Hi! New and looking for advice on how much cash to hold

[HI Bill]

Why don't you just pull out the $125K, and put it in VG's MMFXX? You'd earn ~2%, and save the FA's management fee. Right now, you're earning a whopping NEGATIVE 0.5%. Seems like you'd be 2.5% ahead.

[mtbikelover]

Quote:

Originally Posted by pb4uski Well... that is good because insurance is not a good investment... it's insurance.

We didn’t buy it for the insurance benefit. We bought it for the 10 years of tax free income. We did it as a 10-pay. I know there is tons of debate about these, but we spent a lot of time analyzing the numbers and feel it’s a good investment option for us. We are maxing everything else out and wanted something that was less risk than the market and would give us something tax free in retirement as most of our money is in taxable buckets.

The numbers worked out to a 5-6% return that isn’t taxed. So building our tax bracket in, its about a 7-8% return. Plus, it can’t be touched if we are ever sued for something. Since my husband has his own business, that is something we have to protect against as well.

[mtbikelover]

Quote:

Originally Posted by HNL Bill Why don't you just pull out the $125K, and put it in VG's MMFXX? You'd earn ~2%, and save the FA's management fee. Right now, you're earning a whopping NEGATIVE 0.5%. Seems like you'd be 2.5% ahead.

Well...I’m not that stupid to leave it somewhere it’s losing money. I thought I said in my original post but maybe not - it’s earning 1% AFTER the 1% fee. It’s in a Schwab MM account that pays 2-2.25%.

[The Onceler]

Hi welcome. I’m not a genius investor so all I can do is say one day perhaps you could consider shortish term bank CDs. We have a few $100k in these. We have no immediate need for the cash but they backstop the first couple of years of retirement which hopefully won’t be too far off. Can’t imagine you’d have to pay any fee to an advisor for cds once invested. Good luck and congratulations on building a nice array of financial stability. Take some spare cash and buy a Ti mukluk or a Beargrease or something!

[mtbikelover]

Quote:

Originally Posted by The Onceler Hi welcome. I’m not a genius investor so all I can do is say one day perhaps you could consider shortish term bank CDs. We have a few $100k in these. We have no immediate need for the cash but they backstop the first couple of years of retirement which hopefully won’t be too far off. Can’t imagine you’d have to pay any fee to an advisor for cds once invested. Good luck and congratulations on building a nice array of financial stability. Take some spare cash and buy a Ti mukluk or a Beargrease or something!

Thanks! We actually have quite a few. We have:

$50k in a bank account earning 2.8%
$50k in a bank account earning 2.5%
$30k in a bank account earning 3%
$55k in a 1 yr Cd earning 2.8%

[stepford]

More important than all this financial advice, with a name like mtbikelover what kind of bikes do you have and where do you like to ride?

[mtbikelover]

Quote:

Originally Posted by stepford More important than all this financial advice, with a name like mtbikelover what kind of bikes do you have and where do you like to ride?

Haha! I ride an old Gary Fisher. It’s one of those things where I know I can afford a more up to date bike with all the bells and whistles but I love my Gary Fisher so much. It fits me perfectly and I don’t want to change. I’ve upgraded a few parts but kept it pretty much the same.

And since I live in Wisconsin, I just ride some great singletrack trails in the Southern Kettles. When we move to Colorado for retirement, we will go to Moab and hit a lot of the mountain biking out there. I can’t wait!

[stepford]

Quote:

Originally Posted by mtbikelover When we move to Colorado for retirement, we will go to Moab and hit a lot of the mountain biking out there. I can’t wait!

Sounds like us. My wife and I love our 20 year old mountain bikes, but when we took them out to Moab a few months after we retired we got pretty well beat up. This inspired us to go out and buy new bikes which improved the next trip there considerably. Bashing around on bikes seems like a fine retirement goal to me.

[target2019]

Quote:

Originally Posted by mtbikelover Well...I’m not that stupid to leave it somewhere it’s losing money. I thought I said in my original post but maybe not - it’s earning 1% AFTER the 1% fee. It’s in a Schwab MM account that pays 2-2.25%.

Obviously you have enough, and are comfortable with decisions like this.

[DrRoy]

I am mostly another vote to ditch the FA. Why pay anything to have $ put in an index fund?

[joeea]

Quote:

Originally Posted by mtbikelover I feel we should take the $125k and invest it in something like VTI or VFINX. If the market does tank and there are some good buys, we have plenty more cash to use to invest. Would love to get others opinions.

It's your money. You get to do whatever you choose with it.

If you consistently don't like the advice coming from your advisers, you should get rid of them. Either find new advisers who are more aligned to your thinking, or do the job yourself.

[Bigdawg]

Quote:

Originally Posted by mtbikelover Haha! I ride an old Gary Fisher. It’s one of those things where I know I can afford a more up to date bike with all the bells and whistles but I love my Gary Fisher so much. It fits me perfectly and I don’t want to change. I’ve upgraded a few parts but kept it pretty much the same. And since I live in Wisconsin, I just ride some great singletrack trails in the Southern Kettles. When we move to Colorado for retirement, we will go to Moab and hit a lot of the mountain biking out there. I can’t wait!

"
At 1,951 feet above sea level, Timm's Hill is the highest point in Wisconsin. At this scenic park you can climb the observation tower for a 30-mile view of the vast Northwoods. To the south you'll look down on placid Bass Lake 160 feet below."

