How much cash to hold?

[Curmudgeon]

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

When I was working, and spending less than I earned, my problem was always too much cash, and trying to stay on top of it and get it invested. Now that I'm not working, the problem is the opposite. I need cash for living expenses of course, but also to make new investments when I see a good opportunity. And obviously I don't want to have sell at a market low to raise, nor keep too much cash on hand when it's not earning much.

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?

 

[DrRoy]

I do no market timing, so no cash for that. In general I keep about a year of spending.

 

[calmloki]

Right now about 4.5x annual expenses. Varies wildly though depending on the short term loans we make to flippers. 3-9x annual as a range, the norm is probably 6x.

 

[mickeyd]

I have about 10% cash now, but that's not normal. We are stashing cash now in anticipation of a move in a year or so. When things get back to normal, I'll probably have <5% in cash/cash equivalents.

 

[rodi]

DH is, er, more cautious... than I am in investing. He's got a good chunk of his deferred savings (IRA) in CDs.

We have about 1 years living expense in cash (savings accounts/money market accounts/HSA accounts/checking accounts)... Depending on time of year - sometime's it's more, sometimes it's less... Right now it's a tad under because we just paid out the property taxes.

For our investment funds (vs working cash - which is listed above) we're at 15%... that's because of DH's fear of the market. Add in another 25% in bonds/bond funds and we're at 40% cash and cash equivalents.

 

[W2R]

Right now, my AA allows for 5.5% cash and that is what I have within my investment portfolio.

But that is really not the whole story.

In my bricks and mortar bank, removed from my portfolio, I also keep enough cash to last through the end of the year plus a buffer to deal with any large unexpected year end expenses.

I also have SS, a pension, and monthly payments from the TSP "G Fund". If I subtract these three known income sources from the year's spending, then there is still an amount left over that I need to come up with each year.

At the moment, I have enough cash in my portfolio plus bank accounts to cover that for about five years, give or take a year depending on how much I choose to cut back or splurge that year.

 

[RobbieB]

I have 10% in cash.

 

[Big_Hitter]

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?

1) 4x yearly spend
2) maybe 5%?

 

[audreyh1]

5% is the allocation of cash inside my retirement portfolio. This is part of my AA and comes in handy when I need to rebalance during big market swings.

I don't worry about new investment opportunities, I just rebalance when appropriate.

I have more cash outside of the retirement portfolio - this covers a year or two worth of spending as well as cash set aside for other things I might splurge on.

In general I don't worry about the long-term performance of cash outside of my portfolio because I want it available to spend in the short term.

 

[COcheesehead]

10% trying to get it to 5%.

 

[sunnysideup]

I am managing my own portfolio and my elderly dad's portfolio since he no longer can make financial decisions and has asked me to take over. We have different approaches to investing, but there is some commonality in that we both have growth/income stocks, AND, in both cases I need to make sure the money lasts for the remainder of a lifetime.

After much thought I decided on 3x annual expenses so that if there is a stock market correction we could ride it out and there would be no need to sell low. And this figure worked for both portfolios such that it could still sustain growth in addition to providing the required income.

 

[Midpack]

We keep an amount equal to 2-3 times annual spending in cash, but there's no "right answer." Depends on how willing you are to liquidate other assets when needed, and over what time frame. All our dividends were reinvested when I was working, but we switched to cash payout when I retired, which takes care of a good chunk of $ withdrawals - so our cash reserves are largely untouched from year to year.

 

[FIREd]

In actual cash, about 2x annual spending. But I have another 8x annual spending in cash-like instruments like bank CDs and I-bonds.

 

[traineeinvestor]

Currently 39.5 months of expenses.

Since our income from all sources is greater than our anticipated expenses, this is much more than we need - I really should put some of it back into the stock market ... or increase spending.

 

[Rustic23]

A little more than 3x annual expenses. However, that figure is not based on annual expenses. We have almost 2x our annual expenses covered by cola and non-cola pensions and SS. I base our cash account on what it would cost to replace major items. i.e. car, roof, appliances, HVAC and such. Medical is covered, so any cash for this is minimal. Just replaced the car a couple of months ago, so the fund is a little short.

