Author Topic: Who says having too much cash is bad??  (Read 810 times)

CrazyIT

  • 5 O'Clock Shadow
  • *
  • Posts: 17
  • Age: 54
  • Location: MN
Who says having too much cash is bad??
« on: August 10, 2018, 09:49:32 AM »

I have been building up my cash reserves (for the last few years) after maxing out the 401K and Roth contributions of course.  With the cash reserves I was planning on subdividing my property and build another house but the city I live in really only wants to deal with big developers and city water and sewer had not been installing in my area yet.   Having cash on hand would have been great for building that though.
That cash has been growing month after month,  Have it in an Ally no penalty CD at 2% (best I could find)

Then my son one year out of college after landing a good job decides it’s time for him to start looking for a home of his own.  Well in my area properties are hot hot hot.   Most starter homes sell in a couple days for well over asking.   After looking at a few with him and seeing them sold almost as fast as they are listed I thought,,,, “I have a plan”
 
Why don’t I use my cash and fund a house for him?  Humm let me think about this?  Well cash offers are always put to the top of the pile when a seller is looking at prospective buyers right?   If I funded a house for him I could carry back a Contract for Deed (say for maybe 3-5 years and let him get ahead some then refinance and cash me out),  charge him the same rate a bank would (okay maybe only 4% cuz he’s my favorite son).   Win for me because I just doubled my interest rate! And win for him….(he gets to buy his first house)

Signed the purchase agreement last night and I am very excited (and proud) for him!

Sooooo?  Who says having too much cash is bad??

Cromacster

  • Handlebar Stache
  • *****
  • Posts: 1576
  • Location: Minnesnowta
Re: Who says having too much cash is bad??
« Reply #1 on: August 10, 2018, 09:59:41 AM »
I don't think anyone says cash is bad.  It's all about opportunity cost.

Having cash gives you some extra flexibility as you have shown, but over the long run excess cash is sub optimal to having it invested in something.

Not saying you are wrong, but as thought exercise you might go back in time and "invest" the cash as you acquired to see what your opportunity cost was.

terran

  • Handlebar Stache
  • *****
  • Posts: 1334
Re: Who says having too much cash is bad??
« Reply #2 on: August 10, 2018, 08:35:03 PM »
... Loans to family members on the other hand. Unless you're willing to foreclose on your son this is a gift that you might get back.

GreenEggs

  • Bristles
  • ***
  • Posts: 415
  • Location: Here & There
Re: Who says having too much cash is bad??
« Reply #3 on: August 10, 2018, 09:26:02 PM »
It's great that you were in the position to help your son.


But as others have said "You really don't want to "sit" on too much cash.".  My dad had a pile of cash sitting in his safe from probably 2011 til mid 2017 when I finally took over his finances and put most of it in VTSAX.  It's sad to think about how much growth he missed out on.  Oh, well...




Mezzie

  • Pencil Stache
  • ****
  • Posts: 803
    • Mezzie Learns
Re: Who says having too much cash is bad??
« Reply #4 on: August 11, 2018, 10:25:35 AM »
I am very slowly building my cash reserves so I have enough to live off of for three years should my retirement date coincide with market troubles. I get 3.5% on a CD, so it's not terrible. Right now I'm up to about six months of bare bones expenses saved up.

Ricksun

  • 5 O'Clock Shadow
  • *
  • Posts: 77
Re: Who says having too much cash is bad??
« Reply #5 on: August 13, 2018, 07:49:28 PM »
The biggest benefit of cash is having it when needed.  If you're invested in your son's property, you don't have access to it, negating the benefit.  In that case, why not invest elsewhere?  The flexibility would certainly be better than in a house!