Cash in bank to sleep well at night

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mikejuss
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Re: Cash in bank to sleep well at night

Post by mikejuss »

KlangFool wrote: Sat Jul 17, 2021 2:25 pm OP,

Your annual expense = 120K. Let's assume that your number is 25X 120K = 3 million. Your current portfolio size is 1.53m. Your annual savings is 46.2K

With an annual return of 5%, you would reach 3 million in 10 years.
With an annual return of 6%, you would reach 3 million in 8+ years.
With an annual return of 7%, you would reach 3 million in 7+ years.

Your AA is too aggressive. You are too close to your targeted number. You do not have the TIME to wait for recovery.

Starting Net Worth $1,530,000
Annual Savings $46,200
Years
Annual Return Rate 7 8 9 10
5.00% $2,529,024 $2,701,676 $2,882,959 $3,073,307
6.00% $2,688,350 $2,895,851 $3,115,802 $3,348,950
7.00% $2,856,661 $3,102,828 $3,366,226 $3,648,061

KlangFool
How about a glide path? Immediately shift to 70/30. At $2 million, shift to 60/40. At $3 million, shift to 50/50.
Topic Author
socialforums2019
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Re: Cash in bank to sleep well at night

Post by socialforums2019 »

KlangFool wrote: Sat Jul 17, 2021 2:09 pm
socialforums2019 wrote: Sat Jul 17, 2021 2:01 pm
mortfree wrote: Sat Jul 17, 2021 1:54 pm Assuming you can save cash at a decent rate I would take 75k and put it in VTI. Now your taxable account is over a million.

Start saving cash again and re-evaluate.

Regarding putting the cash (75k in my example) to the mortgage, that seems like a non-event given the current balance.

Are you maxing the retirement accounts?
Maxing out 401K ($19.5K), maxing $8.7K company match and started maxing backdoor Roth IRA ($6K)

End of month cash savings is around $1K/mo which we put into VTI taxable.
socialforums2019,

1) Your annual savings is 19.5K + 8.7K + 6K + 12K = 46.2K

2) Your portfolio is 1.53M with an AA of 82/18 (including CASH).

3) Your portfolio equal to 33 years of annual savings.

4) How old are you?

5) If the stock market drops 50%, you lose 41% of your portfolio = 13.6 years of annual savings.

6) Your AA is too aggressive. The last thing that you should do is reduce CASH and increase more STOCK.

KlangFool
I'm mid 30's and would like to be in a position to FIRE in 20 or less years.
KlangFool
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Re: Cash in bank to sleep well at night

Post by KlangFool »

socialforums2019 wrote: Sun Jul 18, 2021 7:10 am
KlangFool wrote: Sat Jul 17, 2021 2:09 pm
socialforums2019 wrote: Sat Jul 17, 2021 2:01 pm
mortfree wrote: Sat Jul 17, 2021 1:54 pm Assuming you can save cash at a decent rate I would take 75k and put it in VTI. Now your taxable account is over a million.

Start saving cash again and re-evaluate.

Regarding putting the cash (75k in my example) to the mortgage, that seems like a non-event given the current balance.

Are you maxing the retirement accounts?
Maxing out 401K ($19.5K), maxing $8.7K company match and started maxing backdoor Roth IRA ($6K)

End of month cash savings is around $1K/mo which we put into VTI taxable.
socialforums2019,

1) Your annual savings is 19.5K + 8.7K + 6K + 12K = 46.2K

2) Your portfolio is 1.53M with an AA of 82/18 (including CASH).

3) Your portfolio equal to 33 years of annual savings.

4) How old are you?

5) If the stock market drops 50%, you lose 41% of your portfolio = 13.6 years of annual savings.

6) Your AA is too aggressive. The last thing that you should do is reduce CASH and increase more STOCK.

KlangFool
I'm mid 30's and would like to be in a position to FIRE in 20 or less years.
At your current pace, you would be FI in less than 10 years. Your AA is too aggressive. You don't have 20 years.

KlangFool
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Topic Author
socialforums2019
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Re: Cash in bank to sleep well at night

Post by socialforums2019 »

KlangFool wrote: Sun Jul 18, 2021 7:22 am
socialforums2019 wrote: Sun Jul 18, 2021 7:10 am
KlangFool wrote: Sat Jul 17, 2021 2:09 pm
socialforums2019 wrote: Sat Jul 17, 2021 2:01 pm
mortfree wrote: Sat Jul 17, 2021 1:54 pm Assuming you can save cash at a decent rate I would take 75k and put it in VTI. Now your taxable account is over a million.

Start saving cash again and re-evaluate.

Regarding putting the cash (75k in my example) to the mortgage, that seems like a non-event given the current balance.

Are you maxing the retirement accounts?
Maxing out 401K ($19.5K), maxing $8.7K company match and started maxing backdoor Roth IRA ($6K)

End of month cash savings is around $1K/mo which we put into VTI taxable.
socialforums2019,

1) Your annual savings is 19.5K + 8.7K + 6K + 12K = 46.2K

2) Your portfolio is 1.53M with an AA of 82/18 (including CASH).

3) Your portfolio equal to 33 years of annual savings.

4) How old are you?

5) If the stock market drops 50%, you lose 41% of your portfolio = 13.6 years of annual savings.

6) Your AA is too aggressive. The last thing that you should do is reduce CASH and increase more STOCK.

KlangFool
I'm mid 30's and would like to be in a position to FIRE in 20 or less years.
At your current pace, you would be FI in less than 10 years. Your AA is too aggressive. You don't have 20 years.

KlangFool
What is the recommended AA for something that I'm looking to accomplish? I'm saving to pay off a $1M mortgage by retirement time and trying to save for a $550K college expense expected in about 15 years or so.
Explorer
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Re: Cash in bank to sleep well at night

Post by Explorer »

socialforums2019 wrote: Sat Jul 17, 2021 9:12 am I've been primarily a large cash holder ($100K+) and slowly transitioning my position into the market but still trying to figure out what is the best balance where I have cash sitting in the bank to use at will v.s. sitting in the market.