A mountain bike lover in a state with no mountains. Oh well. But seriously there are some awesome trails in WI. I grew up in Northern WI on the shores of Lake Superior. Great scenery. Good luck on your journey to CO and ER.

[target2019]

Modified an earlier graphic. From my experience, of viewing FA recommended investment expenses, you would likely see another 1% eaten away by a mutual fund in the portfolio. I left the fee at 1% for this illustration.

[mtbikelover]

Quote:

Originally Posted by Bigdawg " At 1,951 feet above sea level, Timm's Hill is the highest point in Wisconsin. At this scenic park you can climb the observation tower for a 30-mile view of the vast Northwoods. To the south you'll look down on placid Bass Lake 160 feet below." A mountain bike lover in a state with no mountains. Oh well. But seriously there are some awesome trails in WI. I grew up in Northern WI on the shores of Lake Superior. Great scenery. Good luck on your journey to CO and ER.

I’ve used the mtbikelover handle for many years. I first started biking in PA and WV but then work took me to Wisconsin. You are right...not mountains. But they still have some great trails with hills that are tough to climb and fast to go down with rocks, roots, tight turns, etc. So it works for now until we retire.

[Golden sunsets]

Here's another view. With 69% already in equities, and retirement 4 years away, I'm not sure I would want to have more of my AA devoted to equities, especially with this frothy market. 70% equities and 30% fixed income, seems like a good AA to me. If some of that Fixed Income is currently invested in cash instruments yielding 2-3%, then the debate for me would be when should I transfer some of that cash to longer maturities, and now would not be the time.

[jollystomper]

Quote:

Originally Posted by Golden sunsets Here's another view. With 69% already in equities, and retirement 4 years away, I'm not sure I would want to have more of my AA devoted to equities, especially with this frothy market. 70% equities and 30% fixed income, seems like a good AA to me. If some of that Fixed Income is currently invested in cash instruments yielding 2-3%, then the debate for me would be when should I transfer some of that cash to longer maturities, and now would not be the time.

+1

Rather than what to do with the cash, the first questions should be are you comfortable with your AA. as in the quote, personally I would not move my AA above 70% being so close to retirement.

If you are happy with your AA and what your FA is providing, no reason to sweat that 1% fee against the cash... I call that the "cost of sleeping well at night". I have a large cash position (about the same as the OP has) so that I can cover expenses and not be forced to sell equities before I choose to take SS... certainly I could invest more of it in equities for a chance at a better return over the years, but that is my "sleep well at night" fee.

[easysurfer]

Mtbikelover,

Like hiring any professional, I think the first question to ask is does the service provided justify fee?

Speaking for myself, when I retired (years ago), I hired a fee only planner that charged by the hour to help with some of the number crushing and felt that was justified. About a couple of years ago, the planner went the subscription route. Where instead of hiring by the hour there was retainer type subscription fee. I decided, that service didn't justify the cost so said thanks but no thanks.

Plus, I'm comfortable and believe in DIY investing passively rather than active anyhow.

As for your husband having sleepless nights nervous about DIY investing. For me, I'd have sleepless nights having parts of my hard earned money run by a FA rather than myself.

[gwraigty]

Quote:

Originally Posted by mtbikelover You made a lot of assumptions. I don’t fret about the market. I simply didn’t like having so much cash uninvested. And he invested it in index funds like I asked.

And you're paying him 1% to do something that you could have done yourself.

[kgtest]

I understand you came here seeking a second opinion. I would DIY, there is no greater satisfaction IMHO than managing the success that we brought in financially rather than paying someone taking a hit to our principle.

1% of I think you are stating 2MM is 20k annually. To compare, I manage ~2MM for my family and we combined pay about ~$2500 a year to manage that.

I learned about investing about 8 years ago and got really serious about 6 years ago. Averaging over 20% annual returns. FIRE the FA and never look back. The opportunity cost is killing you and that is where DIY always out shines and out performs the FA, only you care about your missed opportunities most.

[OldShooter]

@mtbikelover, I am not going to join the native drumbeaters trying to convince you to ditch your FA. You have made your position clear on that. I would, however, like to flag a few things that I'd suggest you watch for:

1) The FA seems to think the he/she can successfully pick stocks. This is most charitably characterized as naive. It is also hazardous to your financial health.

2) Is the FA charging you the 1% fee on cash and near cash? This is not defendable; the FA has no way to add a whit of value to these holdings. I am involved with one nonprofit where the FA charges no fee on cash and near-cash. I have heard of others where a discounted fee is charged. If you are paying full price you are being cheated.

3) You say "I have some stocks that are up 40% in the 14 months we have been with him." That's really no surprise. Market prices are so "noisy" that it is relatively easy to come up with some winners. What has been proven to be impossible is to come up with a $$ preponderance of winners by picking stocks. IOW, pay absolutely no attention to individual stocks in the portfolio; watch only the total return of the equity portfolio versus the total return of a broad benchmark like the Russell 3000 or the ACWI (All Country World Index). In fact, I have arranged for the FA I mentioned to report quarterly on the equity portfolio against the ACWI. To say that involved some kicking and screaming is an understatement. What most FAs want you to look at is the overall return of the portfolio. But it is impossible to measure the FA's performance using a composite number.

You're well informed and thoughtful. Just keep your eyes on the big picture and make sure the value you're receiving from this FA is worth the fees, including the likely market underperformance. (Like others here, I am skeptical of this, but none of us have a vote.)