How much cash is too much cash in savings?

[Scallywag]

Interesting article here:

https://www.bankrate.com/banking/savings/can-you-have-too-much-in-savings/

What is your opinion? Is there actually such a thing as TOO much cash in the bank? If so, then how much (in your opinion)? How do you ensure liquidity if it's not cash in the bank for a true emergency? How do you invest "excess" cash so that it's available to you if you ever need it?

I believe a year's expenses in a safe savings account is minimum for my situation. I don't think 6 months' worth of expenses is enough but that's my opinion.

[kork13]

It does vary based upon individual situations, but in general terms, I'd say that ~6 months of expenses in savings is a good minimum, with 12-18 months getting to be excessive (in most cases). Note that I'm talking TOTAL cash, including EF, sinking funds, etc. For folks with highly volatile, seasonal, or unreliable incomes, 1-2 yrs expenses could be reasonable, but again, much beyond that gets excessive.

For excess cash, I'd just invest it in a taxable brokerage account, according to my planned asset allocation (in my case, a clutch of index MFs/ETFs). As you build up more money in there, the specific dollar amounts mean less, and you simply know that when you need money for something, it's there.

I say that, and here I sit with nearly 2 years' expenses worth of cash just sitting around languishing... But we're about to buy DW a new-to-us car, and a house in July/August. By September, I expect we'll be back down to around 6-8 months of cash on hand, with the rest invested.

[Jluke]

For me, too much cash would be in the 90-100k range.

I am sitting on at least half of that now.

Think I want 50k-60k moving forward so need to use the excess cash for something. Maybe payoff a car (<4K at 0.9%) or invest like I’ve been doing.

[~bs]

it really depends on the individual. I see over 80k as too much right now. I want to maintain a good cash balance on hand in case opportunities come up, but not so much I risk missing out big time on other investments. When SHTF, people seem to think that they can simply draw home equity, pull stocks or bond investments etc, But as march investment crash showed, when there is a panic sell, everything will drop, and you will take large losses if you want to sell during that timeframe.

[rennigade]

I would say there's no real answer. Isnt apple sitting on over 100 billion in cash? Same with Berkshire. Granted, those are companies and not individuals. So in my opinion, theres not too much cash you can put in savings.

[bjl584]

It depends on your individual circumstances.
For me, personally, 6 months in an EF is more than enough given my current situation

[Fishindude77]

Generally, you are passing up the opportunity for investment gains with excess cash you have sitting in a savings account which generates very low interest.
However, over the last several months since Covid, your cash in the savings account is all still there, while most folks market investments have tanked and lost some.

I've been sitting on way more than we need for a couple years, waiting for a solid investment opportunity to come along.
Do what works for you.

[cypher1]

Everyone's situation/comfort level is different. I'd say 3 months minimum, 6 highly recommended, 9-12 depending on job security. I've resorted to 12mo for peace of mind, which is under 9% of my portfolio.

[corn18]

Cash in an EF is a good idea.

Cash in a checking account to act as an accumulator is a good idea. Bills don't come in evenly spaced throughout the month.

Cash in an investment account is never a good idea. Cash never goes up in real value. It is always eroding. You can mitigate the drag by investing in promotional savings accounts and high yield CD's or MM accounts, but it is always losing real value. Lots and lots of people right now are justifying cash because of the volatility, waiting for the right time to invest it. That's a cop out. Time in the market, not market timing. If you are holding cash, you have the wrong asset allocation.

I am holding a boatload of cash right now due to selling a house. We are building a new house and debating whether to pay cash for it or get a mortgage. I am locked in @ 3.125% fixed for 30 years right now. That is a great rate. The numbers say take the loan and invest the $500k in my 60/40 portfolio. My emotions say it sure has been nice not having a mortgage. We'll see where that goes. If we get the mortgage, we will have $500k to lump sum into our 60/40 portfolio. No cash.

[disneysteve]

The key sentence in that article is this:

Having piles of cash sitting in your account for no reason is a bad idea.

