Author Topic: Too much cash vs. other investments  (Read 3260 times)

hwstar

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Too much cash vs. other investments
« on: August 01, 2014, 11:42:50 AM »
I am 53. My wife is 51.  My wife does not work. I work as an electrical engineer and have been with the same employer for 25 years.
I have appx. $133K in money market accounts, $760K of 401K ROTH IRA and brokerage accounts. We only have a mortgage of $128K with no other debt with 12 years left to go.


I have a vacation home I'm considering renting out. It is free and clear, and conceivably could get 950/mo. rent.

Monthly bills:

Mortgage: $935.00
Property Tax and Insurance $500.00
Utilities $200.00 avg over 1 yr.
Business internet service $104.00  (to avoid data caps)
Cell Phones $20.00
Home phone SIP provider (Asterisk) $20.00
Trash Service $35
Groceries $600.00
Condo Homeowners assn. Fee $150.00
No cable TV, Netflix at $8.00
Pet costs for 1 dog $80.00 avg.
Auto insurance $80.00
Gas and auto maintenance $250.00.


Total expenses:

$2864/mo. $34368/yr.

Monthly net take home pay:

$6023/mo $72276/yr.


The reason I have so much cash set aside is I am the sole breadwinner, and reckon I would need 50K/year to pay all of the current bills plus pay for Obamacare if I lost my job. The company I'm working for is not in the best of shape at the moment. This stash would give me about 2.5 yrs. of support where I could take the time choose another job which is a good match (i.e. FU Money).

We live in a high cost area (San Diego, CA).

morjax

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Re: Too much cash vs. other investments
« Reply #1 on: August 01, 2014, 12:05:30 PM »
Perhaps consider having only what you would need on short notice in a money market account? The idea here would be to have instant access to only enough money to last you until you have a chance to liquidate some other assets to provide for the rest (~a few months worth). It may be out of your comfort zone, but in the MM account, your dollars are lazing about when they could be working hard for you when invested differently!

Eric

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Re: Too much cash vs. other investments
« Reply #2 on: August 01, 2014, 12:13:03 PM »
Utilities $200.00 avg over 1 yr.

We live in a high cost area (San Diego, CA).

How is this possible in San Diego?  It's like 75* year round!

Cheddar Stacker

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Re: Too much cash vs. other investments
« Reply #3 on: August 01, 2014, 01:27:21 PM »
1) Welcome to the forum.

2) You are FI (ish).

You can either pay off your mortgage (I wouldn't recommend that) or continue to pay it according to the amortization and your expenses will drop sharply when it's gone. The numbers below are based on a paid off mortgage.

Before considering health insurance costs, you have 33 times your annual expenses ($33,368-($935*12)=$23,148) saved, or a 3.03% SWR if you like.

After considering health insurance costs, you have 20 times your annual expenses saved, or a 5% SWR if you like.

This also doesn't consider taxes, or health insurance subsidies, or potential rental income (or sales proceeds) from the vacation home.

Have you considered moving to the vacation home? If that's your plan, you can drastically reduce your expenses and retire.

I'm not suggesting you do this now, just letting you know that you can breath easy, work until either you decide you're ready or your employer decides for you.  I say all this to let you know that yes, you are likely holding too much cash and to feel free to invest some of the emergency fund.

hwstar

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Re: Too much cash vs. other investments
« Reply #4 on: August 01, 2014, 01:34:51 PM »
I live in east county, about 15 miles inland from the coast. It gets hotter and colder as you go inland.

Utilities is water + gas + electricity. Electricity rates are third highest in the nation. Tier3 is 0.33 per kWh, and Tier4 is 0.37 per kWh.  During the winter we use around 450kWh, in the summer we use around 700kWh per month. Gas is usually a fraction of the cost of electricity (About 10% of the bill in the summer 40% of the bill in the winter). Water is $3.91/hcf for tier2 and $5.01/hcf for tier3. We use 25 hcf of water every 2 months during the summer and the bill is $149 bimonthly including a $49.00 fixed cost for the meter.

I also have a 1kW off-grid solar system with battery backup to power my computers and small energy efficient Mini-itx servers, but I still need to power these off
of the grid at night to save wear and tear on the battery.

The house does need better insulation. This is one of the projects on my short list.



Cheddar Stacker

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Re: Too much cash vs. other investments
« Reply #5 on: August 01, 2014, 01:53:11 PM »
I live in east county, about 15 miles inland from the coast. It gets hotter and colder as you go inland.

Utilities is water + gas + electricity. Electricity rates are third highest in the nation. Tier3 is 0.33 per kWh, and Tier4 is 0.37 per kWh.  During the winter we use around 450kWh, in the summer we use around 700kWh per month. Gas is usually a fraction of the cost of electricity (About 10% of the bill in the summer 40% of the bill in the winter). Water is $3.91/hcf for tier2 and $5.01/hcf for tier3. We use 25 hcf of water every 2 months during the summer and the bill is $149 bimonthly including a $49.00 fixed cost for the meter.

I also have a 1kW off-grid solar system with battery backup to power my computers and small energy efficient Mini-itx servers, but I still need to power these off
of the grid at night to save wear and tear on the battery.

The house does need better insulation. This is one of the projects on my short list.

Eric, how dare you question an electrical engineer about utility costs! ; )

Wow, that was some detailed explanation justifying your costs. You have a great handle on things.

PeteD01

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Re: Too much cash vs. other investments
« Reply #6 on: August 01, 2014, 02:10:09 PM »
Pay the mortgage off. Get a HELOC to replace your emergency fund emergency fund. Start DCA'ing $4000/month after tax cash into your desired AA for as long as your job lasts. If your job loss coincides with a market downturn, you can ride it out using the HELOC. Otherwise live off your investments. You are in very good shape.

frugaliknowit

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Re: Too much cash vs. other investments
« Reply #7 on: August 01, 2014, 02:16:07 PM »
Pay the mortgage off. Get a HELOC to replace your emergency fund emergency fund. Start DCA'ing $4000/month after tax cash into your desired AA for as long as your job lasts. If your job loss coincides with a market downturn, you can ride it out using the HELOC. Otherwise live off your investments. You are in very good shape.

What is DCA?  What is AA?  Thanks.

Cheddar Stacker

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Re: Too much cash vs. other investments
« Reply #8 on: August 01, 2014, 02:18:37 PM »
Pay the mortgage off. Get a HELOC to replace your emergency fund emergency fund. Start DCA'ing $4000/month after tax cash into your desired AA for as long as your job lasts. If your job loss coincides with a market downturn, you can ride it out using the HELOC. Otherwise live off your investments. You are in very good shape.

What is DCA?  What is AA?  Thanks.

Dollar
Cost
Averaging

Asset
Allocation

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