How much cash to hold?

[galeno]

We begin the year with 5% of port in cash.

 

[pb4uski]

Same here. Was 0% when working, then initially 6% when retired but I scaled it back to 5% recently.

 

[Huston55]

(By cash, I mean anything fairly liquid, which for me means MM or CD ladders.)

How much cash - in terms of multiples of your yearly spending - do you keep on hand for living expenses?

How much cash - in terms of percentage of overall investment assets - do you keep on hand in order to be prepared for new investment opportunities?

We keep ~15% (4yrs +/- spending) in cash/equivalents.

None. We simply rebalance when necessary.

 

[Danmar]

I think there are two reasons to hold cash. First is for liquidity. Ie have enough cash to cover expenses or other outflows in periods when you don't want to or are unable to access other less liquid assets. Since liquidity costs are high (foregone income) you shouldn't be over liquid. Other sources of liquidity could include undrawn HELOC's or margin loans. Secondly, you might want to have cash or near cash on hand to take advantage of market downturns. This would generally be for market timers. Again this can be costly if you get the timing wrong.

I am always fully invested and don't try to time the market so I don't need any cash for the second reason. Liquidity is the only issue. Since my spending is covered by pensions and dividends, I don't need much liquidity. Mostly to cover lumpy div receipts or large purchases. Also, there is some small risk that my divs could be cut by a significant amount. Has never happened so I don't really keep cash for this. Have large undrawn margin lines of credit to cover that very unlikely event.

If your cash flow in retirement comes from selling investments, you would probably want to have more liquidity.


Everyone should assess their own liquidity needs in light of their own circumstances. One size does not fit all.

 

[street]

I have 18% of my portfolio. It might be to much but I have enough in liquid to live on for the rest of my life. In a couple years SS will supplement my expenses and with what I have and SS I will never have to sell any investments till I have to. If the bottom dropped out completely I still would be able to live.

 

[Danmar]

I have 18% of my portfolio. It might be to much but I have enough in liquid to live on for the rest of my life. In a couple years SS will supplement my expenses and with what I have and SS I will never have to sell any investments till I have to. If the bottom dropped out completely I still would be able to live.

Seems like a pretty expensive "solution". To each their own. Why not keep everything in low risk FI or cash?

 

[street]

This cash that I hold is in MM, CD"S and savings account. I suppose I could be making a lot more if I invested it better. For me if the markets completely lost everything I would have enough to live per say if stocks crumbled. I still have 80 plus % in investments working for me. I'm not sure it is right it works for me. My wife like to have a security blankets with money and not have everything tied up in stocks.
Thanks and I'm not sure what you meant by FI. Thanks for you advise.

 

[kcowan]

I have a friend who was a former bank branch manager and he says that holdings in check/saving accounts often vary from $25k up to over $100k for older clients. Because he could not sell them securities, he said he would talk about longer term cash instruments but they were not interested.

 

[Danmar]

FU usually stands for Fixed Income. That is bonds. CD's, etc.

 

[Lsbcal]

FU usually stands for Fixed Income. That is bonds. CD's, etc.

Was this a Freudian keyboard error?

 

[GrayHare]

SNAFU = Situation Normal All Fixed Income

 

[Another Reader]

No, it's Situation Normal, All Financially Independent.

 

[audreyh1]

Secondly, you might want to have cash or near cash on hand to take advantage of market downturns. This would generally be for market timers. Again this can be costly if you get the timing wrong.

I am always fully invested and don't try to time the market so I don't need any cash for the second reason. Liquidity is the only issue. Since my spending is covered by pensions and dividends, I don't need much liquidity. Mostly to cover lumpy div receipts or large purchases. Also, there is some small risk that my divs could be cut by a significant amount. Has never happened so I don't really keep cash for this. Have large undrawn margin lines of credit to cover that very unlikely event.

If your cash flow in retirement comes from selling investments, you would probably want to have more liquidity.


