaining their desired EF.

You gave us some information but not enough to really provide much specific advice. Things like income, portfolio size, ages, remaining mortgage balance, # of children & their ages, size of Roth IRA specifically because many use this as a 2nd tier EF, do you and your spouse work at the same company (higher risk of both losing jobs at the same time), how far you could extend that EF on 1 salary...

You likely will get more and better advice is you post in this format and provide all the details: viewtopic.php?f=1&t=6212
Marseille07
Posts: 4013
Joined: Fri Nov 06, 2020 1:41 pm

Re: Cash On Hand vs Market

Post by Marseille07 »

It's a personal decision. Generally speaking the less cash on hand the better, but we all have expenses to pay for. I've decided I'll just hold 5% of my AA in checking / savings, which is about 1.5 years of EF when doing 3% WR.
RubyTuesday
Posts: 744
Joined: Fri Oct 19, 2012 11:24 am

Re: Cash On Hand vs Market

Post by RubyTuesday »

I’m in the … keep little actual cash as EF. That said, we keep about 2-3 months of expenses in cash mostly to avoid any fees and some other benefits at bricks and mortar bank.

We’re retired so loss of job is not a worry.

We also have a CD ladder worth about 1/2 year expenses maturing this year and the next 3 years (was good yield of 3% so was just part of fixed income but we could use as EF). We also have a couple of years worth of expenses in Series I savings bonds that we could cash in if the market tanks and we don’t want to liquidate stocks for expenses.

So basically a tiered EF mostly serving to keep us from having to liquidate stocks in downturn.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
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