In Times Of Uncertainty, Take Stock Of All Your Cash

During times of uncertainty, make sure you are on top of your cash. Cash management is really about stress management.

Buying anything close to the top of the market is risky. For stocks purchased in 2000, it took 10 years for investors to get back to even. In 2021, we're finally seeing signs of volatility. After a tumultuous -32% March 2020, the stock markets have come roaring back.

Who knows the future. All I know is that at this point in time I'm happy to be earning a guaranteed return (e.g. paying down a mortgage, buying a municipal bond) than potentially losing 10% on all the new money I'm saving. For your existing investments, make sure to review your asset allocation.

Be wary of people who scoff at those who hoard cash. These scoffers probably weren't investing during the 1997 Asian Financial Crisis, the 2000 internet bubble, or the 2008 housing market implosion. If they were, they probably didn't have very much exposure and therefore think they are geniuses for investing in a bull market.

What I'd like everybody to do right now is take stock of all their cash sources. Hopefully, we're not talking about just one bank account either. The stock market is at a record high post Trump's election and we're up ~200% from our February 2009 lows. 

In Times Of Uncertainty, Keep Track Of ALL Your Cash

Here are five things I'd do right now. The stock market has had a good run, but is expensive. Interest rates are going up, so making money is going to be harder as borrowing costs go up. Capital preservation is smart!

1) Cash in pre-tax retirement accounts.

Check your 401k, IRA, or Roth investment portfolios to see their latest compositions. Are you happy with your cash holding percentages? Are your investment portfolios aligned with your investment objectives and risk tolerance? I”m holding roughly 30% in cash for all my portfolios since early 2017 because I'm concerned about sky-high global stock market valuations. I'm waiting for better opportunities and have been buying bonds to be more defensive.

2) Cash in post-tax investment accounts.

Check your cash weightings in all your after-tax investment accounts. Overtime, your cash holdings may increase due to dividend payouts. Post-tax investment account objectives are often different from pre-tax retirement account objectives due to time horizon and liquidity needs e.g. you might be investing to buy a house. I'm also fully invested in my Citibank Wealth Management account with mostly structured notes that offer downside protection.

3) Cash in your bank account.

Cash in your money market account is the most precious cash of them all. I would not deploy any money market account cash until after you deploy cash in your pre-tax retirement accounts and then your post-tax investment accounts. Cash in your 401k and IRA isn't liquid, which nullifies one of the great benefits of cash. It would be foolish to squander your liquidity when you already have illiquid cash available for investing. Remember the FDIC insures up to $250,000 per individual and $500,000 per joint account. If you have more cash than that, spread it around to different institutions.

4) Cash in your business. 

In Times Of Uncertainty, Take Stock Of All Your Cash

During a recession, many businesses will have reduced revenue. Some may even go out of business. Thus, It's important to have enough cash to cover operating expenses. If you can't cover existing operating expenses, then obviously cut costs and find new revenue streams. Many startups will fail over the next couple of years because they are cash flow negative.

I'm strengthening my Entrepreneurship category to offset waning interest in my Investments category due to uncertainty in the global markets. Consider taking excess cash beyond operating costs out of your business and parking it elsewhere. Depending on what your business does, your business may face a higher level of liability exposure than you as an individual.

5) Hidden physical cash. 

Take stock of all the physical cash you have hidden around the house, in safety deposit boxes, and buried in your back yard. There's some comfort knowing that even if you lose everything, you've still got a wad of cash to get you through tough times.

6) Kidnapped cash. 

If you are owed money, it's time to start asking for your money back. You want to minimize exposure to other people's financial problems before their problems get really bad. During the last financial crisis, millions of people lost their jobs and thousands welched on their mortgage. The domino effect was terrible for those who kept on paying their mortgages.

Related: Can Cash Be Considered An Investment? Or Is Cash One Big Drag?

Calculate Your Pro Forma Cash Holdings

After you've taken stock of all your cash, consider doing this little exercise where you figure out how much cash you plan to save each month and extrapolate it into the future.

Below is an example of a personal finance client who derives income from real estate, dividends, a day job, and an online business. He's committed to saving $20,000 a month for a year. He currently has $149,000 in cash, equivalent to roughly 10% of his net worth. $20,000 a month equals 67% of his monthly after tax total income of $30,000.

Along the way, my client will receive estimated $50,000 year end cash bonuses and have large liquidity events when his CDs come due in April 2017 and November 2017. His goal is to build his cash hoard to around $1M so he can buy a $2.5M home in the Bay Area by 2018.

