Author Topic: Where to Stash Cash???  (Read 2740 times)

RodgerWilco

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Where to Stash Cash???
« on: September 04, 2017, 07:49:49 AM »
Minnesota Mustache here wondering: Where should I stash cash?

Seems like an easy question to answer right?

Heres the thing, I am saving about 45% of my monthly paycheck hoping to not be in the hamster wheel my whole life. I know that I am doing good but where should I put this money? Stock market is at an all time high and record gains cannot go on forever. My long term savings (401k and IRA) are in the stock market but I want to be more conservative with this nest egg as I will need it when I retire many years before age 62. This is not long term savings it is mid term. CDs pay poorly. What would MMM do?

Currently I am saving in a online savings account earning a little more than 1%


maizefolk

  • Walrus Stache
  • *******
  • Posts: 5773
Re: Where to Stash Cash???
« Reply #1 on: September 04, 2017, 07:53:57 AM »
The market may be at an all time high, but there aren't any better alternatives out there (which is part of why the stock market has risen so fast in recent years, bonds pay very little, savings accounts pay very little). I still have my savings going into index funds every month.

If it helps you sleep at night, it might be useful to read the story of Bob, who was the worlds worst market timer and only invested right before major market crashes.

http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

HipGnosis

  • Handlebar Stache
  • *****
  • Posts: 1687
Re: Where to Stash Cash???
« Reply #2 on: September 04, 2017, 10:55:48 AM »
Cash account of my Fidelity account.
Makes it easier to invest when an opportunity arises.

frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1687
Re: Where to Stash Cash???
« Reply #3 on: September 04, 2017, 11:24:27 AM »
If you are SURE this is mid-term savings, consider a balanced fund.  I use this one for a potential car purchase (I don't own a car currently, but want to have the option to buy one using a fund that keeps up with inflation and doesn't "get badly hammered" when the market tanks.  I think of this as my good used car parked in the garage until I need it...):  https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0103

TempusFugit

  • Bristles
  • ***
  • Posts: 492
  • Location: In my own head, usually
Re: Where to Stash Cash???
« Reply #4 on: September 04, 2017, 12:26:08 PM »
I think it depends upon your definition of mid-term and whether you have a defined use for this money or if it's just a cushion. 
I would also have to ask whether you are maxing out your other accounts to get your full benefits. 

If you expect to need this money in the next 3 years, then I think you would be wise to put it into a CD ladder / money market fund combination so that you would hopefully at least cover the inflation rate. 

This is something that I grappled with quite a bit over the past few years.  I'm sure many of us struggle with the loss aversion bias that makes the contemplation of losing money much stronger than the contemplation of gains on that money.  Sometimes you just have to grit your teeth and set yourself a minimum safety cushion - whatever it takes to let yourself sleep at night - and make some moves in the mathematically advantageous direction with the rest. 

No matter what the math says, you have to work within your own risk tolerance.  As you note, you are already doing well to have this conundrum in the first place.  Wrestling with where to put all this extra money is a nice problem to have! 

Around tax time this year I decided that I had to do something productive with a large cash account balance that I had been carrying for the past few years.  I had been maxing out my 401 and Roth accounts, and I had some taxable funds as well, so I was able to rationalize that having a big chunk of cash was the 'prudent' and perhaps even 'strategic' thing to do. After all, the market was at historic highs. The PE10 was getting really up there.  A correction or even a bear had to be just around the corner, no doubt waiting for me to put this money into play before pouncing.  Isn't it smarter to wait for that correction and then push my chips in at lower valuations? 

That little conversation went on in my head for almost 4 years.  4 years of market gains.  4 years of earning .01% return on $100K.  Yeah, I hadn't even put it into any CDs because I wanted it to be liquid in case of a big market correction.  Even online savings accounts would have been an improvement.  But fear makes us stupid.

I finally took some steps this spring.  I put a few thousand a month for 3 months into VTSAX and VBTLX funds. This was sort of a dollar-cost-average psychology thing. I moved my sleep-at-night minimum of 20K into a MM fund where I got a $200 bonus (capital One 360 account). This put it on par with a 5 year CD (for this first year, anyway) without locking up those funds.  I also put 15K toward my mortgage principal. 

