Originally Posted by chinaco
Yes, safety is a concern. But the money will not be used for 4-6 years. The time horizon is out there a bit...
It is a quite a bit of cash to leave earning low returns... (Inflation risk).
I will keep our emergency fund in MM.
We put one year's expenses in cash (whoever has the best MM) and a second year's expenses in five-year CDs.
Our hope is that we only have to break into the CDs once or twice a decade (as has been the case with most of the century's bear markets). We keep them small (as PenFed allows) so that the interest penalty is minimized to break only the CDs we need for spending money. If there's a sale or a flat yield curve then we'll reduce the duration but right now it's all 3-5 years.
Between rebalancing and diversification we have yet to experience the phenomenon of selling into a down market, let alone at a loss. We've never even come close to breaking into the five-year CDs, and we're starting to ladder them so that one's always rolling over annually. But it's a tracking hassle for a few basis points.
IMO once an investor plays the "Safety!" or "Low volatility!" trump cards then there shouldn't be any permission to fuss over inflation or returns. That buffer is supposed to be compensated for by facilitating the higher returns of a portfolio's equity component.
But perhaps I'm biased by having to listen to my PILs kvetch over the lousy inflation protection and low returns of their 100% CD/Treasuries portfolio...