Advice sought on how much cash to keep around

[Freedom2016]

I suspect DH and I are keeping too much cash on hand even though individually each cash decision probably makes sense. First, here's a snapshot of our investments (~$430k):

401k - 200k
tIRA - 160k
Roth - 14k
HSA - 6.5k
529 - 18k
Taxable (VTSAX) - 30k

Now, the cash ($115k):

1) Emergency - 50k. Sits in CapOne360 account @ 0.75% APR. I'm a consultant/partner in my business and have variable income. 2009 hit my industry hard and many in my field lived off of savings for a full year. This amt helps us sleep at night but some part of me wonders if we should open a HELOC (have 100k in equity) and dump some/most of this cash into our taxable account?
2) Cash available to buy investment property - 50k. Also in CapOne360 acct. Getting into real estate interests us but we're at the front end of the research process, have a baby coming in October, and doubt we will pull the trigger on anything in the next 6 months, maybe even year. I know the adage about keeping cash liquid if you will need it in the next 1-5 years, but getting into real estate feels more like a "want" than a "need"... so not sure how to think about this pot of cash.
3) Business float - 15k. Sits in my business checking, earning no interest. This cushion covers a few months of business overhead expenses in case client billables take an unexpected/prolonged dip. I feel like this should probably stay where it is. Perhaps I shouldn't even consider it as part of our personal finance picture, as it's strictly business-related? 

TL;DR: holding over 20% in cash ($115k out of $545k total) seems like a bad idea. What would you do?

[Lis]

1 - If you're in a risky business and your income may be volatile, I think your emergency fund needs to be what'll help you sleep at night. That being said, your typical e-fund usually is 3-6 months worth of expenses, and $50k seems a bit high for that. Does your DH work, and is his income more secure? If he does and it is, I'd reckon you could lower that a little. But again, that's just my opinion, and you should do what your comfortable with.

2 - 50k seems like a great down payment amount (heck, you could get a nice little condo for just about that price in some areas!). You say getting into real estate is more of a want than a need - what makes you say that? Do you have any other pressing goals? Everything for you baby set up (congrats by the way!). You didn't mention any outstanding debts, but if you have a mortgage, student loan, etc., you might want to allocate some of that money there instead.

3 - If this money is strictly business related, I wouldn't touch it, not for your personal finances at least. Is there anyway you could use that money to gain more clients, make your income less variable, etc.? If not, I'd leave it be.

[sekritdino]

Wow. Yeah have you considered opening a Vanguard personal investing account to put most of that cash into? VTSAX (admiral version) would be a good choice. At least consider a higher interest savings account like Barclay's US online savings.

[GGNoob]

You are right. Each goal for your cash makes sense, but overall it's a lot.

I'd leave the business cash as is. But can it be in an account that at least earns some kind of interest?

You're emergency fund is there to help you sleep better at night, so whatever works for you. But you could always keep less cash for the emergency fund and have more of it invested and withdraw from investments as needed.

For the investment property cash, what if you just bought REITs instead? That way you are invested in real estate without the hassle. Something like: https://personal.vanguard.com/us/funds/snapshot?FundId=5123&FundIntExt=INT Otherwise you could at least just invest in REITs until you find property you want to buy.

[clarkm04]

Given all the supporting evidence you provide, I think having that much cash is fine.

I disagree with others that recommend the stock market or the REIT fund.  REIT funds are great and I'm in Vanguard's REIT, but if you plan to buy within a year it's foolish to risk your money on anything more risky than what you have it in.  The bull run of the past 5-6 years has erased the horrors of losing 40% of investments in months which happened during the Great Recession.

Given you description of your job, 50 K seems adequate for you and will save you from the nightmare you describe from others in your field in a downturn.  My job is very solid, so I'm definitely just a 3 month emergency fund person.

Now, if you won't touch that money for awhile, then stock market away!