Some of you will think it is unwise to hold so much cash, but if real estate and stocks are going down over the next two years, and you're unwilling to short, then building liquid cash is just fine.

Chart Calculating ProForma Cash Holdings

Tracking your cash Financial Samurai - In Times Of Uncertainty, Take Stock Of All Your Cash
One man's goal to buy a house in January 2018

The purpose of creating your own cash savings chart in times of uncertainty is to make you think about how much you could save if you committed to a certain monthly savings amount.

It's important to challenge yourself to save more because too many of us just wing it. Once you write out all the numbers, you'll be surprised by how much you can actually save if you can stay disciplined.

Another Example Of Tracking Cash

Here's another example of a client who's been all over the place. She is saving anywhere from $1,000 – $5,000 a month. She has challenged herself to save $5,000 a month to build up a two-year living expense runway. This way, she can leave her job and become a rockstar freelancer and travel the world.

Take stock of your cash during uncertain times
One woman's goal to leave her job by January 2018 by saving two years of living expenses

Downturns Take Time To Play Out

Please resist the urge to invest all your cash during big sell-offs. Leg in with a better dollar cost averaging strategy. Sell-offs happen because the future has changed. Stocks are only cheap if the future has not changed. It may take 2-3 years for the markets to figure things out. Therefore, spread your investments out over time in multiple tranches.

During a downturn, cash is beautiful. It feels liberating to be free from requiring a loan to buy a car, a house, or anything. When you've got a lot of cash, you don't worry as much about losing your job or finding new freelance clients to pay the bills. It also feels amazing to take advantage of financial opportunity. Don't ever forget how bad things can get.

Historical stock market corrections

Even if things turn out just peachy over the next several years, at least you've come up with a cash savings plan that will make you save more than if you didn't make any projections. I've run my numbers in order to build a 10% position in risk-free assets for my entire net worth from a 5% position currently. I hope you run your own numbers too.

During times of uncertainty, having a lot of cash is the best! It would be a shame to lose all our gains since the last downturn. Instead, we should not only manage our cash and asset allocation, we should also try and spend more money on a better life.

Diversify Your Investments Into Real Estate

Stocks are very volatile compared to real estate. Therefore, in times of uncertainty, invest in real estate. Real estate holds its value much better, provides shelter, and produces income. Real estate values don't just go poof overnight.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.

Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore. 

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the easiest way to gain real estate exposure. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio. 


Track Your Net Worth Easily For Free. In order to optimize your finances, you've first got to track your finances. I recommend signing up for Personal Capital's free financial tools so you can track your net worth, analyze your investment portfolios for excessive fees, and run your financials through their amazing Retirement Planning Calculator. Those who come up with a financial plan build much greater wealth over the longer term than those who don't.

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About the Author:

Sam began investing his own money ever since he opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the largest financial firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered.

In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom. 

Related posts about times of uncertainty:

How To Make Lots Of Money During The Next Downturn

How To Predict A Stock Market Bottom Like Nostradamus

83 thoughts on “In Times Of Uncertainty, Take Stock Of All Your Cash”

  1. I believe that amount of cash on hand should be correlated to your monthly expenses and/or portfolio size. In other words, doesn’t matter if it is $1k, $10k, $100k or $1m – the question is how many months will that cash on hand cover if you need it? Once you set aside an amount for a safety fund, the rest of the cash “pile-up” should be managed based upon opportunities, as they come by. Also, you can always buy a mixture of stocks and bonds so that any deployment is less at risk.

  2. This is relevant to me… and coming at an opportune time. I’ve been hording cash after my last house purchase, mostly because I wanted to create a safety net for myself in case anything happened. My new house about doubled my monthly mortgage. Nothing I couldn’t afford, but it made me really leery of not having my butt covered if something went down at work/life/etc.

    I’m now sitting at $100K in cash, broken up in two places: $50K with the bank I have my mortgage at, which I used to secure a refinance on my home down to 3.89% last month. I know, I know, thirty year fixed, what was I thinking… but ARMs scare me still and the 3.89% was pretty damn good for me. I balanced that whole comfort and sense thing.

    The bank doesn’t pay much of anything in the form of interest, but it did lower my mortgage an additional .25%, so I jumped at the opportunity. Will have to see how long it needs to live there to satisfy that requirement, but I have a feeling I could just take it out now and be fine.

    I have the other $50K, well $51K now, thanks to interest payments, over at American Express Personal Savings, paying out .90%. Not the biggest return, but it’s something and the bank has been great to work with.