....
Bold highlight is mine. If you have been primarily a large cash holder, this market peak is not the time to change that behavior. Hang tight. Patiently. And when great buying opportunity presents itself, then you can change your behavior.

Just my 2 cents.
pennywise
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Re: Cash in bank to sleep well at night

Post by pennywise »

pasadena wrote: Sat Jul 17, 2021 9:24 am How big is your portfolio, beyond that cash?

I understand keeping 6 months of expenses in cash, mostly as income replacement (I do that :)). But potential big purchases that may or may not happen and have a flexible date? That money should be invested. Just sell some shares when you're ready to pull the trigger.
Post retirement 2 years ago we set money aside for quite a few large outlay projects: our daughter's wedding, a major home remodel and vehicle replacement for both of us,

Then thanks to COVID our daughter's wedding was canceled, the major home remodel is still pending and the new car market is completely insane.

Having cash on hand means I have the security of knowing if and when we decide to spend it, it will be there. Investing means we have a reasonable hope if and when we decide to spend it, it will have gained in value but of course one knows that value could well have decreased.

I have no intention of pausing for some indeterminate time to complete planned projects or purchases, just to wait for my investment returns to improve.

Why would I do that instead of simply keeping my money in the bank ready to go?
SQRT
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Re: Cash in bank to sleep well at night

Post by SQRT »

It depends on the kind of things (risks) that might keep you awake at night.

For a young person relying on salary to cover living expenses, it will likely be the risk of unemployment. If so keep an emergency fund equal to your expenses for the period you think it will take to find a new job (maybe 6 months is reasonable?)

For older more established people it might relate to medical expenses or children’s education expenses. Get more insurance or save specifically for that. Some people at this stage in life keep liquidity in order to time investment purchases. This is really a different issue so I would exclude that use (although a valid use, it’s unlikely to effect your sleep patterns). in our discussion here.

For even older retired people living off their pensions and investments (my case) it’s different again. Myself, being comfortably FI, cash balances are basically mostly needed for operational things, ie lumpy expenses. New cars, expensive vacations, giving, renovations,etc. So cash requirements will depend on the expected cost and timing of these type of things. In my case, since I’m rebuilding one of our properties, I’m holding more liquidity than normal. How much I hold is determined by the construction schedule and my feelings about the stock market where I will create the liquidity.

With inflation heating up and interest rates so low, liquidity is very expensive. Each person should analyze their liquidity risks (as above) and decide what is required. Holding too much liquidity (I suspect pretty common around here) should be avoided.
Last edited by SQRT on Sun Jul 18, 2021 8:20 am, edited 3 times in total.
KlangFool
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Re: Cash in bank to sleep well at night

Post by KlangFool »

socialforums2019 wrote: Sun Jul 18, 2021 7:28 am
KlangFool wrote: Sun Jul 18, 2021 7:22 am
socialforums2019 wrote: Sun Jul 18, 2021 7:10 am
KlangFool wrote: Sat Jul 17, 2021 2:09 pm
socialforums2019 wrote: Sat Jul 17, 2021 2:01 pm

Maxing out 401K ($19.5K), maxing $8.7K company match and started maxing backdoor Roth IRA ($6K)

End of month cash savings is around $1K/mo which we put into VTI taxable.
socialforums2019,

1) Your annual savings is 19.5K + 8.7K + 6K + 12K = 46.2K

2) Your portfolio is 1.53M with an AA of 82/18 (including CASH).

3) Your portfolio equal to 33 years of annual savings.

4) How old are you?

5) If the stock market drops 50%, you lose 41% of your portfolio = 13.6 years of annual savings.

6) Your AA is too aggressive. The last thing that you should do is reduce CASH and increase more STOCK.

KlangFool
I'm mid 30's and would like to be in a position to FIRE in 20 or less years.
At your current pace, you would be FI in less than 10 years. Your AA is too aggressive. You don't have 20 years.

KlangFool
What is the recommended AA for something that I'm looking to accomplish? I'm saving to pay off a $1M mortgage by retirement time and trying to save for a $550K college expense expected in about 15 years or so.
socialforums2019,

<< I'm saving to pay off a $1M mortgage by retirement time>>

Why is this a good idea? This is a non-recourse loan. I would not pay this off until the portfolio is 5 million or more.

<<trying to save for a $550K college expense expected in about 15 years or so.>>

Why do you need to save for the college education in the first place? In 15 years, you have enough annual savings plus dividend/distribution from your taxable account to pay for it.

<<What is the recommended AA for something that I'm looking to accomplish? >>

You should change your AA to 70/30 now and glide to 60/40 in 10 years. Then, keep the AA in 60/40 forever.

KlangFool
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KlangFool
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Re: Cash in bank to sleep well at night

Post by KlangFool »

OP,

I get it! At your current age, you are not thinking of retiring in less than 10 years. But, the goal here is to set up your portfolio's AA so that you can be FI. It gives you financial freedom to pursue whatever option that you may choose. You may continue working. But, knowing that you can quit at any time, it would free you.

KlangFool
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printer86
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Re: Cash in bank to sleep well at night

Post by printer86 »

One other use for keeping cash on the sidelines.

Since my mid-30's, and until I retired last year at 56, I always kept 1 year's worth of expenses in savings account vehicles in case of emergencies or big ticket items. Not only did this money allow me to sleep at night, but it gave me the latitude to take some chances with my career. I ended up using half that amount when I switched sales jobs in my early 40's and as I rebuilt my income stream. The subsequent return I made on my career earnings dwarfed the lost earnings from having cash parked on the sidelines.

We currently hold 5 years in cash and CD's as we're living off our taxable accounts for the next 10 years.
NRB
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Re: Cash in bank to sleep well at night

Post by NRB »

socialforums2019 wrote: Sat Jul 17, 2021 9:12 am I've been primarily a large cash holder ($100K+) and slowly transitioning my position into the market but still trying to figure out what is the best balance where I have cash sitting in the bank to use at will v.s. sitting in the market.

