Author Topic: Stop investing for Cash?  (Read 563 times)

Kem

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Stop investing for Cash?
« on: June 11, 2019, 09:12:05 AM »
Good day fellow Stachers,

Assuming I stay the course and my job (of 12+ years) remains stable I expect to reach FI in 9 years at $1MM (+/-20% for non-average market returns).

Currently $50K of my funds are in accessible VTI (Roth contributions & Taxable account), $3K is in Fundrise private REIT, and $55K is in IRA & 401K.   I also have $6K in cash (which is in a 2.3% account, primarily for planned house/car/pet maintenance buckets). 

The current funds would be significantly higher had I not concentrated on paying off all my high interest debt.  With all but my 3.875% mortgage (194K) and 5.01% student loan (41K) my investment savings has accelerated significantly.

My historical take on Emergency funds is that I can always liquidate VTI from the Taxable account and the Roth Contributions.   As such, I currently have over a year of living expenses easily covered (over 2 as we would realistically go extreme lean during a true emergency).

I have been considering using the majority of my investment money to save $30K in cash for 2 reasons. 

1 - I would very much like to jump into cashflow realestate IF it can accelerate my path to FI.  Also, IF I can leverage it into a tool that covers my monthly living expenses so that my day job status does not impact our living levels I would be ecstatic.   

2 – My historically industry assured business has taken a management driven turn which allows for the first time in 30 years competitors to step in (for a chance that the owners receive increased revenue).  As such, a job that was highly unlikely to disappear in the next decade+ has taken a turn in which it is possible.  It would be a shame if I needed to liquidate VTI during a market downturn if that timeline corresponds with a higher unemployment rate.

I do not lose sleep over this, however RealEstate (in my area) is currently a bit frothy.  The market/unemployment cycle/etc is also a bit frothy (IMHO).   I TOTALLY understand the dollar cost averaging will almost always work out in my favour however we all know that at some point the Stock and/or RealEstate market is going to correct. 

What are the community thoughts of accelerating cash savings for up to a year to have reserves that can be used to
1 – prevent liquidation of VTI to cover a job move should my current path hit a rocky patch,

2 – to have the funds to dump buy in a market dip, and/or

3- to have the cash for a downpayment on a distressed property (preferably through probate led, foreclosure, or divorce mandated quick turn) that can be converted into a 3+ unit rental (I have my eye on older 2 story homes with basements, turning  each floor into a unit within biking distance to the local university).

Thanks folks!


Just an aside, my current home does not hit the 1% rule.  During the housing crisis equivalent homes rented for $100/m more than my mortgage payment and currently it rents for $500 more than that payment.  As such, renting it in a market downturn is an option vs selling should I choose to live in one of the rental units to take advantage of a tax play within 5 years of moving out of the current house.

tyler2016

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Re: Stop investing for Cash?
« Reply #1 on: June 11, 2019, 09:23:34 AM »
Keeping a stash of cash is a great hedge against sequence of return risks. I think 2 years worth is enough to ride out bad recessions. Having a few years worth also buys you tons of time to figure out a plan if things don't recover in 2 years.

bbates728

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Re: Stop investing for Cash?
« Reply #2 on: June 11, 2019, 09:24:35 AM »
That is a lot of words to ask if it is a good idea to stockpile cash in case of market opportunities.

Ultimately, the strongest point in your case is the potential of career displacement. Only you know the chances of that occurring and only you know how much cash you need to survive it. I am a little surprised by the need for $30k especially with a bond parachute of $50k as well. Seems excessive to me but I am not you and I don't know your risk tolerance.

If the case is real estate then that is something different entirely and hopefully someone else can jump in with some advice. Notably, if the extra cash is for real estate then it isn't for job loss protection...

Lastly, the case of having money for buying into a market dip is just another way of saying that you want to time the market. Not a good idea. Time in the market is better than timing the market.

Ultimately, you gotta decide what your needs are. I suggest looking at creating an Investment Policy Statement to help govern your movements through your values and expectations. For me that statement leads me to first pay off student loans, then invest everything I have into VTSAX with only a $5k buffer. $5k represents almost 2 months of expenses and would only be used if both my wife and I lost our jobs at the same time. Adding on to that, we also have tons of available credit as we churn cards and have a solid support structure if things went truly south.

