How much should one invest ideally

[player07]

As you noticed the title of this thread. My query is how much of one's net worth should one invest in the stock market. I am in my late 30's and have currently invested $550,000 in the US index fund(S&P) and have about $150K in my banks savings account. The 150K earns very little to no interest.

I am on the fence if i should invest the rest of the money and keep say only $25-30K for emergency?

I am also wondering if I should go into real estate as well. I am currently renting an apartment but not sure how long would I stay in this place so that is preventing me from purchasing a house or a condo. I am somewhat indecisive as if I were to put the rest in the stock market then I would be all in the stock market but purchasing a property psychologically anchors me down to the location and have to fore go other opportunities that may come. On a side note, house prices are falling/stagnant were I am located currently.

My end goal like every one else here is financial independence. I would feel relieved when i cross 1Million of net worth.
please advise.

[One]

What you're doing sounds good, I'd take the cash and buy short term 52 week tbills at auction. Vanguard does not charge a fee for this service, interest rates about 2.3 percent with no state tax on profit. As rates go up buy the longer bonds. Here's the auction schedule. If there's an emergency you can sell the bond before it matures on the secondary market similar to a stock.

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Documents/auctions.pdf&ved=2ahUKEwiS7u-FuO3bAhURHDQIHYY8A2gQFjAAegQIAxAB&usg=AOvVaw2OjArGJfR_Q169CbQWxXEi

[PDXTabs]

Don't forget that if you are a US person you can buy 10K worth of I-Bonds electronically per year (and an extra $5K with your tax return if you do it right). I would not have $150K sitting it cash like that unless it was earmarked for something very specific.

[MDM]

...have about $150K in my banks savings account. The 150K earns very little to no interest.
...
My end goal like every one else here is financial independence. I would feel relieved when i cross 1Million of net worth.

1) There is no guarantee that stock investments will increase above inflation.

2) There pretty much is a guarantee that a savings account will not increase above inflation.

"Invest the rest of the money and keep say only $25-30K for emergency" is not a guarantee of success (see point #1), but it is more likely to succeed than alternative #2.

[player07]

I forgot to mention that I live in Canada. Not sure if I could purchase US treasuries from here.

[One]

Maybe a cd or high interest savings like ally.  Some cash is good because if things go bad you're less likely to panic.  I think you're doing the right thing for now. If things go up you'll feel pretty good and if they go down you won't feel so bad. 

[jlcnuke]

Well, your age, time til retirement, risk tolerance, etc all come into play in deciding the answer to the question you asked.

For me, with my risk tolerance, I'm ~100% invested in equities (~ because some of the funds have a small cash or equivalent component) at 41 with 5-7 years until retirement. I have a high risk tolerance though.

A general rule of thumb some use is 110 - "your age" = percent of portfolio in equities and the rest in bonds (or equivalent type investments). This is updated from the original "100-your age" by the way, which is viewed by many as overly conservative. I find it too conservative for my tastes, but if volatility scares you then it's not a bad rule of thumb.

Personally, I believe that my investments provide my emergency fund as long as they are sufficiently large (i.e. at least double my minimum emergency fund amount so even a significant market drop wouldn't eliminate my emergency fund).

[player07]

Well my portfolio at present is about 77.5% in equity and about 22.5% in Cash holding so it is quite a bit heavy on equity.

[John Galt incarnate!]

I would not have $150K sitting it cash like that unless it was earmarked for something very specific.

I agree.

[Mr. Green]

You sound like me a few years ago. My 130k in savings missedthe huge run up of 2012-2014. That's roughly a 100k gain I missed. Of course that cuts both ways if the market would have been down then. Unless you have a reason for the money to be doing nothing, like you're about to buy a house or something, you should put it to work for you. It's losing value just with inflation if you're earning no interest on the account.

[player07]

You sound like me a few years ago. My 130k in savings missedthe huge run up of 2012-2014. That's roughly a 100k gain I missed. Of course that cuts both ways if the market would have been down then. Unless you have a reason for the money to be doing nothing, like you're about to buy a house or something, you should put it to work for you. It's losing value just with inflation if you're earning no interest on the account.

I agree, based on my own calculation I would be up by 100K but then If i had lost my job or would have gotten fired and needed the money then i would have been pulling it out of the stock market and would have made a bit of loss i think. I think I will try to invest another 25K and lower my emergency fund a little bit. I think I do have a lot in the market anyway. 