For example, at the moment, my plan is to have ~$175K sitting in cash. This would be about 17 months of EF if I would ever need it, but if we consider $60K of that as "EF", there is still another $115K of cash sitting on the side in case a large purchase is required. For example, I don't anticipate needing another car in the next 5 years, but something being considered is a solar system which I'm anticipating to be $30-$40K etc.

Is $175K too much to just be sitting there losing out to inflation, but good obviously for liquidity.
I’ve always liked to have 100k in cash to make me “sleep well”. Covid taught me I could probably get away with a little less than the 100k bc you really hunker down when ish hits the fan. But I’m still at 100k and it makes me feel good when I am throwing everything else in investments
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aj76er
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Re: Cash in bank to sleep well at night

Post by aj76er »

nisiprius wrote: Sat Jul 17, 2021 9:59 am This is absolutely a personal thing. You really should be bulldog-tenacious on knowing your own risk tolerance and sticking to it, and not letting yourself fall into the behavioral error of "anchoring," letting your numerical opinions get influenced by other numbers you hear.

One thing I am always harping on. The idea that bank accounts are "just sitting there, losing to inflation" is much exaggerated, particularly by those who are trying to convince people to invest in riskier assets. You can argue details, you can argue time periods, and so forth, but unless you are so idiotic that you are keeping it in physical paper money, or in a non-interest-bearing business checking account, or something, banks pay interest.

Treasury bills, money market mutual funds, and competitive interest-bearing bank accounts have historically roughly kept up with inflation and have eked out a small real return. $1 invested in Treasury bills at the start of the SBBI data series would never have been worth more than $1.75 or less than $0.89 in year-1926-dollar purchasing power.

Image

That isn't to say there are no problems, and by using all available data I've started at a point that's favorable. A loss of -50% in purchasing power over twenty years, from 1932 to 1952, is no joke. I believe some of the fall from 1932-52 was the result of some kind of artificial limitation on T-bill rates but I can't find the reference right now, and it doesn't really matter because government regulation happens.

However, there was only about a -10% loss of purchasing power over the double-digit inflation of the 1970s and 1980s.
Not great, but nothing to panic about.

"Money in the bank" is what it is, and there will be times when it loses to inflation and also times when it gains. But do not let yourself get unreasonably panicked into thinking that a large chunk of money in the bank, in an account earning a competitive interest rate, represents a clear and present danger. If inflation picks up, bank interest rates will almost certainly rise--probably with an infuriating lag, but rise. That's what happened in the 1970s and 1980s.
Interesting graph. Thanks for sharing. It is interesting to note that the loss of purchasing power of cash from 2010 until now is almost equal to that of the 1970’s period. In fact, the slope of the two lines is almost identical.
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michaeljc70
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Re: Cash in bank to sleep well at night

Post by michaeljc70 »

It was bothering me that I had a few thousand sitting in retirement accounts not invested. I eventually invested it even though it won't move the needle. I am not sure what kind of emergencies people have that cost 6 figures. An emergency to me is an unexpected repair on a car or on a home or an unexpected medical expense and is unlikely to be more than a few thousand bucks. If you are working and lose your job that is another story (but I am retired). While working I didn't really have an EF and never missed it. I could pay unexpected expenses through cash flow, borrowing on margin, borrowing from 401k, etc. Knowing I am losing on cash to inflation makes me not sleep at night.
ExTx
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Re: Cash in bank to sleep well at night

Post by ExTx »

socialforums2019 wrote: Sat Jul 17, 2021 9:12 am I've been primarily a large cash holder ($100K+) and slowly transitioning my position into the market but still trying to figure out what is the best balance where I have cash sitting in the bank to use at will v.s. sitting in the market.

For example, at the moment, my plan is to have ~$175K sitting in cash. This would be about 17 months of EF if I would ever need it, but if we consider $60K of that as "EF", there is still another $115K of cash sitting on the side in case a large purchase is required. For example, I don't anticipate needing another car in the next 5 years, but something being considered is a solar system which I'm anticipating to be $30-$40K etc.

Is $175K too much to just be sitting there losing out to inflation, but good obviously for liquidity.
I have much more in EF and CD's. But I'ts my retirement home money, just waiting.
delamer
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Re: Cash in bank to sleep well at night

Post by delamer »

michaeljc70 wrote: Sun Jul 18, 2021 11:55 am It was bothering me that I had a few thousand sitting in retirement accounts not invested. I eventually invested it even though it won't move the needle. I am not sure what kind of emergencies people have that cost 6 figures. An emergency to me is an unexpected repair on a car or on a home or an unexpected medical expense and is unlikely to be more than a few thousand bucks. If you are working and lose your job that is another story (but I am retired). While working I didn't really have an EF and never missed it. I could pay unexpected expenses through cash flow, borrowing on margin, borrowing from 401k, etc. Knowing I am losing on cash to inflation makes me not sleep at night.
My personal definition is that an emergency fund is something that people who are still working should have in the event of loss of income. So if you lose your job, are temporarily laid off, or can’t work due to illness, the EF will help pay your living expenses. This can be a pretty substantial amount of money — easily 10,000’s of dollars.

Retirees don’t need an emergency fund of this type.

Separately, what I call a sinking fund is money set aside for irregular expenses like the a car repair, dental crown, etc. That would be no more than $5,000 to $10,000 for most people. This is optional for retirees.

Additionally, if you have a specific expense coming up in the near future — whether you are working or retired — then you might hold cash for that purpose.
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Marseille07
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Re: Cash in bank to sleep well at night

Post by Marseille07 »

delamer wrote: Sun Jul 18, 2021 12:42 pm My personal definition is that an emergency fund is something that people who are still working should have in the event of loss of income. So if you lose your job, are temporarily laid off, or can’t work due to illness, the EF will help pay your living expenses. This can be a pretty substantial amount of money — easily 10,000’s of dollars.