$50k is 5% of my total FI goal. I wouldn't make these kinds of decisions lightly.

Good luck and let us know what path you go down!

wageslave23

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Re: Stop investing for Cash?
« Reply #3 on: June 11, 2019, 10:01:24 AM »
I don't think it's a completely dumb idea.  I have a similar thought process that I want to have cash available in case there is a housing dip in the next few years.  But my "cash' is invested in VTI.  If I'm going to bet, I'm betting on VTI being higher in 2-3 years when I want to buy real estate rather than lower.  Of course there is risk, but then again not having your money invested is a risk as well and historically not investing is a bad bet. 

bbates728

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Re: Stop investing for Cash?
« Reply #4 on: June 11, 2019, 10:59:05 AM »
Of course there is risk, but then again not having your money invested is a risk as well and historically not investing is a bad bet.

Not investing is a bad bet. Stockpiling cash is not investing. Timing the market in hopes for a dip is also not a great strategy.

Kem

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Re: Stop investing for Cash?
« Reply #5 on: June 11, 2019, 11:03:08 AM »
Thanks for the sanity check folks.

My ‘Cash is VTI’ has been my thought process regarding emergency and generally savings as well.  With all but a few historical scenarios this should prove in my favor over a 2-3 year period and anything else is a bet stacked against me.   

I do have a personal policy statement - which is analyzed no less than quarterly - which gives each dollar earned a defined task.   
Some of these defined tasks include a max match 401k, $500 Roth IRA (secondary liquid VTI), and a maximized remainder into a 75 liquid VTI/25 Fundrise split. 

I also have 104K in CC with no balance if Armageddon rolls in.

Looked at this way, I suppose my question was a consideration for changing my stance on ‘Cash is VTI’ - which generally is a poor stance to take.   This is enough of a sounding board to strongly stay the course and consider selling VTI when a RealEstate opportunity presents itself rather than hording cash (as cash).   

My only real gamble here is, if the market has a strong correction at the same time as a RE opportunity, I may not want to take advantage of that opportunity.   

**********
I like my job itself, find joy daily, etc

During my teen years I helped another flip 8 foreclosures (he passed away) for rental properties and I was a painter for 8 years – so I would not be going into the process completely blind.

SO… a sounding board of different viewpoints is my main goal of posting this rant 😊






Extended thoughts that triggered this quest:
Part 1 **********
1 - My primary thought is to have cash for buying into a RealEstate dip (this could have the highest impact of returns and would be the main goal).  HOWEVER, building this cash will require that I not contribute to my liquid investments for a year.

2 - Secondary is to buy into a market dip –I am not planning on timing the market, however if I give up liquid investment contributions for year to build a cash reserve and then pull the trigger I would effectively be doing this.  (If the markets dipped 30% and RealEstate was not yet looking highly attractive, I would dump in as the discount would be too much of a temptation to resist taking advantage of).

3 - As an afterthought, I would use a cash cushion before liquidating VTI in the case of a job displacement.  (I feel confident that the next 3 years the company will make the same or more money than the historic norm – after 3 years it will be interesting.) 

Part 2 **********
I see 2 levers that can be pulled to be able to invest like mad
•   Spend less
•   Earn More

For years I have meticulously tracked expenses vs lost opportunity costs and I strive to increase efficiencies.  Our current expenses offer a level of frugality at which my family is happy living within.  In an emergency I know what to immediately slash and I have longer term contingencies that would allow us to live on my spouse's salary if required (but she would not be happy with those conditions).  So job displacement is not something I lose sleep over. 

I currently earn at the peak level as an employee in a low/medium cost of living area.  As I am fully FI at 9 years away (assuming the company’s choice of business model change doesn’t cause a displacement) the options to accelerate FI as I see it are start my own company (not enthralled at risk/reward levels yet), run more side hustles (interest levels not super high here as the tradeoff is less time with my young children), or leverage RealEstate (huge interest here – but only IF market conditions offer up a discounted asset). 
« Last Edit: June 11, 2019, 11:06:45 AM by Kem »