[One]

You sound like me a few years ago. My 130k in savings missedthe huge run up of 2012-2014. That's roughly a 100k gain I missed. Of course that cuts both ways if the market would have been down then. Unless you have a reason for the money to be doing nothing, like you're about to buy a house or something, you should put it to work for you. It's losing value just with inflation if you're earning no interest on the account.

I agree, based on my own calculation I would be up by 100K but then If i had lost my job or would have gotten fired and needed the money then i would have been pulling it out of the stock market and would have made a bit of loss i think. I think I will try to invest another 25K and lower my emergency fund a little bit. I think I do have a lot in the market anyway.

Smart

[player07]

I have a question for long time investors. At what amount in one's portfolio does one really start to notice the impact of investing? I currently have about 550K invested in the stock market. 75% is in S&P500 and 25% in midcaps/small caps.

I contribute about $30K annually to my portfolio and at present i still feel that my contribution is larger than the growths in the stock market. I am curious to know where is the tipping point ? is it at $700K or is it at $900k? or even bigger amount ?

[pecunia]

Player7:

I forgot to mention that I live in Canada. Not sure if I could purchase US treasuries from here

https://www.quora.com/How-can-people-from-a-foreign-country-buy-U-S-Treasury-bonds

Looks like you can.  I was kind of wondering since they say the Chinese holds a lot of US debt and have helped to finance the last few wars.

[DavidAnnArbor]

I have a question for long time investors. At what amount in one's portfolio does one really start to notice the impact of investing? I currently have about 550K invested in the stock market. 75% is in S&P500 and 25% in midcaps/small caps.

I contribute about $30K annually to my portfolio and at present i still feel that my contribution is larger than the growths in the stock market. I am curious to know where is the tipping point ? is it at $700K or is it at $900k? or even bigger amount ?

Did you notice a large gain in 2017 ?

[Retire-Canada]

Well my portfolio at present is about 77.5% in equity and about 22.5% in Cash holding so it is quite a bit heavy on equity.

I'm in Canada. My portfolio is 100% equities. I am not rich enough to have any of my money not working for me. Once I get to my FIRE $$ Target I'll hold some cash/bonds [say ~10%] to deal with the early sequence of returns risk, but as long as I am adding money and not needing it to live off of there is absolutely no point for me to be holding cash or bonds.

[player07]

I am curious to know what would happen if you lose your job or have a medical emergency. In Canada our health care system does not pay for prescription meds, what if you need a new roof ?

Anyway, it is your call to live without an emergency fund.

[SubL stache]

Some folks around here have set up HELOCs they can draw on as an emergency fund in these type of instances, then I assume they would pause future investing until the HELOC balance was brought down to zero. I just keep 15k on the sidelines for these type events, but I churn bank bonuses with that balance making a decent retun while having some security.

[player07]

Some folks around here have set up HELOCs they can draw on as an emergency fund in these type of instances, then I assume they would pause future investing until the HELOC balance was brought down to zero. I just keep 15k on the sidelines for these type events, but I churn bank bonuses with that balance making a decent retun while having some security.

loss of job can drain a lot of money very quickly. In my business(oil &gas) quite a few were out of work for up to 2 years. not sure what you would do in this scenario..$15K won't last too long.

[Retire-Canada]

I am curious to know what would happen if you lose your job or have a medical emergency. In Canada our health care system does not pay for prescription meds, what if you need a new roof ?

Anyway, it is your call to live without an emergency fund.

I'm not sure if you are referring to me, but since I don't hold an EF I'll answer. I've got a financial fortress with defensive layers so deep that holding an EF would be sub-optimal for me. It would cost me money not provide me money in an emergency.

I started my MMM journey in 2014 and had the cash to setup an EF, but chose to invest the money. Say I put aside 6 months of expenses in my EF [~$25K] back in 2014 and say inflation was zero just to keep things simple so that $25K is still worth exactly $25K.



These ^^^ are my nominal portfolio returns for those years.



Here ^^^ is a comparison of the opportunity cost of investing that $25K or keeping it in cash in my EF. I projected the 2018 returns forward to get a full year. As you can see the cost of holding $25K in cash is huge. I'm not rich enough to turn my nose up at ~$19K. The other thing that should be obvious is that my invested $25K can now lose ~43% of its value in a market crash and I'd still have $25K left to spend. If the market doesn't crash and I need money I've now got most of 1 whole year's spending not just 6 month's worth. That will keep growing until it's 18 months then 2 years, etc...