Retirees don’t need an emergency fund of this type.

Separately, what I call a sinking fund is money set aside for irregular expenses like the a car repair, dental crown, etc. That would be no more than $5,000 to $10,000 for most people. This is optional for retirees.

Additionally, if you have a specific expense coming up in the near future — whether you are working or retired — then you might hold cash for that purpose.
This really depends on your AA. If you have lots of bonds, you don't have to carry a big EF for you can spend down bonds in case you lose a job etc etc. If you're equities heavy then you need a lot of EF because that's essentially your Fixed Income allocation.
delamer
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Re: Cash in bank to sleep well at night

Post by delamer »

Marseille07 wrote: Sun Jul 18, 2021 12:48 pm
delamer wrote: Sun Jul 18, 2021 12:42 pm My personal definition is that an emergency fund is something that people who are still working should have in the event of loss of income. So if you lose your job, are temporarily laid off, or can’t work due to illness, the EF will help pay your living expenses. This can be a pretty substantial amount of money — easily 10,000’s of dollars.

Retirees don’t need an emergency fund of this type.

Separately, what I call a sinking fund is money set aside for irregular expenses like the a car repair, dental crown, etc. That would be no more than $5,000 to $10,000 for most people. This is optional for retirees.

Additionally, if you have a specific expense coming up in the near future — whether you are working or retired — then you might hold cash for that purpose.
This really depends on your AA. If you have lots of bonds, you don't have to carry a big EF for you can spend down bonds in case you lose a job etc etc. If you're equities heavy then you need a lot of EF because that's essentially your Fixed Income allocation.
When my husband and I were working, we had very little money in taxable accounts. Almost everything was tied up in our current employers’ 401(k) plans.

So we had very limited ability to access our portfolio, especially in the short term.

We needed cash to carry us through for a few months if we had an income loss.
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Marseille07
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Re: Cash in bank to sleep well at night

Post by Marseille07 »

delamer wrote: Sun Jul 18, 2021 12:53 pm
Marseille07 wrote: Sun Jul 18, 2021 12:48 pm
delamer wrote: Sun Jul 18, 2021 12:42 pm My personal definition is that an emergency fund is something that people who are still working should have in the event of loss of income. So if you lose your job, are temporarily laid off, or can’t work due to illness, the EF will help pay your living expenses. This can be a pretty substantial amount of money — easily 10,000’s of dollars.

Retirees don’t need an emergency fund of this type.

Separately, what I call a sinking fund is money set aside for irregular expenses like the a car repair, dental crown, etc. That would be no more than $5,000 to $10,000 for most people. This is optional for retirees.

Additionally, if you have a specific expense coming up in the near future — whether you are working or retired — then you might hold cash for that purpose.
This really depends on your AA. If you have lots of bonds, you don't have to carry a big EF for you can spend down bonds in case you lose a job etc etc. If you're equities heavy then you need a lot of EF because that's essentially your Fixed Income allocation.
When my husband and I were working, we had very little money in taxable accounts. Almost everything was tied up in our current employers’ 401(k) plans.

So we had very limited ability to access our portfolio, especially in the short term.

We needed cash to carry us through for a few months if we had an income loss.
That's an interesting point. My "Fixed Income" is HYSA so it's extremely liquid, but I can see the case of stuffing retirement accounts and not having liquidity on hand.

What I'd suggest in that case is to look at your overall AA, and split your Fixed Income allocation between EF vs bonds in 401K.
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Re: Cash in bank to sleep well at night

Post by patrick »

delamer wrote: Sat Jul 17, 2021 12:46 pm
HomerJ wrote: Sat Jul 17, 2021 12:29 pm
delamer wrote: Sat Jul 17, 2021 12:19 pm
Watty wrote: Sat Jul 17, 2021 12:00 pm If by cash you mean a
socialforums2019 wrote: Sat Jul 17, 2021 9:12 am Is $175K too much to just be sitting there losing out to inflation, but good obviously for liquidity.
Even if you have that $175K in a bond mutual fund it will still be losing out to inflation because interest rates are so low.

When looking at asset allocations people often say stocks and bonds but the bond part is really fixed income which can include a lot of other things than just bonds.

CDs can still count as part of your fixed income asset location. Most CD's can be redeemed early for a modest fee so they are more or less like "cash" too.

It is not what I would do but you could do something like keep $50K in a "high yield" savings account and then build a ladder of five year CD's where $25K matures each year. By this I would mean to start out that you buy five $25K CDs that mature in 1,2,3,4, and 5 years. When these mature and are reinvested you would then buy a new five years CD that would get the current interest rate.

You could then count that $125k as part of your overall fixed income asset allocation.
Completely agree.

Cash as in $175K earning 0.3% a year is foolish.

Cash as in a CD ladder or in short-term TIPS is a whole other thing.
Have you looked at CD or short-term TIPs rates lately?

Going from 0.3% to 0.7% or 0.85% isn't all that amazing. Yeah, one is giving up $700-$800 a year, and that's some decent spending money. But then the money is locked up in a 5-year CD ladder.
For someone who isn’t sure when/if all the $175K will be spent, why not shoot for the extra $700/year?
You can get much better than 0.85% on plain cash. With $175K in cash, moving to higher interest interest options will get an extra $3000/year or so. HMBradley, Porte, and One Finance all pay 3% on cash with some restrictions. If you can't handle those restrictions you can still get 1% on a plain account from T-Mobile Money.
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Leif
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Re: Cash in bank to sleep well at night

Post by Leif »

I'm retired, but not yet receiving SS or RMDs. I target 1-2 years of cash. This is what Christine Benz of Morningstar suggests in her bucket portfolio. I don't use a bucket portfolio model, but I think for me 1-2 years of cash is about right. We are certainly not getting much from other fixed income these days, so that makes cash OK for me.

I have various expenses, some of which fluctuate. For example, my months of cash recently dropped 4 months with a tuition payment.

I expect that when I get to SS and RMDs my months of cash may drop to 6 months or less.