That's really the answer. There's no particular amount or percentage that is necessarily too much. It all depends on your situation and why you have that stash. If you are retired, you may keep 2-3 years of expenses in cash to help avoid having to dip into your investments during a market downturn. If you're saving for a down payment on a house, you might have a large stash. If your daughter's wedding is coming up next year, you might have 30 or 40K set aside for that.

If you're sitting on cash for no reason and no expected need or just because you're afraid of investing, then you may well have too much cash. There is an opportunity cost to doing that. That money is losing ground to inflation with each passing day.

[LivingAlmostLarge]

I am one sitting on a lot of cash. I don't know what to do with it. We are really torn. We have a lot of comfortable cash for EF. But at the same time we have been wanting to buy a rental property for about 24 months now. After we bought our current house in 6/2017 we were pretty settled renovations and cash wise by 6/2018. We looked at our investments and knew we were overfunding retirement. So we drew back a bit and moved into cash with the idea that maybe we'd buy a rental. 24 months later and no rental has penciled out for me easily. I've been waiting and too nervous to pull the trigger so we've been accumulating cash.

I did buy ibonds about $60k worth. That could easily be my EF. I have about $100k in taxable account because I am waiting for the market to drop and no invest in. I missed March 2020 window. I have a large 6 figure chunk in our online savings account. That was supposed to be the investment property DP or full cash but again nothing has happened. So it keeps sitting. I don't know what to do. But now we are seriously considering moving ourselves or doing a renovation on our current place and that money will go to that. So yes we are losing ground to inflation and have been for 2 years. I probably should have invested $200-300k over 2 years. But then honestly I don't know that I would have the nerve to buy an investment property if i do that.

I don't think I would feel comfortable pulling money out of stock market to sink into property. I feel like it's earmarked for us or rental and pushing it straight into stocks sounds good but what if the market had dropped? I feel like everyone here and all experts say money you'll need in 5 years don't risk in the stock market. And to me that's why I couldn't be as aggressive as I wanted to be. Considering also I like to invest aggressively.

[bjl584]

I am one sitting on a lot of cash. I don't know what to do with it. We are really torn. We have a lot of comfortable cash for EF. But at the same time we have been wanting to buy a rental property for about 24 months now. After we bought our current house in 6/2017 we were pretty settled renovations and cash wise by 6/2018. We looked at our investments and knew we were overfunding retirement. So we drew back a bit and moved into cash with the idea that maybe we'd buy a rental. 24 months later and no rental has penciled out for me easily. I've been waiting and too nervous to pull the trigger so we've been accumulating cash.

I did buy ibonds about $60k worth. That could easily be my EF. I have about $100k in taxable account because I am waiting for the market to drop and no invest in. I missed March 2020 window. I have a large 6 figure chunk in our online savings account. That was supposed to be the investment property DP or full cash but again nothing has happened. So it keeps sitting. I don't know what to do. But now we are seriously considering moving ourselves or doing a renovation on our current place and that money will go to that. So yes we are losing ground to inflation and have been for 2 years. I probably should have invested $200-300k over 2 years. But then honestly I don't know that I would have the nerve to buy an investment property if i do that.

I don't think I would feel comfortable pulling money out of stock market to sink into property. I feel like it's earmarked for us or rental and pushing it straight into stocks sounds good but what if the market had dropped? I feel like everyone here and all experts say money you'll need in 5 years don't risk in the stock market. And to me that's why I couldn't be as aggressive as I wanted to be. Considering also I like to invest aggressively.

Sounds like a good problem to have.
Sitting on that much cash, I 'm assuming that you want to buy a rental property for all cash and avoid leverage?

One of my goals is to pick up a few vacation cabins in the area where our cabin is and rent them as short term rentals (weekends or weekly in season)
You can pick up a turn key cabin in the area for less than $50K and rent it for $50 per day or more depending on area.
Activities in the area give you nearly a year round rentability.
My criteria is that I pay all cash for whatever I end up buying.
I still have a way to go before making this a reality though.

