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I don't mean to take over this thread but I feel this question is relevant. For those that keep an emergency fund in the $10,000+ range; do you live with that immediate access cash "blanket of security" over market returns? Why?
In the past I've let people at CD know that I don't have an emergency fund. I constantly got hammered for my opinion. I literally have $500 in a savings account. I have this here simple for a couple reasons. Maybe one day my credit cards would get declined for whatever reason and I'd need immediate cash in a pinch is the main one
As far as emergency expenses go..if I followed conventional wisdom I'd keep $18k in my savings account for emergencies. Over 25 years at 7% this would grow to $97k. I see no reason for the EF if I'm losing this much value. Instead I put all of my excess into the market. I have a 10k line of credit at one bank and 5k at another. I have multiples of that in available credit. Since this is a personal finance forum I'm assuming many of you have 700+ credit scores and have or can attain the same resources as me. If I have some "emergency" I'd put it on my credit card and have 60 days interest free to pay it off. Let's say I needed 15k in cash equivalents for whatever reason(job loss/disability) to bridge me 6 months. I can get that at very little interest, under $300 over 6 months. As someone else said, I can call vanguard and have money the next business day for some cash emergency I wouldn't want to finance.
I'm not faulting anyone for having an EF. I think it is necessary. But is it necessary to have 10-30k+ earning 1% or less for 10+ years? I can see maybe 2-5k but not any more than this. Some may say, well if you invest it, and the market crashes 50% you'll have less access. That may be true but I have enough accessible where a 50% crash wouldn't kill me and I'd be happier having it invested over a 10+ year horizon than sitting at 1%. Over the last 10 years I've doubled whatever EF I would have had so I'm still ahead even if I need to pull out of the market after a 50% drop.
you don't need much cash with one exception and it is the same dangerous exception retirees face .
getting hit in a downturn BEFORE YOUR FIRST UP CYCLE .
that is akin to a trader having a string of losing trades day 1 and kills part of the goose that is laying the golden eggs .
other than that selling stocks to raise cash is not a problem . the lack of weight from cash and bonds in the up cycles makes up for what you generally will sell to raise cash in a downturn .
i am retired and only keep my current years spending in cash . cash is created each year rebalancing.
don't count on credit lines as a emergency fund . as many learned in 2008 they can be closed for no reason just when you need it the most .
cash buffers are a mental comfort but are not needed even in retirement .
had you decided to use 100% equities over a 30 year retirement , out of the 117 rolling 30 year periods , drawing 4% inflation adjusted you would have survived 94% of them just fine . on the other hand a 50/50 mix only did a bit better passing through 96% of them .
if you get flack on it untiltheendoftime , it is only because those telling you otherwise are running on myth and misinformation .
however , all bets are off if these are individual stocks . with individual company risk they may never bounce back after a downturn .
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 $500,000 in the US index fund(S&P) and have about $100K in my banks savings account. The 100K earns very little to no interest.
I am on the fence if i should invest the rest 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.
please advise.
I'd say use some of your money to put a down-payment on a house or a nice condo. It doesn't make sense to have a bunch of money lying around if you don't get to enjoy it a little. Also, you many want to start a family at some point. And they will want more space.
Think about moving to a better location if you don't like the real estate market where you're at.
i advise others to invest in diversified "stock" funds . unless you want to deal with tenants and have your money ill-liquid i don't recommend investing directly in real estate without any knowledge of what is involved .
real estate you are not satisfied with does not disappear in a day with the push of a button . .
When I was born my grandparents started a 'college fund' for me. Every year for my birthdays and Christmas I was given cash that went immediately to that savings account. When I was a teenager my father took some night classes on investing and he put my college fund into stocks. When I was 24 and starting college, I was given the remaining stocks. My father had managed to lose 90% of my college fund.
Thankfully I had the GI bill and I had a job, so I was able to afford college without too much difficulty.
A year later I bought my first Tri-plex.
I know that Rental Real Estate is not an ideal investment for everyone. I have done well with it.
I work in oil & gas and currently there are people who have been out of work for more than two years and depending on what goes on in the economy the stock market maybe down as well at that time.
Some make an argument that $20-25K as emergency fund will be enough doesn't hold well with me. I think sometimes end of a job may also be a beginning of a new business idea- again which may require capital so I want to have relatively quick and easy access to my cash.
The question really is about the $100K sitting in my saving account that earns a measly 0.5%. I have seen some online accounts that offer up to 2% but they aren't a lot either. Maybe I think I should just leave things as is and not bother.
IMO, the emergency fund size depends on your individual circumstance. In some fields it can take a long time to find new work if you lose a job, and may need to move to another part of the country.
With respect to where you should put it... you can put most of it in something like a 5-year Treasury note, or a short-term bond fund. Those are very liquid and not very risky. IIRC, there's only been one calendar year when the 5-year note showed a (very slightly) negative total return. The return is not much, but better than a bank savings account.
When I was born my grandparents started a 'college fund' for me. Every year for my birthdays and Christmas I was given cash that went immediately to that savings account. When I was a teenager my father took some night classes on investing and he put my college fund into stocks. When I was 24 and starting college, I was given the remaining stocks. My father had managed to lose 90% of my college fund.
Thankfully I had the GI bill and I had a job, so I was able to afford college without too much difficulty.
A year later I bought my first Tri-plex.
I know that Rental Real Estate is not an ideal investment for everyone. I have done well with it.
why would you tell others not to invest in stocks ? that makes no sense just because you prefer real estate. markets have never lost a penny in diversified broad based funds , only bad behavior did
IMO, the emergency fund size depends on your individual circumstance. In some fields it can take a long time to find new work if you lose a job, and may need to move to another part of the country.
With respect to where you should put it... you can put most of it in something like a 5-year Treasury note, or a short-term bond fund. Those are very liquid and not very risky. IIRC, there's only been one calendar year when the 5-year note showed a (very slightly) negative total return. The return is not much, but better than a bank savings account.
even retirees do not need anything other than diversified equity funds to spend from yearly . it is just a volatility issue .selling stocks when they are down has never been a problem because without cash and bonds weighing things down you are so much higher.
so far if you we take all 117 30 year cycles we have had , not just using them for emergency money , but using them to live has 100% equities doing okay over 94% of them . 50/50 did not do much better at 96% ..
it is a mental issue not holding cash or bonds not a financial reason . the only exception where the cash and bonds would help would be if day 1 before any up cycle there is an extended downturn for a long time . it happened once .
that is really it .
we generally don't go totally 100% equities but there is really no reason we couldn't except for our pucker factor .
Last edited by mathjak107; 01-04-2018 at 02:09 PM..
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