The differences you see with how much people hold tells me this is highly personal decision.
Coopsdaddy
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Re: Cash in bank to sleep well at night

Post by Coopsdaddy »

So 3% is still doable?
Marseille07
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Re: Cash in bank to sleep well at night

Post by Marseille07 »

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Last edited by Marseille07 on Wed Jul 21, 2021 2:02 pm, edited 1 time in total.
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Godot
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Re: Cash in bank to sleep well at night

Post by Godot »

patrick wrote: Sun Jul 18, 2021 7:04 pm


You can get much better than 0.85% on plain cash. With $175K in cash, moving to higher interest interest options will get an extra $3000/year or so. HMBradley, Porte, and One Finance all pay 3% on cash with some restrictions. If you can't handle those restrictions you can still get 1% on a plain account from T-Mobile Money.
HMBradley, Porte, and One Finance are for checking accounts, all of which require regular direct deposits (like T-Money Mobile). Major headache, especially if you are going to change every time another bank offers a bit more. T-Money Mobile also has an awful reputation for service: https://www.depositaccounts.com/banks/r ... money.html
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hudson
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Re: Cash in bank to sleep well at night

Post by hudson »

Coopsdaddy wrote: Tue Jul 20, 2021 3:56 pm So 3% is still doable?
Is 3% doable in an FDIC account? Maybe on a small scale with a lot of effort.
To get that on $100K and up, I vote no.
VWIUX, a muni bond fund is paying out 2%. That payout is declining slowly.
Caduceus
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Re: Cash in bank to sleep well at night

Post by Caduceus »

I have been doing the opposite of what you've been doing. Over the course of this year, I've been moving money out of stocks and into cash, progressively, because certain stocks have risen so fast they've hit my estimate of fair value, and I've sold them. I've been having trouble finding things trading at significant discounts to their intrinsic value, so my portfolio is now nearly 37% in cash.

Since I can no longer use short term treasury ETFs like SHV or BND to hold cash given their atrocious yields, I've taken to selling way out-of-the-money puts to generate the equivalent of a 5% annualized yield on my cash. Those are puts on positions I would be comfortable holding at the option-adjusted strike price were I to be assigned, which is at least 20% less than their current market price.

But should I find something, I wouldn't hesitate to put everything in the market tomorrow. I don't think you should look at cash as "wasting" away. Cash gives you optionality. It's like a put option on all assets at current market prices. It "wins" every time something you may wish to buy goes down in price. And at current market valuations, I am not unhappy to hold more cash than I usually would.
patrick
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Re: Cash in bank to sleep well at night

Post by patrick »

hudson wrote: Tue Jul 20, 2021 4:21 pm
Coopsdaddy wrote: Tue Jul 20, 2021 3:56 pm So 3% is still doable?
Is 3% doable in an FDIC account? Maybe on a small scale with a lot of effort.
To get that on $100K and up, I vote no.
VWIUX, a muni bond fund is paying out 2%. That payout is declining slowly.
For $100K and up, it is now takes a bit more effort since you'd have to find an invitation for HMBradley.

For small scale savings, it is still rather easy. Getting 3% on $15K at Porte only requires you to open the account, send in the money by ACH push, and use the app to transfer it to savings. Porte has no ongoing requirements.
patrick
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Re: Cash in bank to sleep well at night

Post by patrick »

Godot wrote: Tue Jul 20, 2021 4:10 pm
patrick wrote: Sun Jul 18, 2021 7:04 pm You can get much better than 0.85% on plain cash. With $175K in cash, moving to higher interest interest options will get an extra $3000/year or so. HMBradley, Porte, and One Finance all pay 3% on cash with some restrictions. If you can't handle those restrictions you can still get 1% on a plain account from T-Mobile Money.
HMBradley, Porte, and One Finance are for checking accounts, all of which require regular direct deposits (like T-Money Mobile). Major headache, especially if you are going to change every time another bank offers a bit more. T-Money Mobile also has an awful reputation for service: https://www.depositaccounts.com/banks/r ... money.html
Porte does not require regular direct deposits to earn 3%. The one-time requirement of a $1000 deposit can be met by an ACH push from another of your accounts.

One Finance does not require continued direct deposits to earn 3%, although direct deposits are the main way to get money into the 3% account.

T-Mobile Money does not require direct deposit to earn 1%. I know nothing about their service since I avoided them in favor of higher interest accounts.
hudson
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Re: Cash in bank to sleep well at night

Post by hudson »

patrick wrote: Wed Jul 21, 2021 2:14 pm
Godot wrote: Tue Jul 20, 2021 4:10 pm
patrick wrote: Sun Jul 18, 2021 7:04 pm You can get much better than 0.85% on plain cash. With $175K in cash, moving to higher interest interest options will get an extra $3000/year or so. HMBradley, Porte, and One Finance all pay 3% on cash with some restrictions. If you can't handle those restrictions you can still get 1% on a plain account from T-Mobile Money.
HMBradley, Porte, and One Finance are for checking accounts, all of which require regular direct deposits (like T-Money Mobile). Major headache, especially if you are going to change every time another bank offers a bit more. T-Money Mobile also has an awful reputation for service: https://www.depositaccounts.com/banks/r ... money.html
Porte does not require regular direct deposits to earn 3%. The one-time requirement of a $1000 deposit can be met by an ACH push from another of your accounts.

One Finance does not require continued direct deposits to earn 3%, although direct deposits are the main way to get money into the 3% account.