[Jluke]

I am one sitting on a lot of cash. I don't know what to do with it. We are really torn. We have a lot of comfortable cash for EF. But at the same time we have been wanting to buy a rental property for about 24 months now. After we bought our current house in 6/2017 we were pretty settled renovations and cash wise by 6/2018. We looked at our investments and knew we were overfunding retirement. So we drew back a bit and moved into cash with the idea that maybe we'd buy a rental. 24 months later and no rental has penciled out for me easily. I've been waiting and too nervous to pull the trigger so we've been accumulating cash.

I did buy ibonds about $60k worth. That could easily be my EF. I have about $100k in taxable account because I am waiting for the market to drop and no invest in. I missed March 2020 window. I have a large 6 figure chunk in our online savings account. That was supposed to be the investment property DP or full cash but again nothing has happened. So it keeps sitting. I don't know what to do. But now we are seriously considering moving ourselves or doing a renovation on our current place and that money will go to that. So yes we are losing ground to inflation and have been for 2 years. I probably should have invested $200-300k over 2 years. But then honestly I don't know that I would have the nerve to buy an investment property if i do that.

I don't think I would feel comfortable pulling money out of stock market to sink into property. I feel like it's earmarked for us or rental and pushing it straight into stocks sounds good but what if the market had dropped? I feel like everyone here and all experts say money you'll need in 5 years don't risk in the stock market. And to me that's why I couldn't be as aggressive as I wanted to be. Considering also I like to invest aggressively.

How did you miss March 2020? Because you weren’t sure that you wanted to invest the cash at that point or you were afraid to invest?

just interested to know the reason.

I froze up and didn’t get to invest at the bottom but I did buy a little on the initial drop.

[LivingAlmostLarge]

I just wanted to be able to buy multi-families. I wasn't sure how much we were going in. Or if I could get into a commercial building. I was picturing $1m invest into something or multiple multi families. Not really paying cash. Still leverage but derisking I was hoping by having more doors.

Jluke, I didn't buy in March 2020 because I was really torn. I thought about moving all-in and DH and I discussed moving all our excess cash into the market. But then we decide we have too much invested in stocks right now and always have been and we've never pulled the trigger on RE. I really want to diversify and buy a rental at least one. And if we sunk in all the money I know we'd not want to pull it out and instead work on "saving" our DP again. So we would again be behind the 8 ball. Last recession we didn't have excess cash to take advantage of the 2007-2008 housing crash. We were younger and poorer. This time I want to try to not be in that position and instead have money to buy RE and ride it out. Maybe it's a stupid, but I really want to gamble on this.

FWIW in March i pushed in another $50k in taxable account to invest more in the market and bought stocks that are risky plays and just watching. I doubled up on my KO and XOM long term positions. I added TSLA and JETS and bought HA. I hadn't considered FVRR until Singuy and I just moved into that as well after he mentioned it but only $5k. But I bought some really random stocks to buy and sell like CCL, TUP, WMT, COST, UCO (bought and sold already). I also took gains in my kiddos ESA and taxable accounts and moved from VTI to VOO for both 100%. I moved their 529 which I just opened in Feb 2020 and moved it with losses to Ibonds for now. I'm going to wait that out and then move more into their accounts and VOO.

And we are investing DH's 401k about $5k/month the maximum $56k/year. I already did single investments into our Roth and kids ESA. So I am moving into the stock market but I holding off big moves mostly because of what we talked about - buying a different primary residence or buying rentals. I think next year I'm thinking about 16 - 18 months we'll see a decline. The question is do we hold cash until then? I think the answer yes, because now we are getting serious about us moving and we are getting really serious with a RE decline i'll feel more comfortable jumping into Investment property. I know all landlords say it doesn't matter if it pencils out. But at the same time would you rather be buying high or buying low?

[corn18]

You really should pick an asset allocation and follow it. Way too much thinking going on with your plan. You can adjust your AA but not because the market is high or low. The market is always high or low.

I like your desire to diversify. I would love to do that, but I don't want another job.