    Last month I cut off my cash savings, per-say, and started depositing weekly into my Vanguard account. Right now I’m in a good saving space and can funnel $1,000 a week. Today, literally, I’m at $4K in Vanguard, and I was getting ready to move money from the Vanguard Money Market account to a total stock market fund… Though, I’m a VTSAX guy. I like my Admiral Shares, the fees are so much lower they’re worth holding out for.

    Having over $100K in cash feels weird. I feel like I should be more invested, but it also does buy a huge peace of mind. I’m going to continue down the current route and probably feed Vanguard for a while, buy into VTSAX at the $10K mark (min-holding) and then maybe split savings up between AMEX and Vanguard monthly to go in at a 30% cash 70% investment route moving forward ($300 to savings, $700 to Vanguard every week).

    I’ll feel better even if the markets dip that I’m at least holding onto 30% of my savings each week, and that should help me stomach the dip on the other 70% as I wait for the markets to bounce.

    Thanks for the article, it was really helpful today!

  3. Great article Sam. What do you think of Gold now? And with interest remaining low, do you think the housing correction will come in a couple years in SF area?

  4. Sam –

    New to your site, but catching up quickly. Trying to save more but not easy with kids and mortgage and retirement. But working on it. Speaking of which, your thoughts on trying to refinancing? Currently we are year 4 in a 30 year fixed at 4%. I read your thoughts on the ARM, but I plan on staying in our house for a long time (if not ever). So I think we like the fixed. Now with that said, I can refinance again into a 3.25% and lower our payment by about $250/month but start over again. Or I could go to a 3% on a 20 year and increase payment by $250/month but be done in 20 years.

    I keep going back and forth and will probably just stay where we are (because im terrible at decisions), but looking for ways to increase our savings as kids get closer to private high school and college. Appreciate your thoughts. Thank you

      1. Can you explain your philosophy on paying off a mortgage if you have a 5/1 ARM? When and How do you pay it off? Are you just saving to pay off a large chunk of principle? If one is just living in his house for 30 + years, is this still a sound philosophy? I understand if I wasn’t going to live there for a long period, but I would like to pay it off eventually (30 years) but not sure what the best way to do that other than just paying off my 30 year mortgage. And am I missing out on lowering my rate by doing nothing? Thank you for your answer…Love this blog and your community. My new obsession.

    1. You know that if you get the new 30 year at a lower interest rate, you don’t have to “start over” on a 30 year mortgage, right? If your payment drops by $250 a month, but instead you keep paying the same monthly amount you were paying on the old mortgage, you will pay off your mortgage faster than the original mortgage was scheduled to be paid off.

      If you’ve got 26 years on your original mortgage, and you refi for a new 30-year and keep applying those extra principal payments, you might be fully paid off in 20 years or so. If you give me the real numbers I can run an amortization schedule and show you.

      1. That would be great to run the numbers. I currently have 397K remaining on a year year fixed at 4%. Loan originated in Feb/2012.

        My current mortgage is $2047/month. One of the better mortgage quotes i got was 3.25% at 30 year fixed which would bring my payment to $1728/month (not including closings costs).

        So that’s a savings of $319/month. So that basically would mean Im paying the same amount with a lower loan.

        To take it a step further, how much would i have to pay to get it down to 20 years now vs refinancing to a 20 year loan? Thank you for your help. SO confusing, but starting to look at the numbers makes it a bit easier.

        1. All right, your numbers don’t totally add up the way you’ve given them, but I’ll get as close as I can with what we’ve got. If you want more exact numbers, email me at yetisaurus @ (without the spaces, of course), and I can send you the amortization schedules I’m using and you can plug in the numbers yourself if you want to play with it. In the meantime, here’s what I was able to work with:

          If you had a 30 year loan starting Feb 2012 with a payment of $2,047 per month, your starting balance was probably $428,800. That would put your present balance at about $384,806 as of July 2016. That’s why I’m saying something’s not quite precise about what you gave me. But close enough.

          So your payment now is $2,047 and you’re set to be paid off in Feb 2042. If you refi’d $397k at 3.25%, your monthly payment would be $1,728, like you said. If you applied the monthly savings to extra principal and kept paying $2,047, your loan would be paid off in July 2039, 2 years and 7 months early.

          To pay off your current loan (at 4%) in 20 years from today, you would need to pay an extra $340 per month, for a monthly payment of $2,387.

          To pay off the refi’d loan (at 3.25%) in 20 years from today, you would need to pay about $2,260 per month, which is technically $532 more than they’re asking for a monthly payment, but still less than the $2,387 you’d have to pay on your 4% loan for the same payoff date.

          If you want me to help you run any more numbers, feel free to reach out. Once you get how to work amortization schedules, it can be a huge motivational tool to pay off your loans faster.