T-Mobile Money does not require direct deposit to earn 1%. I know nothing about their service since I avoided them in favor of higher interest accounts.
HMBradley, Porte, and T-Mobile are not banks; they partner with FDIC banks.
JackoC
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Re: Cash in bank to sleep well at night

Post by JackoC »

socialforums2019 wrote: Sat Jul 17, 2021 9:57 am
pasadena wrote: Sat Jul 17, 2021 9:54 am
socialforums2019 wrote: Sat Jul 17, 2021 9:49 am The rest of the portfolio is about $1.35M with 30% of that being tied up in retirement accounts (401K, roth, etc.) and the remaining 70% sits in a taxable account all in VTI. Our only debt is a $1M mortgage @ 2.375%. This is likely why I am keeping a higher cash balance than needed.
Assuming it's $1.35M without the house equity,
Correct, we have about $600-$700K sitting in house equity not factored into that $1.35M portfolio.
Initially with no info on NW or asset allocation no inkling of an answer ($175k NW, $30mil NW with $175k in cash?). With the additional info and assuming the retirement accounts like the taxable is very heavily stock, so portfolio as a whole $175 cash+$1.35m stock+$600k home equity*, that's very aggressive IMO and $175k is not IMO at all too much for a riskless component. Although ultimately that is personal, obviously. But money in best bank account or especially CD could outyield treasuries quite far out the curve, so there isn't a huge big picture distinction between 'cash' and 'bonds'.

Some said liquidity is very expensive now. That's not true or is a misuse of the term 'liquidity'. Back right after rates plunged last spring, 5 yr CD's yielded almost 200 bps more than the 5 yr note (I bought one at 193 over). *That's* very expensive liquidity. Now that spread is only ~65bps. The difference between a bank account and a widely traded S&P ETF isn't really liquidity, it's risk of loss v potential for gain. Liquidity and price risk should not be referred to as if the same; it obscures cases with actually significant differences in liquidity by the proper meaning (treasury v CD, S&P v private equity fund).

As to the expected equity risk premium you get investing in stocks v 'riskless' I see no reason to think that's wider than usual. Some people get to that inference through the questionable assumption that stock expected return is a constant of whatever it's been in a particular country for the last 100 years but riskless return is what you see on the yield screen now, highly questionable assumption IMO. I'd assume equity expected return now is at least as depressed vs historical results as bond yield is below past realized bond returns. Which doesn't make me 'hate' stocks, TINA (or there is the Alternative of other risk assets, but no reason to think they are priced much more favorably than stocks). But I question the idea of going all in on stocks because 'riskless' rates are low. Again I think you have a very aggressive allocation as is, though it would be OK for some people.

*your house is absolutely part of your portfolio. Whether you'd correctly view it as $600k 'home equity' or whether you'd consider it $175k cash+$1.35mil stock + $1.6mil house all levered up by the $1mil mortgage, depends if the mortgage gives recourse to the lender against your other assets, especially with significant taxable account financial assets, retirement accounts would generally be exempt. Here in NJ it would be correctly considered the latter ('lenders don't usually go after other assets in practice'...because people usually don't have any to speak of but if you do, they will). In CA and a few other states most home mortgages are non-recourse and 'home equity' is a more broadly valid concept.
chazas
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Re: Cash in bank to sleep well at night

Post by chazas »

delamer wrote: Sun Jul 18, 2021 12:53 pm
When my husband and I were working, we had very little money in taxable accounts. Almost everything was tied up in our current employers’ 401(k) plans.

So we had very limited ability to access our portfolio, especially in the short term.

We needed cash to carry us through for a few months if we had an income loss.
This. I lost about half of my income post financial crisis and the cushion got very small - with a (too) big mortgage and many friends and colleagues becoming unemployed (and unemployable) it was very uncomfortable. I have $50K in cash and I Bonds now and would like it to be closer to 100K. I treat it as part of my fixed income allocation overall.
patrick wrote: Wed Jul 21, 2021 2:14 pm T-Mobile Money does not require direct deposit to earn 1%. I know nothing about their service since I avoided them in favor of higher interest accounts.
I haven't had any significant issue with TMM (which is where my cash resides) but then again I haven't done anything but transfer funds in and out. I did try to deposit one check its mobile app didn't like but no biggie for me, it went into my regular bank account instead.
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HomerJ
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Re: Cash in bank to sleep well at night

Post by HomerJ »

I have a lot of cash in the bank too...

But inflation is still a small worry...

So the investment that really lets me sleep at night is my ibonds (but the cash helps too) :)

Slowly adding $20k to ibonds every year (just moving standard bond fund/cash to ibonds)

That's my safety net.. Shooting for about 10%-15% of my total portfolio to be in ibonds (or 20%-30% of my bond/cash portfolio since I'm 50/50 stocks/bonds)
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Carol88888
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Re: Cash in bank to sleep well at night

Post by Carol88888 »

I,too, admire how clean your portfolio is.

Have you read "The Psychology of Money"? I ask because Morgan Housel has a lot to say about why he holds a substantial chunk in cash. In his case it is 20% of his considerable net worth.

Having cash makes him feel free knowing that if he had to change his life completely he could do so without worry. And in addition, he says that he knows everyone at some point will face a big unanticipated expenditure. I think he's right about this.

Think of all the unexpected expenses that can pop up connected to houses, car, medical bills, kids. And those are just the known potential problems.
Think of the unknown unknowns to use Rumsfeld's phrase.

Don't let anyone talk you out of the amount of money you feel you need to hold to feel safe.
riskreward
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Re: Cash in bank to sleep well at night

Post by riskreward »

David Swensen RIP suggested the following amount of cash held based on annual soending.
Years 0-2 (next 2 years) 100% spending held in cash
Yrs 3-4 75% spending held in cash, rest in risk portfolio
Yrs 5-6 50% spending held in cash, rest in risk portfolio
Yrs 7-8 25% spending held in cash, rest in risk portfolio
Yr 9 and on 100% of spending in risk portfolio
Risk portfolio to Swensen was 70% stocks, 30% treasuries and Tips
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socialforums2019
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Re: Cash in bank to sleep well at night

Post by socialforums2019 »

JackoC wrote: Wed Jul 21, 2021 2:53 pm
socialforums2019 wrote: Sat Jul 17, 2021 9:57 am
pasadena wrote: Sat Jul 17, 2021 9:54 am
socialforums2019 wrote: Sat Jul 17, 2021 9:49 am The rest of the portfolio is about $1.35M with 30% of that being tied up in retirement accounts (401K, roth, etc.) and the remaining 70% sits in a taxable account all in VTI. Our only debt is a $1M mortgage @ 2.375%. This is likely why I am keeping a higher cash balance than needed.
Assuming it's $1.35M without the house equity,
Correct, we have about $600-$700K sitting in house equity not factored into that $1.35M portfolio.
Initially with no info on NW or asset allocation no inkling of an answer ($175k NW, $30mil NW with $175k in cash?). With the additional info and assuming the retirement accounts like the taxable is very heavily stock, so portfolio as a whole $175 cash+$1.35m stock+$600k home equity*, that's very aggressive IMO and $175k is not IMO at all too much for a riskless component. Although ultimately that is personal, obviously. But money in best bank account or especially CD could outyield treasuries quite far out the curve, so there isn't a huge big picture distinction between 'cash' and 'bonds'.