Everyone should assess their own liquidity needs in light of their own circumstances. One size does not fit all.

That second case is broader. Some of us have a % in cash as part of our asset allocation: stocks, bonds, cash. Cash as an asset class provides diversification. And you rebalance to and from cash just like you do with the other asset classes.

 

[Danmar]

Was this a Freudian keyboard error?

Oh my goodness. Sorry about that. Definitely not Freudian.

 

[Danmar]

That second case is broader. Some of us have a % in cash as part of our asset allocation: stocks, bonds, cash. Cash as an asset class provides diversification. And you rebalance to and from cash just like you do with the other asset classes.

Good point. Hadn't thought of that. Not sure the Op was thinking along those lines but maybe he was. So let's say there are 3 reasons.

 

[Running_Man]

Berkshire has 15% of it’s assets in cash and cash equivalents and it is a heavily cash positive generating business. Of course when markets crash Berkshire gets many very favorable deals for it’s cash

 

[youbet]

How much cash - in terms of multiples of your yearly spending - do you keep on hand for living expenses?

Pretty close to zero, a few kilobux in the checkbook. A pension, SS and periodic dividend and interest distributions cover our ongoing routine spending. From time to time, I do build up some cash for a specific purpose. For example, I'm currently getting a few kilobux together for a new HVAC system.

How much cash - in terms of percentage of overall investment assets - do you keep on hand in order to be prepared for new investment opportunities?

Right now I'm at about 3%. There are times when I'm a bit higher than that, especially if I'm in the midst of implementing some change of strategy. But I've been close to fully invested for several years now. These have been good years to not hold cash! Maybe those times will be taking a pause?

 

[Rothman]

I have more cash these days than ever before as my bond fund BND has done so poorly in recent times. I expect others also have less bonds more cash than 5 years ago?


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[W2R]

I have more cash these days than ever before as my bond fund BND has done so poorly in recent times. I expect others also have less bonds more cash than 5 years ago?

No, I don't change my asset allocation for market timing purposes because I have found that's the best way for me to lose money. In general, I find that if I do that it leads to selling low and buying high. Right now I have allocated exactly the same percentage to bonds and to cash that I had 5 years ago.

 

[ESRwannabe]

How much cash - in terms of multiples of your yearly spending - do you keep on hand for living expenses?

How much cash - in terms of percentage of overall investment assets - do you keep on hand in order to be prepared for new investment opportunities?

I'm still working full time and I usually only keep an extra $1k in my checking account over what I expect to spend for the month (around $2k). So typically when I get paid I will keep $3k in checking and send the rest off to my brokerage account to invest.

About a decade ago I used to keep a year's worth of living expenses in cash as my emergency fund, but I don't do that anymore as my yearly investment income is now almost as much as my living expenses. I live on around $28k a year once you factor in taxes, health insurance and such. My monthly take home expenses are around $2k a month. My investment income is currently $23,283.12 per year.

If I started to feel worried about my job or whatever, I'd switch to paying rent month to month. Rent is around 40% of my yearly expenses... So if I was in an emergency type situation I'd move somewhere cheaper and then my investment income would probably be enough to live off of.

I'm pretty much 100% invested in CEFs that pay monthly income. So that simplifies things a lot. I just pay attention to the earnings coverage and the UNII to make sure the income is sustainable.

I will turn 41 in 2017 and plan on ESR sometime between now and age 45. I'm going to switch to part-time IT telecommuting work. I signed up for flexjobs.com a few months ago and they have sent me info on tons of job openings that would fit my skill set. I'll probably work part-time until 60 when my gov pension will be available (15 years and counting vested so far).

 

[audreyh1]

Berkshire has 15% of it’s assets in cash and cash equivalents and it is a heavily cash positive generating business. Of course when markets crash Berkshire gets many very favorable deals for it’s cash

yep. Funny how that happens....

One saying that amuses me:

Cash is Trash, until Cash is King!

 

[Dawg52]

I'll take that kind of trash off anyone's hands.