How do you manage your cash allocation?

[soulpatchmike]

Do you keep a percentage of your investable assets in Cash, a fixed dollar amount, do you constantly accrue cash based on your regular savings or something else?

I have been accruing a portion of my savings rate in cash each month with the purpose of investing if a significant event happens in the market.  For example, when covid hit and crushed the market, I invested all my cash and sold all my bond funds and put them into securities.  Now a year+ later, I have been building back up my bond funds and cash position to my target allocations.  About 20% of my savings rate goes towards rebuilding the cash position.

[ixtap]

I know that I can not time the market well, so my cash allocation is for cash flow purposes only. When money comes in, I look at future spending and my cash balance, if I don't anticipate needing it before the next cash influx, it goes to investments. If I think I will need it, it goes to savings.

[NorthernIkigai]

We like to have a solid emergency fund, so we have about 1+ year’s worth of expenses in cash or money market funds. That’s basically our cash allocation. Last year, I realised the euro amount of this was creeping up unnecessarily, so I planned to invest a bit more than usual this year. Now I feel cash poor! So for 2022, it’s back to slightly less aggressive stock buying, and letting the emergency fund grow a bit more again.

So for us it’s not about a certain percentage of the portfolio, and certainly not about what is happening in the market, but rather a euro amount we feel comfortable with. We will move house sooner or later, and once all that upheaval and those costs are out of the way we’ll probably feel comfortable with a lower amount for this. This should work well for the rest of our accumulation phase. We’ll still have to work out what we’ll do when we FIRE and afterwards…

[2Birds1Stone]

We have CD's earning 3.2% and I Bonds which are about to start earning 7.1% next month, in addition to that ~1-2 years of expenses in HYS account and various checking accounts we use to get bank sign up bonuses.

[billy]

we have stablecoins getting 8.88% APY which is working out very well.

[cool7hand]

Our stash has reached the critical mass where it is our rainy day fund. When we need money, we liquidate investments. Otherwise, we only keep enough cash on hand for only a couple of months of expenses.

[samanil]

we have stablecoins getting 8.88% APY which is working out very well.

Nice, I just tentatively invested $200 in USDC at 9%. I'm tempted to put more in but I'm also hesitant. Are you pretty confident in it?

[billy]

I do USDC as well with Celsius Network, I'm confident with that for sure. Here's a good review https://prohashing.com/guides/earning-interest-on-cryptocurrencies it seems very accurate, let me know what you think.

[JoePublic3.14]

We manage cash badly. Too much in normal checkings/savings earning nothing (less than nothing really). We relocate every few years it seems we are always needing big chunks of cash. This last move drained the majority of it, so we will have figure out how to handle the proceeds from the last house sale that should close in about three weeks. Likely a partial replenishment of those reserves and then into VTSAX.

We do have several long term CDs that are really the true emergency fund.

[Roots&Wings]

We have CD's earning 3.2% and I Bonds which are about to start earning 7.1% next month, in addition to that ~1-2 years of expenses in HYS account and various checking accounts we use to get bank sign up bonuses.

@2Birds1Stone where are you getting these rates? If you don't mind sharing.

[2Birds1Stone]

@Roots&Wings, these were autumn 2019 rates at PSECU. Right now I can't find any CD's paying over 1%. My 3.2% ones mature about a year from now, I'll funnel as much cash into I Bonds and taxable brokerage account as I feel comfortable with when we pull the plug from work next year. When rates are decent there's a fairly active thread over on Bogleheads where people post the best rates from lesser known institutions, but it's been crickets over the past year. 

[billy]

depositaccounts.com is a great place to check bank interest rates

[Roots&Wings]

@Roots&Wings, these were autumn 2019 rates at PSECU. Right now I can't find any CD's paying over 1%. My 3.2% ones mature about a year from now, I'll funnel as much cash into I Bonds and taxable brokerage account as I feel comfortable with when we pull the plug from work next year. When rates are decent there's a fairly active thread over on Bogleheads where people post the best rates from lesser known institutions, but it's been crickets over the past year.

Thanks! Yeah 2019 was a different world, that explains it :)

And to answer OP question, I like to keep at least 3 years expenses in cash but it's only earning 0.5% now at Marcus.

[Canuck042]

I'll sell some equities to take advantage of a stronger opportunity... but I won't keep a large stack of cash around doing nothing. Anything that's not covering about the next 3 months of expenses stays in the market.

[use2betrix]

I like to keep about a years worth of spendings in savings/checking. I have a lot of investments that are not tax deferred (around 8 years living expenses) so I know I could dip into that if ever needed.

I typically have my investments auto-deducted twice per month so it keeps my cash reserves relatively steady.

There have been some cases where the market dipped hard in which I have no problem dropping my FU money down to 3-6 months during those times so I can dump extra money in.

I work as a contractor so my work is a bit more volatile, plus I’m also not generally happy with my industry (although my income is 3x-4x what I could get elsewhere). That FU money has tended to go a LONG ways in my career in terms of patience looking for jobs, and knowing I can take risks and still make ends meet if I need them.

[talltexan]

@Roots&Wings, these were autumn 2019 rates at PSECU. Right now I can't find any CD's paying over 1%. My 3.2% ones mature about a year from now, I'll funnel as much cash into I Bonds and taxable brokerage account as I feel comfortable with when we pull the plug from work next year. When rates are decent there's a fairly active thread over on Bogleheads where people post the best rates from lesser known institutions, but it's been crickets over the past year.

About three years ago I had a big balance, and was able to get something approaching 3%. Unfortunately, I got greedy and only put 40% of the balance into that high-yield CD, the rest was in something with a 1-year maturity, so I had to roll it when yields were much lower.

[billy]

Depositsaccounts.com is a great place to look at bank interest rates, I subscribe to there weekly email list to check on the market.

[RedmondStash]

I basically just set an AA that includes stocks, bonds, and cash, and rebalance as needed. I like having a healthy emergency fund; even if it's a drag on returns, it makes me more comfortable with a more sizable stock allocation.

I'm post-FIRE, so I'm more cautious than I was pre-FIRE. Managing risks effectively is more important to me now than maximizing every possible penny of return.

I think it's a mistake to look at cash positions as losing money. They don't exist in a vacuum. They're part of an overall strategy. So they're like the weighted sandbags on the hot-air balloon that help you control how fast you rise and fall.

I personally sleep better at night knowing that a black swan event won't cripple us financially. But everyone's tolerance, financial philosophy, and level of optimism are different. I didn't expect to require such a high cash allocation to be comfortable. Time taught me what I needed.

[HBFIRE]

I just use Heritage Bank.  It has 1% checking.  Makes it simple.  It once was over 3% return, and I just haven't moved it since.   Maybe I'll start looking for an alternative.