How much do you keep in cash in a regular bank account?

[Tom]

Hi All,

I have two HBPPs.  One is for retirement and it holds actual bonds and physical gold.  The other I set up as a way to earn some interest with my short to mid-term money using FSTVX, PHYS, TLT and SHY.

I sold a decent amount of the short to midterm portfolio when I bought my house last year and I have a little more than half of my left over short to mid term savings sitting in a regular cash bank account and a little under half in the short to mid term PP.

My question is, how much if any do most people here keep sitting in cash?  Since 25% of the portfolio is basically cash anyway, is it stupid of me to be keeping over 50k not invested in the PP?  I like the security of knowing I have money easily accessible to pay months of living expenses if I need it, but its also not earning me anything.

[murphy_p_t]

don't know what your monthly living expenses are...that sounds like enough for at least a year or more of living expense....I'd be concerned about bank failure and slow access to those funds in that event.

[KevinW]

I have a checking account for household expenses that ebbs and flows between about $7-15k, that I consider separate from the PPs. $50k sounds like a lot to tie up in cash. If it were me I'd probably keep about $10k in bank cash and either dump the remaining $40k into a PP, or else consider it to be allocated toward the cash portion of your PP.

[buddtholomew]

Hi All,

I have two HBPPs.  One is for retirement and it holds actual bonds and physical gold.  The other I set up as a way to earn some interest with my short to mid-term money using FSTVX, PHYS, TLT and SHY.

I sold a decent amount of the short to midterm portfolio when I bought my house last year and I have a little more than half of my left over short to mid term savings sitting in a regular cash bank account and a little under half in the short to mid term PP.

My question is, how much if any do most people here keep sitting in cash?  Since 25% of the portfolio is basically cash anyway, is it stupid of me to be keeping over 50k not invested in the PP?  I like the security of knowing I have money easily accessible to pay months of living expenses if I need it, but its also not earning me anything.

Tom, I too am ultra-conservative and hold 16 months of living expenses in a savings account. The additional .4 months worth of capital beyond a year allows me to rebalance without incurring a taxable event, additional time in the event of a job loss before having to liquidate portions of the PP and thirdly, the additional cash lowers fixed income duration.

I expect a decrease in volatility and reduced gains with this approach. You have to find the balance that works for you.

[Tortoise]

There are two basic schools of thought: (a) keep everything in one big portfolio, or (b) have separate portfolios for separate "pots" of money. Which of these two schools you're in will likely influence how much you have in cash.

If you keep everything in one big PP, the 25% chunk of cash is likely good enough to serve as your emergency fund and various spending needs.

Personally, I have separate portfolios for different "pots" of money because it makes it easier for me to earmark and keep track of different savings goals. One "pot" is my 12-month emergency fund, which I keep mostly in cash, with a few gold and silver coins thrown in. Another "pot" is a home down payment fund, which I also keep all in cash since I'll likely spend it within the next couple of years. Yet another "pot" is a fund for new cars for my wife and me, which I keep in a PP since it'll probably be there for several years before we spend it. Most everything else goes into retirement funds (IRAs and 401(k)s), which are all in a single combined PP.

So yes, I'm extremely cash-heavy due to how I've elected to organize my various savings goals in separate portfolios. I may be unusual in that regard.

[sophie]

I keep my emergency fund out of the PP because my PP (which excludes active retirement accounts) isn't big enough to handle a rebalance event while preserving core emergency funds.  I calculated that my PP would need to be ~6 - 8 x the size of my emergency fund for that to be the case.

Keeping everything in one big portfolio is definitely the goal though, once the PP gets big enough.  Harry Browne reported doing it that way, writing a check to himself from his Treasury MM every month for living expenses and keeping less than one month's living expenses in his bank account.

[Tyler]

I've always kept 3-6 months of expenses in checking.  I consider the checking account as part of the cash portion of the overall PP - the form of the cash is purely for convenience.

[Libertarian666]

I have about a year's expenses in "cash", most of which is actually in a brokerage money market account. I have generally kept less than that, but since my working situation has been more uncertain lately, I've been adding to that stash so I don't have to sell investments for living expenses if I'm suddenly out of work.

[dualstow]

I used to have about the same as Kevin when things were normal. I've been renovating for nearly a year, so things are not normal.

[invst65]

I stay at $15k and count it as part of my PP cash.

That's my Fidelity bank account and if they still paid 5% interest like they did when I first opened it, it would probably be even higher. If they aren't going to pay any return to speak of then that's more than enough. Covers 2 1/2 - 3 times monthly expenses.

[MachineGhost]

I think a good rule of thumb is to make sure your cash covers 1-2 years of all your expenses before building up the other three assets.  It could take that long in a SHTF scenario for things to get back to normal.

[Mark Leavy]

18 months of living expenses - not counting the cash portion of the PP.