[Another Reader]

The emergency fund and the business float make sense, in light of your 2009 experience.  Having $50k on hand for an undefined rental purchase makes less sense.  In your shoes, I would spend some time working through the real estate purchase idea to see if it is feasible in the next year or two.  If not, I would at least tie the money up in CD's to boost your return while you decide.  If you decide against buying a rental, in your shoes I would dollar cost average into the equities market.  Have you maxed out your retirement accounts?  If not, I would direct this money there.

REIT's have none of the benefits of direct ownership of real estate and they are more correlated with the equities market than the real estate market.

As your assets increase, your cash as a percentage of total assets will decrease, even if you maintain the current amount of cash.  If you are content with your current cash holdings, just direct new money into different assets.

[seattlecyclone]

For an emergency fund, do what it takes to help you sleep at night. $50k is more than enough to keep my wife and me afloat for a year; we could probably stretch that amount over two years without making too many sacrifices. That's more than I personally feel is necessary for an emergency fund, but everyone's risk tolerance is different. Do what feels right.

For the investment property money, it's probably best to keep it in cash if you have a definite plan to invest in a property within the next few years. The risk of a stock market crash before you're ready to buy a property outweighs the expected short-term returns of the stock market for many people. If you aren't truly committed to making a real estate investment in the near future, maybe you would be better off putting that money in the market until you decide. If it goes up, you'll have more available for a down payment. If it goes down, then you'll have to evaluate whether liquidating stocks in exchange for a rental property is something you're willing to do in order to diversify your investments a bit.

[Freedom2016]

Thanks, everyone!

Here are responses to some of the questions:

--Our only debt is our mortgage ($293k remaining @ 4.875%). We are likely to move within 2-3 years...not sure there is benefit to paying the principal down at this time?
--We have maxed all retirement/tax-deferred savings for 2014.
--We have a taxable Vanguard account in VTSAX, and if we move cash into investments this would be the default location.
--My annual business income has been reasonably steady except for the major 2009 hit; but that scared us enough into wanting a year's worth of e-fund. Hubby is an at-home parent to our 2-year old right now and we're uncertain whether/when he'll return to the workforce. Hence, right now we don't have regular income from him to offset the unpredictability of my income. 
--My business partners and I are talking about ways to reduce/centralize our overhead costs over the next 3 years such that I may not ultimately need to carry more than $2-3k float. Until then, it helps me cash flow business expenses (i.e. pay my share of rent and salaries of our employees & interns) given that client income is lumpy.

Thanks for the reminder that as our assets increase, cash as % of assets will decrease. We are on track to add ~100k to our investments by year-end which on its own would bring cash % down to 18%. If we could repeat that in 2015, and find an investment property to buy with the 50k, by year-end 2015 we could be down to 9% cash. So perhaps it's best to view this as a temporarily large cash cushion.

Still, I will look into finding an interest-bearing account to park the business float and look into CD's or higher interest bearing savings accounts for the other two lump sums. We will also think more carefully about how committed we are to getting into real estate in the next 6-12 months.

[jasman18]

What age are you?
What amount do you need to retire?
those are important questions in relation to have how cash you need.

For many here that amount in investments is getting ready for FI. Could be that you only need to work a few more years.

[Freedom2016]

We're 40/42, FIRE # is somewhere north of $2m, we'll probably be working for ~10 more years.

[Cheddar Stacker]

I would leave #1 and #3 alone and invest 100% of the #2 cash until you are very serious about buying RE. Once you start actually looking at properties park some money in cash. Between the $50K earmark and the $30K in VTSAX you already have $80K available. By the time you're ready to pull the trigger it should be north of $100K. If it drops in value, delay your RE purchase for a year while you stache more and let it rebound.

If you aren't already very, very serious about a rental property I doubt you'll pull the trigger anytime soon with another baby on the way. I'm in nearly the exact same situation. I'm stashing cash/investments for a RE purchase, and recently had kid #2. I can't imagine adding more complexity to my life right now, and am holding off until the kids are at least 1 1/2 for a major RE purchase.