Author Topic: What is the right portion of cash to set aside?  (Read 2067 times)

hongkonger

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What is the right portion of cash to set aside?
« on: June 22, 2016, 12:59:10 AM »
Hi, am new here and want to get some advice. Setting too much cash generate no return, but you don't want to have no spare cash to buy when the market crashes. What is the right portion? Am super conservative keeping around 40% cash, and keeping a mortgage going just to stay liquid all the time. Thanks

2Birds1Stone

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Re: What is the right portion of cash to set aside?
« Reply #1 on: June 22, 2016, 06:03:46 AM »
40% creates a huge return drag, by keeping that much out of the market even if you do happen to buy a dip at the right time it won't ever make up for those years of lost gains.

If you are conservative keep maybe 12 months of living expenses in cash (high yield savings account) and adjust your portfolio to a conservative allocation, say 40% Bonds/60% Stocks.....when the market crashes you rebalance some bonds into stocks and call it a day :)

protostache

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Re: What is the right portion of cash to set aside?
« Reply #2 on: June 22, 2016, 10:24:49 AM »
The right amount of cash is the amount that that helps you sleep at night. It's entirely subjective.

My family (wife, me, and soon to be baby) are supported entirely by my consulting business. We keep at a bare minimum six months of budgeted expenses in a "reserve" sinking fund which can be tapped for unexpected, uncategorized expenses but is primarily for use in a loss-of-income situation. We recently pulled a bit from it to pay for an attorney to draft our estate plan which will be paid back this month, for example.

We also keep about a dozen other sinking funds of differing sizes and projected uses and durations for planned non-monthly expenses. For example, we have our medical insurance max out of pocket set aside, as well as small funds for car maintenance and furniture replacement. We also have a dedicated travel fund.

The total amount of the funds plus next month's expenses (YNAB rule 4) is split between our checking account (10%), a high yield money market account (80%), and a Vanguard account holding VASIX (10%).

We have a new source of liquidity coming online shortly (a HELOC, just have to make an appointment to close) so we will probably be reallocating out of the high yield savings and into less liquid taxable investments soon.

Retire-Canada

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Re: What is the right portion of cash to set aside?
« Reply #3 on: June 22, 2016, 11:21:01 AM »
Hi, am new here and want to get some advice. Setting too much cash generate no return, but you don't want to have no spare cash to buy when the market crashes. What is the right portion? Am super conservative keeping around 40% cash, and keeping a mortgage going just to stay liquid all the time. Thanks

I keep 0% cash. That's the right proportion for me.

Combine a low cost of living with the ability to generate income easily, a $30K LOC, $500K+ in investments and a partner with a steady gov't job....I can't see any need for a pile of cash.

dividendman

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Re: What is the right portion of cash to set aside?
« Reply #4 on: June 22, 2016, 12:01:41 PM »
It sounds like you're worried about having "dry powder" in case the market takes a shit. I suggest you consider your bond allocation that dry powder and rebalance per whatever schedule you're on.

If you want 40% of assets not in the stock market I'd suggest putting 60% in stocks, 35% in bonds and maybe 5% in cash as an emergency type fund.

JJsfr

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Re: What is the right portion of cash to set aside?
« Reply #5 on: June 22, 2016, 12:44:53 PM »
You're trying to plan on timing the market, which never really works. Just invest what you plan on investing, and as others have said, rebalance. Do that maybe twice, at least once a year. Then you'll "buy the crash."