[jabba]

Far too much cash because I am coming to the PP now with stocks at an all time high and bond yields itching to go higher soon. The only thing I can force myself to buy is gold and silver shares/miners. The bond market is due a rate spike sooner or later, so why bother for a few %. I would rather have cash.

[MachineGhost]

Far too much cash because I am coming to the PP now with stocks at an all time high and bond yields itching to go higher soon. The only thing I can force myself to buy is gold and silver shares/miners. The bond market is due a rate spike sooner or later, so why bother for a few %. I would rather have cash.

What about the rate spike last year?  That sure killed me!  And rates in Japan and Europe are at least 50% lower so we still have room to run.  Even so, I just can't bring myself to buy long-duration T-Bonds.  If we ever top in the stock market again, I will reconsider for hedging purposes since everything else I've tried over the years doesn't seem to work as well.

[dualstow]

The bond market is due a rate spike sooner or later, so why bother for a few %. I would rather have cash.

Is it for a few % points or for protection? That said, I would also have a hard time pulling the trigger on new bonds right now. Of course, it wasn't easy when I did buy them. Started out at the low, low yield of 4%.

[sophie]

I think a good rule of thumb is to make sure your cash covers 1-2 years of all your expenses before building up the other three assets.  It could take that long in a SHTF scenario for things to get back to normal.

Yes, good advice!  A cash emergency fund has to be the first priority.  Relying on a small PP to serve as a source of short term funds is not a great idea, because you're most likely to need the money (job loss etc) during a bad economic spell, when all the volatile assets may well be down.  It'll work great once it's built up to 6-8 x the size of your emergency fund, but in the meanwhile regard it as long term savings.

[Mike59]

I think a good rule of thumb is to make sure your cash covers 1-2 years of all your expenses before building up the other three assets.  It could take that long in a SHTF scenario for things to get back to normal.

I agree with this ^. I keep 12 months after tax living expenses in the chequing accounts at all times and bring it back to its balance if it drops off (before any goes to investments). It's a sleep at night factor especially having a spouse and kids. My PP cash allocation is separate and therefore not touched for a year if I had to stop working.

[Thomas Hoog]

I have a checking account for household expenses that ebbs and flows between about $7-15k, that I consider separate from the PPs. $50k sounds like a lot to tie up in cash. If it were me I'd probably keep about $10k in bank cash and either dump the remaining $40k into a PP, or else consider it to be allocated toward the cash portion of your PP.

+1
And if have a seperate cash account (~ 20k) for buying a new car in case the old one drops dead along the road. Both are excluded from the PP portfolio.

[frugal]

Hello,

a few months is not enough?

I've read here, I think from SOPHIE that one advantage of PP is to have cash that we can always get to pay something in case of emergency.

Please explain, why you can't have it on ETF form.

Best regards!

[Pointedstick]

Personally, I consider PP cash to be my emergency fund. This obviously doesn't work if you have high expenses and a small portfolio. But with the inverse, I think it can work well.

[Tom]

Thanks everyone.  My expenses have been high lately b/c I just bought a house last year and I've been doing a lot of renovating.  Even without that though my expenses are probably fairly high compared to most b/c I live just outside of NYC in Fairfield County CT, which is a really expensive part of the country.

That said, my goal is to dump more into the mortgage in five years or so, to reduce my monthly payments. I feel like having over 50k sitting in cash is not helping me toward that goal.

I'm a freelancer so I like having the extra cash in case of an emergency.  That said, I've never had a problem with work in 10 years of freelancing (knock on wood).  After reading what everyone had to say, I'm thinking it may be safe to take an additional 25k and add it to the portfolio, keep the rest in a separate cash stash.

Now raises the question - dump the 25k in all at once or dollar cost average it month to month?

[frugal]

Personally, I consider PP cash to be my emergency fund. This obviously doesn't work if you have high expenses and a small portfolio. But with the inverse, I think it can work well.

[barrett]

I'm a freelancer so I like having the extra cash in case of an emergency.

I'm a CT-based freelancer as well. Maybe this is obvious but I think it makes a big difference if there are two income earners in a household. A big reason for a large cash stash is to protect us when we can't work or work isn't coming in for whatever reason. With two people working I don't think quite as much cash is needed.

Eventually I hope to be set up like PS where all my cash is just part of the PP, but that will likely happen in a few years when I go into semi-retirement.

[blackomen]

Usually anywhere between $1000 (absolute minimum) to $10,000 (absolute maximum, unless I have a big purchase coming up soon)

[ozzy]

Mine system is very similar to Libertarian666.  I have about a year's expenses ($25K total).  Half kept in my Checking account, the other half in my Brokerage money market account.  This way I have fire-power ready to purchase an asset class on a dip.  Or use for any other purpose (e.g. job loss, new car purchase, bail money...).    I also have gold/silver coins in my bank safe deposit box that I could sell and live off for another year or so, if desired.