How many months could you live off of 100k? That IS a lot of emergency fund money in my book. Maybe some of it you could keep 12 months in your account liquid, then invest the rest.
Post by littlemisssunshine on Dec 17, 2014 23:10:28 GMT -5
We keep about 10k in cash and the rest in Vanguard mid to low risk mutual funds. I wouldn't want to sit on that much cash and lose out on potential returns. However I am too risk adverse to throw it all in the stock market. I'd find a happy middle of some in cash reserves and invest the rest.
Post by awkwardpenguin on Dec 17, 2014 23:14:58 GMT -5
We keep around $15k in cash and the rest invested. Our financial planner is actually more conservative and wants a full 6 months expenses in cash, which is more like $30k, so we're building it up.
This is a good reason to diversify. I'd keep enough liquid to cover a few months of expenses, and invest the rest. You can put some of it in less risky mutual funds, and some in more risky ventures. This way you still have a good potential for gain without the risk of losing it all if there's a major downturn.
Whatever chunk of the money you want to save for retirement can go into a somewhat riskier investment method because you have time to ride out a short-term down-turn. But if you think you'll want the money in 7 years, like your example, the stock market might be too risky for you.
A good financial planner can assess your goals and risk tolerance and offer some suggestions. It sounds like you and your H might have different goals and risk tolerances though....
I agree with you. Invest some of that money! We keep 2 months of income in an emergency fund savings account. The rest of our efund (4 months expenses) is invested in a conservative mutual fund. I would not feel comfortable having all that money in savings earning barely any interest.
I think a lot depends on your expenses and your job outlook. If your expenses are 10k/month and you have steady jobs then 60k makes sense to keep in savings. But if you are self-employed or live on commissions or bonuses or whatever then 80k to 100k might make sense.
That being said, DH convinced me to spread our Efund across checking, savings, and lower-risk bonds. If CD rates were better I'm sure we'd put some in there, too. So I could see diversifying your efund similarly?
We also have chunks of money just in investments outside of retirement, but we don't count that in the efund.
Remember not to put all of it in the market all at once.
I like the idea of leaving some in cash partially because it makes your DH feel better. Emotions are important as people should not be stressed by their allocations.
I feel like it is risky to not invest (some of the) $100k. We keep ~10k in liquid funds and the rest is invested. Could you compromise and invest 1/2 of the money?
If you do invest some of the money in the market I'd probably invest in $10k chunks over time.
And if the stock market takes a nose dive, you could end up less money...while 100K is a lot for an emergency fund and I'd invest some of it, no way would I put all of it in the stock market.
I agree with PPs; keep some in cash and invest the rest. My personal comfort level is ~$15k in cash, but yours will vary based on your expenses, job security, risk tolerance, and how much you have in your Roths.
Point out to your DH that you are currently losing money to inflation, and that while you could lose money in the short term, the stock market has never lost money over a 30-year period.
That is a huge e-fund. I would keep 6 months living expenses in cash (assuming $100k isn't 6 months) and invest the rest. I wouldn't invest it all because you do need some money you can get to right now.
Really it's both risky and MM. All investments have some level of risk, and you could also argue that not investing comes with risk as well since you risk running out of money by not making it grow.
Unsurprisingly, I am Team You. That's a huge chunk of cash in emergency savings. Also keep in mind that if you ever needed it, you could liquidate enough of the investments to cover an emergency. It's not like investing it means you're locking that money away forever, never to be touched in the short term.
I think the compromise approach makes a lot of sense. See if he'd be willing to invest at least some portion of it to start (though I'd be pushing for a pretty big percentage!).
If you have a hard time getting DH on board, I'd offer a compromise of sorts. Invest a portion of it, say 25%, this year. Assuming the sky doesn't fall, invest another big chunk next year. And then another the year following. I know it can be emotionally hard to see all that cash "go away", and if it helps your DH sleep at night to do it more slowly and methodically, that's what I would do.
How comfortable are you with risk? The stock market can go down - and do so quickly - as well as up. We have far more than most feel comfortable with in cash - but have 4 times that amount in the stock market as well. - if you have fully funded your retirement and Roths (if you qualify), I would do the following: Set aside 8 month's expenses in cash, pay the rest to any debt (starting with consumer, then mortgage & SL) If you lower your monthly living expenses by having no debt - you need less $ in an emergency fund. Are you saving for vehicle replacement? Vacations and other larger expenses in addition to the e-fund?
What do you mean exactly by emergency fund? Does it include money to replace your car? Home updates/renos? Any other sinking funds? I would be totally comfortable with $50k in liquid funds, but the would include my new car fund and all sinking accounts. If you have separate accounts for those types of things, and the $100k is JUST for a major emergency, like job loss, I would put at least $75k in the market, but you can do it slowly over the next year.
ETA: This also depends on your monthly expenses, of course.
Like everyone else, I'd do a mix. Exactly how much cash depends on so many factors: how secure are your jobs, what's your monthly spending, how healthy are you, are your cars nearing the end of their lives, etc. Especially since you and H disagree, it might be best (for your marriage) to start with a little more in cash, then invest the rest in a variety of things. For example, $40k cash, $20k in "safe" investments like bonds, $40k in higher risk, higher return in investments. Then, each month you invest whatever's in your line item for savings. As you see how things perform and get more comfortable, you can reduce the actual cash.
What I wouldn't do is count on being able to draw on home equity in case of emergency. I'd definitely keep some e-fund in cash, though not the full $100k.
Thanks for the input. I may be able to convince him to invest half and save the rest. That would leave us with 6 months full spending, which could probably last us over a year if one of us couldn't work for whatever reason.
This is what I would do. Actually, what I AM doing, with approximately the same amount that was sitting in our bank account. I work for an investment advisor, so I have no excuse lol.
- how much you currently have invested - how much cash you typically throw into the market on an annual basis - how many months $100k would carry you guys if both were unemployed. - insight on assets and debts
$100k may sound excessive to many, yet be a comfortable safety net to others who already have a strong, and well balanced portfolio. Cash should always be a slice in the pie. But it also needs to be proportional.