Some said liquidity is very expensive now. That's not true or is a misuse of the term 'liquidity'. Back right after rates plunged last spring, 5 yr CD's yielded almost 200 bps more than the 5 yr note (I bought one at 193 over). *That's* very expensive liquidity. Now that spread is only ~65bps. The difference between a bank account and a widely traded S&P ETF isn't really liquidity, it's risk of loss v potential for gain. Liquidity and price risk should not be referred to as if the same; it obscures cases with actually significant differences in liquidity by the proper meaning (treasury v CD, S&P v private equity fund).

As to the expected equity risk premium you get investing in stocks v 'riskless' I see no reason to think that's wider than usual. Some people get to that inference through the questionable assumption that stock expected return is a constant of whatever it's been in a particular country for the last 100 years but riskless return is what you see on the yield screen now, highly questionable assumption IMO. I'd assume equity expected return now is at least as depressed vs historical results as bond yield is below past realized bond returns. Which doesn't make me 'hate' stocks, TINA (or there is the Alternative of other risk assets, but no reason to think they are priced much more favorably than stocks). But I question the idea of going all in on stocks because 'riskless' rates are low. Again I think you have a very aggressive allocation as is, though it would be OK for some people.

*your house is absolutely part of your portfolio. Whether you'd correctly view it as $600k 'home equity' or whether you'd consider it $175k cash+$1.35mil stock + $1.6mil house all levered up by the $1mil mortgage, depends if the mortgage gives recourse to the lender against your other assets, especially with significant taxable account financial assets, retirement accounts would generally be exempt. Here in NJ it would be correctly considered the latter ('lenders don't usually go after other assets in practice'...because people usually don't have any to speak of but if you do, they will). In CA and a few other states most home mortgages are non-recourse and 'home equity' is a more broadly valid concept.
I appreciate this feedback and insight.

The $1.35 is not all in stocks.

~$1.5M total portfolio, in a 81% equity/7% bond/12% cash allocation
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Re: Cash in bank to sleep well at night

Post by jharkin »

I keep 30-60k on hand at any given time. None of it is explicitly tagged as “EF”, rather its spread across sinking funds for various short term goals like 10 year car replacements and annual travel budget.

If we need to do a big project I also have 50k in HELOC space and more than that in combined CC limits to play with, then cash flow down over time. In case of job loss (unlikely), the cash on hand represents 6-9 months expense, then I have 100k+ in Roth contribution space available if SHTF. Add in unemployment and severance packages and I don’t see us needing to make an emergency 401k withdrawal short of a double job loss exceeding 3 years, and I don’t see that happening short of a GreatDepression 2.0 scenario.


Overall I think you have way too much cash, and also too much taxable period. You are probably leaving a lot of tax savings on the table not maxing out your 401k and Roth space ( I assume with income sufficient to build that pile of cash you could do so easily).
jharkin
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Re: Cash in bank to sleep well at night

Post by jharkin »

BTW, 40k for solar? Are you powering a commercial building or something??

I’m putting up 8kW next month and it will net out about 16k after tax credits. Tesla can do it for even less but I didn’t want to deal with all the headaches they are going through. Solar gets cheaper every day….
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socialforums2019
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Re: Cash in bank to sleep well at night

Post by socialforums2019 »

jharkin wrote: Thu Jul 22, 2021 6:54 am I keep 30-60k on hand at any given time. None of it is explicitly tagged as “EF”, rather its spread across sinking funds for various short term goals like 10 year car replacements and annual travel budget.

If we need to do a big project I also have 50k in HELOC space and more than that in combined CC limits to play with, then cash flow down over time. In case of job loss (unlikely), the cash on hand represents 6-9 months expense, then I have 100k+ in Roth contribution space available if SHTF. Add in unemployment and severance packages and I don’t see us needing to make an emergency 401k withdrawal short of a double job loss exceeding 3 years, and I don’t see that happening short of a GreatDepression 2.0 scenario.


Overall I think you have way too much cash, and also too much taxable period. You are probably leaving a lot of tax savings on the table not maxing out your 401k and Roth space ( I assume with income sufficient to build that pile of cash you could do so easily).
I max out my tax savings unless I am missing something. I max out my 401K ($19.5). I am beyond the phase out limits for everything else so I don't think there is any other tax savings. I backdoor $6K to my Roth IRA.
delamer
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Re: Cash in bank to sleep well at night

Post by delamer »

jharkin wrote: Thu Jul 22, 2021 6:57 am BTW, 40k for solar? Are you powering a commercial building or something??

