Really, what IS cash

[FireBug]

Hi, a real newbie here. I’ve been lurking around this sight for some time and have finally pulled the trigger on signing up and getting involved (albeit with some very basic questions.)

First off, old timers on this board should know how grateful folks like me are, in that I’m sure there is no question that hasn't already been asked over the years, and yet the forthcoming advice is always fresh and helpful. The information thus far received is priceless.

Secondly, kudo’s to all the moderators. I’m no stranger to forums in general and the discourse on this one is helpful, friendly, Non-judgmental, and enjoyable to read. So, to those in charge and to long time contributors….Great Job!

About me….think of George Clooney; add 75 lbs., less hair, 3” shorter and not as good looking.

Going forward, anything I say with respect to AA or $ in general should be taken “as for two” (i.e. My wife and myself). Mine is hers and hers is mine. Been that way for 35 yrs and counting. We are both in professional careers (Megacorp/Healthcare), but certainly not “big fish”. We live in the SF bay area. I mention that because I think there is so much of difference with respect to “net worth”, given where a person resides.

Technically, I’m not ‘early’ with respect to retirement. I’m 60, DW 57. Simply put, I’m burnt out on w**k and its focus on “process” (another story for another day). Want to pull the plug this year with DW working another 2 or 3 (kept man). Then tap retirement. While there is much more to add, I just wanted to get this brief introduction out there, and say ‘Hi’.

But before leaving, I do have a question…and, it may be more philosophical rather than technical. With respect to AA xx%/xx%/Cash. What really is cash?
I think cash is..
• Anything in the bank
• Anything in my wallet

With respect to retirement, it’s the above, plus
• Anything in a MM or stable fund. But with that said, if it’s in an IRA, Uncle Sam still takes a bite.
• So, is cash anything in MM or stable fund Investment account (not IRA). Uncle Sam still gets something minor…. But like interest in a savings account it’s just on growth.
• Can I look at a ROTH account as cash? Yes if it’s in a mm/Stable fund or No if a high risk International fund?

Is the answer All of the above? Just food for thought I guess. I would like a 10% or 15% cash reserve when retired.

Anyway, glad to be here. And finally, the biggest thing I’ve learned from my lurking…. I mean, THE Biggest thing, is given the right knowledge base and skillset, anyone should be able to manage their own funds in retirement.

 

[pb4uski]

The type of account doesn't matter. IOW, a money market fund is cash if its in a taxable account or a tax-deferred account (like a 401k or a tIRA) or a tax-free account (like a Roth or a HSA). Look at AA across all your taxable, tax-deferred and tax-free accounts.

While there is a technical definition of cash and cash equivalents, in short it is an fixed income investment that is highly liquid and has minimal interest rate risk so everything you mention above would arguably qualify - though I think of the stable value fund as being more a bond than cash even though it is liquid and has minimal interest rate risk.

While there are posters who have a 10-15% cash reserve, IMO that is pretty high and I have seen some studies suggesting it is suboptimal, but some folks find it easier to sleep at night. I personally target 6% cash - about 18-24 months of living expenses - when I rebalance - and in my case it is in an online FDIC insured savings account that earns about 0.8%.

Note that the context that we tend to use the term cash - in AA - there are no particular rules and it can be whatever makes sense to you. For example, I sold some bond funds in December and the proceeds are sitting in a MM fund until I find the right deals on some target date bond funds to redeploy it so it is in the MM only temporarily. For my AA I consider that money to be bonds because I know the MM is just a temporary holding spot and those funds will ultimately end up in bonds.

 

[FireBug]

...and already, the solid advice comes pouring in

 

[REWahoo]

A recent thread on a closely related topic:

http://www.early-retirement.org/forums/f28/are-cds-and-short-term-bonds-cash-or-bonds-70279.html

 

[pb4uski]

In case anyone cares for the technical definition (last post in the thread REWahoo cited).

Cash

Consistent with common usage, cash includes not only currency on hand but demand deposits with banks or other financial institutions. Cash also includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. All charges and credits to those accounts are cash receipts or payments to both the entity owning the account and the bank holding it. For example, a bank’s granting of a loan by crediting the proceeds to a customer’s demand deposit account is a cash payment by the bank and a cash receipt of the customer when the entry is made

Cash Equivalents

Cash equivalents are short-term, highly liquid investments that have both of the following characteristics:

a. Readily convertible to known amounts of cash
b. So near their maturity that they present insignificant risk of changes in value because of changes in interest rates.​

Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year US Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. Examples of items commonly considered to be cash equivalents are Treasury bills, commercial paper, money market funds, and federal funds sold (for an entity with banking operations)

 

[FIREd]

The type of account doesn't matter. IOW, a money market fund is cash if its in a taxable account or a tax-deferred account (like a 401k or a tIRA) or a tax-free account (like a Roth or a HSA). Look at AA across all your taxable, tax-deferred and tax-free accounts.

+1

For me, cash is anything in checking/savings accounts and in money market funds. Some people also consider short term bonds, CDs, and savings bonds to be cash, but personally I don't.

 

[imoldernu]

Not much into the technical definition, but from a practical standpoint, I look at the Treasury as my guarantor for what I consider cash equivalency. Thus my reliance on I Bonds. In addition, Banks deposits/CD's etc, covered by the FDIC. Insurance companies... policies and instruments like annuities, not necessarily covered by the Federal Government, but reliant on State Government oversight and (hopefully) management.
Our small annuity has changed hands twice, and NursingHome policy three times since beginning ownership. The latter held in trust by the state of Pennsylvania.
Some info here:
Are You Protected If Your Insurance Company Goes Belly-Up?