I realize that this is probably not the statistically optimal way to distribute that money.  But it beats the heck out of leaving it in a savings account. 

jodelino

  • Stubble
  • **
  • Posts: 109
Re: Where to Stash Cash???
« Reply #5 on: September 04, 2017, 02:06:28 PM »
I am retired and keep a cushion of cash in my checking account and the rest divided amongst the following bond and money market funds, with yields ranging from 1.1% to 4.76%.

VWEAX   Vanguard High-Yield Corporate Fund Admiral Shares    
VFIDX   Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares    
VMMXX   Vanguard Prime Money Market Fund    
VFSUX   Vanguard Short-Term Investment-Grade Fund Admiral Shares    
VBTLX   Vanguard Total Bond Market Index Fund Admiral Shares

Rubic

  • Handlebar Stache
  • *****
  • Posts: 1109
Re: Where to Stash Cash???
« Reply #6 on: September 05, 2017, 07:10:11 AM »
I like to park short-term cash at Lake Michigan Credit Union which has
a 3% rate up to $15,000:  https://lmcu.org

Here are the criteria to qualify for the 3% rate in an LMCU Max Checking account:
  • Sign up for e-statements.
  • Minimum of 4 logins to online banking per month.
  • Minimum of 10 debit card purchases per month.
  • Direct deposit in your account at least once per month.
I have my LMCU account linked to Mint.com, which handles the minimal
required logins.

On the first Monday of each month, I reload my Amazon gift balance
with ten purchases of $0.50 each for a total of $5.00 to satisfy my debit
card requirement.

I also transfer $5 each month from my primary checking account into LMCU via
an automated ACH transfer which counts as a direct deposit.

The entire process takes less than 10 minutes each month after you've
got your account set up.  LMCU has a nice link on your account page to
confirm you've met all the requirements to qualify for the 3% rate.

Cwadda

  • Handlebar Stache
  • *****
  • Posts: 2179
  • Age: 27
Re: Where to Stash Cash???
« Reply #7 on: September 05, 2017, 07:31:13 AM »
I recommend making a case study topic. This will help other MMM forum users give you the best advice.

https://forum.mrmoneymustache.com/case-studies/

HipGnosis

  • Handlebar Stache
  • *****
  • Posts: 1687
Re: Where to Stash Cash???
« Reply #8 on: September 05, 2017, 09:34:50 AM »
I like to park short-term cash at Lake Michigan Credit Union which has
a 3% rate up to $15,000:  https://lmcu.org


I also transfer $5 each month from my primary checking account into LMCU via
an automated ACH transfer which counts as a direct deposit.

Thanks for sharing that! 
Can you share a link that gives info on doing direct deposits via transfers?

Rubic

  • Handlebar Stache
  • *****
  • Posts: 1109
Re: Where to Stash Cash???
« Reply #9 on: September 05, 2017, 10:19:42 AM »
I like to park short-term cash at Lake Michigan Credit Union which has
a 3% rate up to $15,000:  https://lmcu.org


I also transfer $5 each month from my primary checking account into LMCU via
an automated ACH transfer which counts as a direct deposit.

Thanks for sharing that! 
Can you share a link that gives info on doing direct deposits via transfers?

@HipGnosis:  I just schedule a monthly $5 ACH transfer from my USAA
checking to LMCU, and it counts as a direct deposit.

Once you've set up your LMCU account, just link it to your regular online
checking and schedule monthly ACH transfers.  There are no fees for the
ACH transfers -- or if there are, you have your money in the wrong bank. ;-)


RodgerWilco

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Where to Stash Cash???
« Reply #10 on: September 05, 2017, 10:20:29 AM »
Big Thank you to everyone for replying. There are some great ideas in here, and some good points.

I think that right now I need to decide how much liquid assets I need as a "cushion". And what my goals are. Do I want to invest in the market or buy property?

3% savings account is great! I will look into that.

I should be clear, I was thinking that it would be nice to have a little nest egg if (when) the market makes a correction. I hear stories of people buying duplexes in 2009 for 70K cash. Wouldn't that be nice? But if my money was in the market that would be a terrible time to cash out (as @maizeman has pointed out, don't sell!) I am thinking that even a bear market is impending. Then again, as we all know, I could miss out on record gains while playing it safe at !%.

To answer your question @TempusFugit, I am investing separately for my 401k but not maxing out the contribution limits. I put in 8 percent of my income and my employer matches 4 percent of that. (I could do more but I want to savor life before 62). Those funds are almost completely invested in Vanguard long term growth index, total stock market index and Berkshire Hathaway. But those are different accounts entirely from my "Mid-Term Savings".