Too much cash

[kork13]

For the last 1.5 yrs, I've been slowly building up a sizeable chunk of cash. Excluding our I-bond EF, the float in checking & our rental home account, currently sitting with $76k in savings, earning a measley 0.5%. We want to keep some cash on hand as sinking funds, but I believe our sinks have become too deep.

So over the next 6 weeks, I'm going to be investing $5k/wk from those savings into our taxable investments ($30k total). I'm also cutting in half the money we're sending into savings to slow its growth, diverting that money direct to the taxable investments.

I'd like to say this is an intentional move based on some grand assessment of stock market opportunities or some jazz like that. But no, it's simply because inflation is running so wildly high right now that it's silly to hold onto excess cash when it's earning peanuts.

My question: How much do you all keep in liquid cash, sinking funds, or otherwise? Perhaps in relation to your monthly income or expenses? Or as a percentage of investable assets? How do you bound what's reasonable to keep in cash?

Once this cash is back in the market, our remaining cash will amount to 6mo expenses in I-Bond EF, 1yr expenses in general savings/sinking funds, and 1yr rental expenses in rental account

That feels a little more reasonable... Just curious if you have any rhyme or reason to managing your liquid cash.

[bjl584]

I'm sitting at around $15K in liquid cash.
That represents around 5 or 6 months worth of expenses. Give or take.

It earns hardly anything, but that doesn't bother me, since it really isn't supposed to.

If I had more than what I do, then I guess I'd be thinking like you are.

[rennigade]

Right now we have $125k in cash. That represents 7% of what we have. We have a kitchen remodel coming up this year which will probably cost around $50k so we wont be quite as cash heavy then.

[Fishindude77]

We maintain a fairly large chunk (over $500k) of our savings in CD's, savings and checking accounts. It's not making significant interest, but it's safe and not losing any either.
Whereas our mutual funds balance dropped approx. $50k just this week, when the market dropped. Have seen events in the past where our market invested money dropped by 25% or more pretty much overnight.
Having the majority of our net worth tied up in the stock market at all times would worry me.

[rennigade]

We maintain a fairly large chunk (over $500k) of our savings in CD's, savings and checking accounts. It's not making significant interest, but it's safe and not losing any either.
Whereas our mutual funds balance dropped approx. $50k just this week, when the market dropped. Have seen events in the past where our market invested money dropped by 25% or more pretty much overnight.
Having the majority of our net worth tied up in the stock market at all times would worry me.

Yeah, but how much were you up last year? The market is going to fluctuate. People tend to focus so much on the negative waves that come but if you look at the past 10 years, im guessing that $50k is extremely minimal.

[Jluke]

Target is
40k emergency
10k sinking
10k savings cushion

When those targets are exceeded I evaluate where we are and move money to invest or hold depending on upcoming expenses.

just be sure that recency bias with the market isn’t persuading you to invest more. You can probably re-save the amount you are moving to investments fairly quickly with new money so may not matter.

[disneysteve]

I've actually been actively building our cash war chest in preparation for retirement. I want to have 2-3 years of cash on hand which means at least 200K.

We also have some large expenses looming - new roof, replacing DW's' car, etc., so I want to be prepared to pay cash for those things.

[Fishindude77]

Yeah, but how much were you up last year? The market is going to fluctuate. People tend to focus so much on the negative waves that come but if you look at the past 10 years, im guessing that $50k is extremely minimal.

Completely understand all of that, and have what we feel is plenty of $$ at play in the market.
Also understand that a bunch of it, or all could be lost if some crazy black swan event came along. Some risk comes along with those potential rewards.

[ua_guy]

We've held aside a little more than $150k and feel it is too much. There's a story there and we are deciding whether or not we will pay off our house. Beyond emergencies, that's why we kept stuffing money in cash.

[GoodLiving]

Like Steve, we're looking at possible retirement in 3-5 years so we're starting to build up our savings to have 2-3 years liquid expenses.

[LivingAlmostLarge]

So I've had up to $300k in cash. We ended up investing about $200k of it in 2020 because we gave up on the idea of buying a investment property. I was trying to buy a multi family. Then I decided to keep ahead of inflation we kept on investing. Then the ibond rate seemed crazy this year and I bought another $40k so we have now $10k EF, $16k Roth IRA, $8k sink, $6k property taxes, and then my i bonds are at $100k. I just bought DH $20k in i bonds end of last year and this month and same for myself.

I haven't been this low on cash since we were broke grad students. But this time it feels okay because we seem to have so much sink/flex funds.

[srblanco7]

I've actually been actively building our cash war chest in preparation for retirement. I want to have 2-3 years of cash on hand which means at least 200K.
We also have some large expenses looming - new roof, replacing DW's' car, etc., so I want to be prepared to pay cash for those things.

We're in a similar boat - targeting two years of expenses at ER. Currently sitting on about $200k in cash with the intent to build it up this year to $300k+. Will have to buy a car in December 2022 as I transition out of a company vehicle, as well as new roof, and perhaps new furnace and a/c as well.

[corn18]

Retired last Mar with 3 years cash. Now I am trying to justify why I have any cash. I used a lot of it to fund 2021 expenses so I didn't have to sell anything and pay huge taxes (had a giant severance). For 2022, we will spend more of the cash and have some left over. But now what? Do I sell and replenish the cash? That seems silly. Now I just have a huge cash drag all the time. Do I only sell at market highs? That is market timing which I suck at. So I think I am going to only have 3-6 months cash. Maybe a year's worth. Might pay myself every month, quarter or annually.

It was nice starting retirement with boatloads of cash, though. One thing I did was include the cash in my AA. That way I wasn't overly conservative with the rest of my portfolio. I will say that life without a paycheck is different.

[jenn_jenn]

We’re targeting one year of expenses.

We have more than that and we’re still trying to figure out what we do with it.

[kork13]

For 2022, we will spend more of the cash and have some left over. But now what? Do I sell and replenish the cash? That seems silly. Now I just have a huge cash drag all the time. Do I only sell at market highs? That is market timing which I suck at. So I think I am going to only have 3-6 months cash. Maybe a year's worth. Might pay myself every month, quarter or annually.

I don't recall where/with who I was discussing this recently, but my thought toward it would be to keep probably at least 2 years of cash at all times to protect yourself from selling when the markets are in the pits (and SORR while you're at it). You spend out of the cash, then every quarter (or whenever) assess your market returns. If returns are at least 5% (for example--set the line based on your SWR + 1%) above the value from your most recent withdrawal, then sell assets to refill your cash bucket up to 2yrs expenses. If below that line, defer your withdrawal until values recover. That gives you at least 2 years of deferral space to wait out a down market.