Also a coffee can of Seated Liberty Quarters, buried in the back yard.

 

[braumeister]

Cash is obsolete.
Bitcoin is the future, baby!

 

[MikeTN]

I count I-bonds and a stable value fund (both pay nice interest) as cash, but make sure I also have some that I'm certain I can spend immediately, such as checking acct and money market fund.

 

[Fermion]

Cash is obsolete.
Bitcoin is the future, baby!

IRS says bitcoin is a commodity, like pork bellies.

 

[braumeister]

IRS says bitcoin is a commodity, like pork bellies.

Around here, bacon is worshipped to the point where pork bellies are as good as gold, so that kind of makes sense to me.

 

[Fermion]

Around here, bacon is worshipped to the point where pork bellies are as good as gold, so that kind of makes sense to me.

A bacon backed currency! Now that is a concept I could stomach!

 

[38Chevy454]

I'll throw my discussion into the mix. My personal view is cash can be defined as anything that can be converted to cash with easy liquidity and without significant tax consequences. So besides obvious cash itself in your wallet and checking/savings account at local bank; it is also Money Market, CD's, Roth IRA (assuming age meets minimum), after-tax investments, Gov't savings bonds, and similar type assets.

What is not would be 401k/403b, 457, or other pre-tax investments; due to the tax consequences of withdrawl. I would not count anything that is not liquid, examples would be your house, vehicles, art or other collections with value, or similar things that would take time to sell and get the value out of; due to low liquidity.

There's my $.02 of cash added to the pot!

 

[W2R]

+1

For me, cash is anything in checking/savings accounts and in money market funds. Some people also consider short term bonds, CDs, and savings bonds to be cash, but personally I don't.

+1

A lovely characteristic of cash is liquidity.

 

[FireBug]

Thanks for all the insight...it's why i joined. I noticed that some of you touched on the topic of Risk. I left my wallet on DW's nightstand. I'll have to evaluate the acceptable risk level of that.

 

[pb4uski]

Thanks for all the insight...it's why i joined. I noticed that some of you touched on the topic of Risk. I left my wallet on DW's nightstand. I'll have to evaluate the acceptable risk level of that.

A 90/10 AA is nothing compared to leaving my wallet on DW's nightstand.

 

[truenorth418]

+1

For me, cash is anything in checking/savings accounts and in money market funds. Some people also consider short term bonds, CDs, and savings bonds to be cash, but personally I don't.

+1 though I would consider CDs cash.

To the OP. Great first post. Welcome aboard.

 

[haha]

One definition of cash, and I think a good one, is money zero maturity.

But like most of these definition threads, it really depends entirely on for what purpose you want to know. Clearly cash in an IRA is cash for AA, but not for making bail should have that kind of need.
H

 

[growing_older]

I consider as cash, all those cash-like investments, bank accounts, money market, CD (breakable) and so on. I would still consider them as cash if they are locked up in some kind of tax deferred vehicle assuming I have enough funds (of any kind) in taxable. Even if my taxable equity investment is way way down, I can liquidate it and buy a near equivalent in tax deferred with CASH there, so I have in effect accessed the cash from inside the tax deferred vehicle without taking a withdrawal. Maybe even took a tax loss on the equity as a bonus if things are that bad. Cash is cash whereever it is; accessing it might be tricky but it's still cash.

 

[kimcdougc]

I consider cash (that green stuff I have under my mattress). No really, any money that is liquid. MM, savings accounts etc. Maybe gold/silver investments that you can sell immediately. Just my 2 cents.

 

[jerome len]

Love your humor! I use Vanguard's mm and short term muni bond fund for cash......mm pays .01% while short term muni pays .60%, going up or down minimumly as rates change. No taxes to worry, check writing priviliges if I need the cash and a some return on my money.

DW still clips coupons, both shops and donates to the Salvation Army Store, and my cash in my wallet is safe......not so sure about my credit cards, however.

 

[RetireAge50]

I'm confused why anyone would have money in vanguard or other money market paying .01%. The online savings from Amex/Ally/etc pay about .8% and are FDIC insured.

 

[Fermion]

I'm confused why anyone would have money in vanguard or other money market paying .01%. The online savings from Amex/Ally/etc pay about .8% and are FDIC insured.

One might want to be nimble in the market and have money positioned at Vanguard to rebalance into stocks on a dip.

I keep sometimes $20,000 to $100,000 in a money market at my broker instead of a higher yield saving account because I may not want to wait 2 or 3 days for a ACH transfer to go through.

 

[pb4uski]

One might want to be nimble in the market and have money positioned at Vanguard to rebalance into stocks on a dip.

I keep sometimes $20,000 to $100,000 in a money market at my broker instead of a higher yield saving account because I may not want to wait 2 or 3 days for a ACH transfer to go through.

+1 In my case I know/hope it is temporary so I'm willing to tolerate it for a bit.

 

[aja8888]

I'm confused why anyone would have money in vanguard or other money market paying .01%. The online savings from Amex/Ally/etc pay about .8% and are FDIC insured.

Nothing like keeping a few bullets in the gun for the right moment..