There's more:

- I have a $30K LOC to shock absorb a big cost or bridge a period of low cash flow
- I've got $175K of home equity I can draw on if needed
- my income stream is diversified between 2 different contracts so I could lose either one and still enjoy a surplus of money
- my annual dividends are in the $15K-$17K range and cover a fair bit of my expenses
- my investments are nearing $1M and even if the lost 50% of their value would support me for a long time
- my annual spend is [relatively] low and can be reduced by 25% easily and further in a true emergency
- my GF earns enough to support both of us in a pinch and vice versa
- her stable gov't job provides health benefits that covers all our medical costs
- I have a set of highly marketable skills and decades of solid experience on my resume
- I have yet to be out of work 1 day in my life aside from being a kid or a student
- it would only take a part-time job to cover all my spending
- I exercise regularly, eat a balanced diet low in processed foods and I've got healthy genetics

An EF is like a shield. It's got limited protective powers and it's expensive. OTOH it's simple to setup and for someone just starting out it might be appropriate. However, once you are well into your financial journey you don't need an EF any longer when you have built so many defensive positions in depth that an EF would just be expensive without any incremental benefit. Although I'm closing in on my FIRE goal I am still not rich enough to have money sitting idly and not working for me.

If I did have an EF my priority would be to start working on a solid financial plan so that I could get that money into my investments and stop paying the significant cost to hold it.

[matchewed]

Sounds like someone needs an Investment Policy Statement. Go get (make?) you one.

https://www.bogleheads.org/wiki/Investment_policy_statement

[ChpBstrd]

Yes, a six-figure sum is too much to keep in a savings account (is waste too strong a word?). However, there are many other investments besides cash and equities. Why not invest most of your excess cash in REITs, bonds, preferred stocks, etc?

Buying a house? Use the calculator under the landlord section to estimate your rate of return by plugging your rent into the field as if you were your own landlord. Spoiler: It's probably a subpar investment.

Regarding the size of a proper EF, the answer is enough to cover emergency expenses until funds from the sale of investments can arrive in your checking account. My layers are:

~$8k checking account
~$1k petty cash
~$1k in accumulated dividends in taxable accounts that could transfer in 3 days
~$20k in available credit on credit cards that could be borrowed free for a month until funds from investments could arrive.
~$500 in unused flex spending account benefits
~$3k in crap I could sell within a week.

After all that is used up, I might have to sell shares and incur taxes.

Regarding when you see the needle start to move: Well the cash part obviously doesn't move. The growth of my equities started attracting attention at about the $500k mark. With ~$50k investment gains plus $50k contributions, I've been at a $100k/year pace for the last 3 years or so.

Regarding unemployment: stories of people going years without work are surreal to me. One would have to spend all that time refusing to do any temp work, manual labor, side hustles, lower-paying gigs, entrepreneurship, or work outside one's former profession. I suppose one would also have to refuse to work anywhere outside an X kilometer radius from the home one mortgaged. I was once out of work for 6 months while finishing grad school in 2010, but I wasn't really trying at that point. I changed careers anyway when a recruiter offered me a start in a new direction. Training + change = quickly out of a bad situation in a bad economy.

Perhaps instead of amassing a fortune in cash to weather a foreseeable multi-year episode of unemployment, you could invest in new skills that would allow you to switch fields if the fossil fuels don't pan out? I don't know what those are for you, but I bet you have some ideas.

[player07]

Perhaps instead of amassing a fortune in cash to weather a foreseeable multi-year episode of unemployment, you could invest in new skills that would allow you to switch fields if the fossil fuels don't pan out? I don't know what those are for you, but I bet you have some ideas.

well, things are not as simple as they seem. At my age, I see no point going to school to gain a new skill and starting at the bottom with significantly lower pay. You will know what I am talking about when you get older, if you have a more marketable degree then you would probably not understand. I want to ride the job as much as i can, when it is done I want to go for entrepreneurship but can't spend the time and energy while at work to get off. Although I have planning a few things, I need that cash deposit to start my own business when time comes. No bank will give me 100% loan if you know what i mean and don't want to settle for another job that makes me unhappy.