 

[LOL!]

We keep about 8% (0.08X) of annual expenses in cash or a little less than a month's worth.

I consider any bond fund and any equity fund and any ETF share(s) to be liquid since I can sell and have the proceeds in my checking account in 2 to 3 days. I can float 2 to 3 days easily with credit cards or whatever is in the checking account.

Plus every quarter I get a big chunk of dividends that have to go somewhere.

I just don't care whether one of these investments is up or down or sideways if I have to sell it.

And if something goes on sale, I just sell some bond fund shares to buy it and rebalance later.

One way I think of all this is that I have made so much money not being in cash that I can afford to lose a lot now and then and still be way ahead.

 

[pb4uski]

When I was working... 0%.

When I first retired....6% but recently revised down to 5% as 6% seemed to be too much.

About 2 years worth of spending since we also receive and spend dividends from taxable accounts and a small pension.

 

[NW-Bound]

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

I also include I-bonds, and Stable Value Funds, generally things that do not drop in value when interest rate goes up. The things that drop in value when interest rate goes up, I call them bonds.

Liquidity is never a problem, because anything, stocks, bonds, and cash, can appear in my checking account within a few days with a few mouse clicks.

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

If I take what Quicken tallies up as cash, and divide it by my expenses in the last 12 months, I get 10X.

If I cheat and say that the last 12-month expenses have items like home improvements and large purchases that should not be recurrent and take them out, then I get more than 15x.

Either way, I have way too much cash on hand, and need to do something better with it.

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?

Theoretically, all that cash is plowable into the market if and when it crashes. But I did not do that in 2009, though I did buy some. I was too chicken.

I am looking to do something better with that cash for better returns, and only keep some in I-bonds.

By the way, Quicken tally includes cash inside MFs. Most MFs usually hold a bit of cash like 1 to 2%. This cash is not accessible to you, but Quicken AA figures account for that.

 

[Dd852]

Cash is currently 1.8 years of current spending rate (which has been high this year ). It is 2.0 years of my five year average spend.

 

[Aerides]

usually 3x expenses, erring on the side of letting that grow to 4x until we have a little more clarity into things like ACA, taxes, and potential rockiness going into 2017.

 

[Curmudgeon]

We keep about 8% (0.08X) of annual expenses in cash or a little less than a month's worth.

...

One way I think of all this is that I have made so much money not being in cash that I can afford to lose a lot now and then and still be way ahead.

Wow, that's interesting, certainly this view seems to be the 'outlier'. I'll have to run some numbers to see if it makes sense for me. Thanks for the perspective!

 

[Lake161]

Wow, that's interesting, certainly this view seems to be the 'outlier'. I'll have to run some numbers to see if it makes sense for me. Thanks for the perspective!

I guess I'm an outlier as well. We keep 2-4 months in cash.

Michael Kitces has posted a couple of times on this topic with data to back up his assertion that the most significant impact of a cash reserve is more mental than real.
https://www.kitces.com/blog/are-cash-reserve-retirement-strategies-really-necessary/

 

[audreyh1]

Perhaps - but if your retirement fund is already bigger than you need, why risk more in the market? To have more money when you die?

This is definitely a different strokes kind of thing - some folks don't mind volatility, others prefer to reduce it if it doesn't compromise their long term needs.

 

[Options]

Perhaps - but if your retirement fund is already bigger than you need, why risk more in the market? To have more money when you die?

This is definitely a different strokes kind of thing - some folks don't mind volatility, others prefer to reduce it if it doesn't compromise their long term needs.

+1
If you've won the game, why keep playing? Next month, I will increase cash to 4x spending for this very reason, intending to repeat the process again in 4 years at a time when income/expenses will change.

 

[Dd852]

I guess I'm an outlier as well. We keep 2-4 months in cash.

Michael Kitces has posted a couple of times on this topic with data to back up his assertion that the most significant impact of a cash reserve is more mental than real.
https://www.kitces.com/blog/are-cash-reserve-retirement-strategies-really-necessary/

I'm a big fan of giving myself mental pleasures!