This is personal preference. Anything over 10-12 month's expenses is overly generous cash reserves. However, the question is - can you tolerate a downturn in the stock market and lose money that may be needed in an emergency?
For me - investing and emergency funds are kept separate. I have way too much cash in my emergency fund and it will stay there.
I know it sounds nuts, but we have 21 months of bare-bone expenses in our cash acct. But it covers multiple items right now- we are buying a car soon, and will have delivery expenses after baby comes. We also need to cover the weeks that FMLA does not cover.
Post by biscoffcookies on Oct 9, 2013 8:58:18 GMT -5
We have $20K in an ING account as our emergency fund, which is a little less than 4 months of expenses since we live in a VHCOL area. I don't have any plans to move the money, even though we are continuing to add a few hundred dollars a month to it.
I'm a cash hoarder -- it makes me nervous not to have access to cash. But that also is probably due in part to my lack of knowledge about various investment products and my fear of the stock market and other investments (which is probably based on lack of knowledge), since I tend to be a worst-case-scenario thinker and assume money we put into those accounts will disappear. I'm nervous, for example, about the money we are putting in DD's 529, even though I know that's supposed to be a relatively "safe" investment and also a good financial decision now due to the tax benefits.
Post by sillygoosegirl on Oct 9, 2013 9:32:05 GMT -5
We are trying to decide what our target is. Somewhere between 10% and 20% of liquid assets. We want to always have enough cash on hand to meaningfully rebalance into the market when prices are down.
We've read some convincing articles that claim that 10% in cash doesn't actually lower your long term overall yields if you use it to rebalance.
We also want to spend a good bit of our cash in the next couple years.
We keep $25K in an ING account that is truly for an emergency (i.e job loss). We have another savings account with $20K in it for house repairs, car repairs, etc that we add to each month. We are getting new windows and will take from that fund.
We could put some of it in investments and earn more but we prefer to leave the money there once we invest it.
We have $26K in ING ($16K for a house DP and $10K for savings but we will be boosting and keeping that at $20K for emergencies- job loss, any major home repairs when we buy a house in 2 yrs)
We keep about $10k in cash and the rest is invested. We used to have more but I wanted my money to work for me (harder than .8%) and so far it's been doing well.
Note: this number will increase if we're planning a purchase, but we since we've bought two new cars and a house in the past couple years we are good to go for awhile.
I used to think more than $30k was too much but now that I'm using it, I wish I had more. It isn't as easy to access our stocks as I was hoping (restricted trading periods, not wanting to sell certain ones, etc).
So I don't really get this line of reasoning (and I don't mean to pick on you, I see it lots and yours was just the easiest to quote). Even if the cash were invested--presumably in something liquid like a mutual fund, ETF, stock, or bond--then you could always sell the investment for the cash whenever you needed it. Meanwhile, you're making it work for you while you can.
Don't get me wrong, I obviously like to have a cash cushion too and don't think every last dollar should be in the market. But to say, "Thank goodness I didn't invest that money now that I'm not getting a paycheck," doesn't really make sense to me either.
I just wonder if some of our newer investors/MM101 folks think/feel that if you invest, you're locking up your money and therefore have another thing to fear about investing.
I tried to respond earlier, but on the app it kept quoting something else.
Anyway. I am not a savvy investor at all. And I always hear don't invest money you can't afford to lose. So what if I invested it and lost it and then we didn't have a paycheck for however long. We would be screwed.
It is times like this when I wish there was more MM101 investing talk on here. Even going to Motley Fool or something like that I only understand half of what I am reading at most. I try to read blogs on the subject. I used to read @choco 's but she stopped (I have stopped blogging as well so I can't blame her) So I just have been too afraid to actually invest in something. I have had money sitting in the cash reserves in my investment account for an embarrassing amount of time because I don't know what to invest in. I hear no-load MF. Ok but there are a so many. I hear ETFs, but they can't all be good. And then I get overwhelmed. But I was going to try to force myself to do it and then the shutdown happened. So now I feel like maybe I was right in not pulling the trigger. IDK.
I am having technical difficulties, but wanted to say I used to feel similarly. What I now do is Vanguard Total Stock Market Index. You don't have to worry about picking the "wrong" fund/stock, because it has a portion of all of them in it. Plus the fees are extremely low which makes a big difference when you consider compound investing over decades. Sure you might miss the high highs but you hopefully miss the low lows, too. There is a lot of research behind index funds, and I follow the Boglehead forum, too. It's a little technical but very helpful.
So I don't really get this line of reasoning (and I don't mean to pick on you, I see it lots and yours was just the easiest to quote). Even if the cash were invested--presumably in something liquid like a mutual fund, ETF, stock, or bond--then you could always sell the investment for the cash whenever you needed it. Meanwhile, you're making it work for you while you can.
Don't get me wrong, I obviously like to have a cash cushion too and don't think every last dollar should be in the market. But to say, "Thank goodness I didn't invest that money now that I'm not getting a paycheck," doesn't really make sense to me either.
I just wonder if some of our newer investors/MM101 folks think/feel that if you invest, you're locking up your money and therefore have another thing to fear about investing.
I tried to respond earlier, but on the app it kept quoting something else.
Anyway. I am not a savvy investor at all. And I always hear don't invest money you can't afford to lose. So what if I invested it and lost it and then we didn't have a paycheck for however long. We would be screwed.
It is times like this when I wish there was more MM101 investing talk on here. Even going to Motley Fool or something like that I only understand half of what I am reading at most. I try to read blogs on the subject. I used to read @choco 's but she stopped (I have stopped blogging as well so I can't blame her) So I just have been too afraid to actually invest in something. I have had money sitting in the cash reserves in my investment account for an embarrassing amount of time because I don't know what to invest in. I hear no-load MF. Ok but there are a so many. I hear ETFs, but they can't all be good. And then I get overwhelmed. But I was going to try to force myself to do it and then the shutdown happened. So now I feel like maybe I was right in not pulling the trigger. IDK.
I am so right here with you, my friend.
Just opened a Sharebuilder account - so lets do this! (well you're allowed to wait until the shutdown is over!)