I’m putting up 8kW next month and it will net out about 16k after tax credits. Tesla can do it for even less but I didn’t want to deal with all the headaches they are going through. Solar gets cheaper every day….
Don’t want to derail the thread on solar issues, but we added battery storage to our system which increased the gross cost by 25%. And our wattage was almost 50% greater than yours. Anyway, our net cost after all credits was in the low $30s.
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jharkin
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Re: Cash in bank to sleep well at night

Post by jharkin »

socialforums2019 wrote: Thu Jul 22, 2021 7:06 am I max out my tax savings unless I am missing something. I max out my 401K ($19.5). I am beyond the phase out limits for everything else so I don't think there is any other tax savings. I backdoor $6K to my Roth IRA.
OK, fair enough - at one point you mentioned having less than 30% of your liquid funds in tax advantaged so i though maybe you where not.
jharkin
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Re: Cash in bank to sleep well at night

Post by jharkin »

delamer wrote: Thu Jul 22, 2021 11:55 am
Don’t want to derail the thread on solar issues, but we added battery storage to our system which increased the gross cost by 25%. And our wattage was almost 50% greater than yours. Anyway, our net cost after all credits was in the low $30s.
Thats great but keep in mind that it doesn't apply to everyone. More than 8kW simply wont fit on my roof and if I did it would generate excess production beyond my annual usage that I cant get paid for (we get net meter credits only up to annual use, the utility will will never cut you a refund check). The 8k is already going to generate over 9,000kWh/yr and I'm not exactly in a high sun state.

Also battery, while a cool idea (and I researched it heavily), simply doesn't make sense economically except for locations that are heavily incentivizing installs or have time of use rates that make it worthwhile to store your own power. In my case it would have added $10k minimum to the upfront cost, we have no ToU option, and the utility incentives for storage are so low that my breakeven point would have changed from 5 years on the array to 15+.
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socialforums2019
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Re: Cash in bank to sleep well at night

Post by socialforums2019 »

I guess one question to the broader team regarding AA, is 80/20 too aggressive? A see a lot of people saying I should be at 70/30. Mid 30s and looking to FIRE in 20 years. If my math is right, using a model where average growth is 5%/year with only $1,625/mo contributions (401K max) not taking into consideration company match, not taking into consideration backdoor Roth IRA contributions and not taking into consideration larger contributions due to commission checks, I show myself at around $3.8M. That includes paying an estimated $577K for my kids college. It drops to around $3.5M after paying off the mortgage which I likely would before I retire.

If that math is correct, based upon what I've seen, a 5% return is fairly doable, even with a 70/30 portfolio based upon backtest analysis.

Thoughts?
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anon_investor
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Re: Cash in bank to sleep well at night

Post by anon_investor »

socialforums2019 wrote: Fri Jul 23, 2021 7:26 am I guess one question to the broader team regarding AA, is 80/20 too aggressive? A see a lot of people saying I should be at 70/30. Mid 30s and looking to FIRE in 20 years. If my math is right, using a model where average growth is 5%/year with only $1,625/mo contributions (401K max) not taking into consideration company match, not taking into consideration backdoor Roth IRA contributions and not taking into consideration larger contributions due to commission checks, I show myself at around $3.8M. That includes paying an estimated $577K for my kids college. It drops to around $3.5M after paying off the mortgage which I likely would before I retire.

If that math is correct, based upon what I've seen, a 5% return is fairly doable, even with a 70/30 portfolio based upon backtest analysis.

Thoughts?
AA is pretty personal (to personal temperament, situation and goals). Some would argue that someone under 40 should have an AA of 100% equities and a sufficiently large emergency fund. If your target retirement date is 20 years out, I would argue that you can afford to be more aggressive, until 10 years out, where you can slowly start to dial back if the market is up or wait it out until the market recovers. But within 5 years of your target retirement date, then you should ve more conservative. But that is how I would approach it, others may disagree.
delamer
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Re: Cash in bank to sleep well at night

Post by delamer »

jharkin wrote: Fri Jul 23, 2021 7:23 am
delamer wrote: Thu Jul 22, 2021 11:55 am
Don’t want to derail the thread on solar issues, but we added battery storage to our system which increased the gross cost by 25%. And our wattage was almost 50% greater than yours. Anyway, our net cost after all credits was in the low $30s.
Thats great but keep in mind that it doesn't apply to everyone. More than 8kW simply wont fit on my roof and if I did it would generate excess production beyond my annual usage that I cant get paid for (we get net meter credits only up to annual use, the utility will will never cut you a refund check). The 8k is already going to generate over 9,000kWh/yr and I'm not exactly in a high sun state.

Also battery, while a cool idea (and I researched it heavily), simply doesn't make sense economically except for locations that are heavily incentivizing installs or have time of use rates that make it worthwhile to store your own power. In my case it would have added $10k minimum to the upfront cost, we have no ToU option, and the utility incentives for storage are so low that my breakeven point would have changed from 5 years on the array to 15+.
OK, but your question to the OP came across as if there was something off about the cost of their anticipated solar installation.

My point was that the cost is going to vary depending on the system’s features. So, as you say, neither your experience nor mine is going to be universal.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
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socialforums2019
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Re: Cash in bank to sleep well at night

Post by socialforums2019 »

anon_investor wrote: Fri Jul 23, 2021 7:36 am
socialforums2019 wrote: Fri Jul 23, 2021 7:26 am I guess one question to the broader team regarding AA, is 80/20 too aggressive? A see a lot of people saying I should be at 70/30. Mid 30s and looking to FIRE in 20 years. If my math is right, using a model where average growth is 5%/year with only $1,625/mo contributions (401K max) not taking into consideration company match, not taking into consideration backdoor Roth IRA contributions and not taking into consideration larger contributions due to commission checks, I show myself at around $3.8M. That includes paying an estimated $577K for my kids college. It drops to around $3.5M after paying off the mortgage which I likely would before I retire.

If that math is correct, based upon what I've seen, a 5% return is fairly doable, even with a 70/30 portfolio based upon backtest analysis.

Thoughts?
AA is pretty personal (to personal temperament, situation and goals). Some would argue that someone under 40 should have an AA of 100% equities and a sufficiently large emergency fund. If your target retirement date is 20 years out, I would argue that you can afford to be more aggressive, until 10 years out, where you can slowly start to dial back if the market is up or wait it out until the market recovers. But within 5 years of your target retirement date, then you should ve more conservative. But that is how I would approach it, others may disagree.
Right I follow that. I just want to make sure that if I'm 20 years out I am not too conservative.
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