  5. To Sam and yetisaurus, can you guys go into more details on when and how a bank can recall a heloc? I have 1m cash that I hesitate to throw into 3 helocs, in fear that they will be recalled and I will lose my liquidity.

    1. You’ll have to take a really close look at your HELOC documents to be sure. I think most banks probably have clauses in the HELOC agreement that if the FMV of your property drops, the bank has discretion to reduce the amount of credit available. If the bank typically only allows a HELOC up to a max of 80% LTV, and you get the max amount, then if your property value drops by 10%, the bank may reduce your HELOC available credit to adjust to 80% LTV (mortgage + HELOC combined) based on the new market value.

      In my case, I had a rental condo with Bank of America financing (mortgage + HELOC). The mortgage was about $220k to start, and the HELOC was about another $20k on top of that. This was in about Feb ’08. Property values were declining, but hadn’t hit bottom yet. I had a $5k balance in the HELOC at the time, with another $15k that I could draw in case of emergency.

      When the market really tanked, dropping my condo value to about $190k, I got a notice in the mail that BofA froze my HELOC. I could continue to pay off the $5k balance as stated in the loan docs, over the next 20 years if I chose, but I wasn’t allowed to draw any more money on the line.

      If you’re close to your bank’s max LTV, calculate how much your HELOC limit might drop if property values fell to $___ (insert what you think the worst case scenario is). If you think you need more emergency cash than that, then you might hold the amount of the shortfall in your accounts and pay down only the amount you think you won’t need.

      Or, like I was saying above, if you think you will notice the declining trend and act faster than the bank to withdraw the funds, you could pay it all down now to save the interest and just plan to withdraw the funds if you see property values tanking again. But that depends on your risk tolerance and how devastating it would be for you to not have the funds.

  6. Close to $1.4M cash currently… I am actively trying to reduce my cash position, but it keeps growing due to a high income and most investments not meeting my criteria. I am currently increasing my real estate position. My real estate market is not nearly as bubbly as SF and is still far below 2007/2008 peak pricing. I forecast 3-4% annual appreciation in real estate here for a while as well as 4.5% cashflows after all expenses including property management. 7.5-8.5% yield isn’t too bad.

    I do agree that having to much invested in public equities doesn’t seem like the smartest thing.

    My current breakdown:
    33% cash (1% yield)
    15% public equities (no expected yield)
    17% private loans (10% yield)
    35% real estate (4.5% cash flow yield, >3% appreciation yield)

  7. My opinion on cash liquidity changes frequently and has especially done so in the past year. Recently, when faced with the option of investing $17k or paying down debt, I chose debt elimination. Slowly but surely, my risk paradigm is being redefined by my personal experience and time observing the market.

  8. Great article Sam. I have 2 years cash in the bank. I remember the crash of 87, Asian crisis, dot com bubble, 2001, 2008… I also remember Peter lynch saying NOBODY should be invested in stocks until they have bought a house. Amazing how advertising has made a lot of people believe they should be 100% invested in markets.

    1. Very interesting about Peter Lynch’s saying! I’ll have to do more research on that.

      Nice job having 2 years of living expenses in the bank. Feels so good to have caaaaaaash.

  9. I like to keep less than $10,000 in cash if I can. I’m below that number right now because I’ve deployed everything I feel comfortable using into international stock funds right now. If the number is sufficiently low, I am able to ignore who is paying the best interest rate and just go with the most convenient company for banking

  10. Thanks Sam. I appreciate ur articles. I’m curious, what do u think of William bernsteins hypothesis that real returns for equities will be 4% over the 21st century? (2% dividends + 2% GDP growth) I’m buying into that and subsequently on a mission to buy as much VTSAX as I can until I reach my FIRE goal of $1.7m.

    1. I can totally get behind a 4% return for equities over the next 10-20 years. That sounds about right. Matching returns of the past will be much more difficult in the future. You’ll like a future post about this subject I just finished.

    2. I’m a younger investor but I feel the same way. Every week I see more and more personal finance articles using a 7-8% return on equity investments and I roll my eyes. I’ve been budgeting 4-5% in my own estimations.

      1. I don’t think this is “wrong” per se (if returns are higher than 4-5%, you just reach FI faster), but it’s important to remember that the long term returns of the S&P 500 from 1871-May 2016 with dividends reinvested is 6.7% real annually. That period includes: 2 World Wars; the Great Depression; the Housing Financial Crisis; 1970s Stagflation; the Cold War; the assassinations of Garfield, McKinley and JFK; 9/11; the deaths in office of Harding and FDR; the Vietnam War; the Civil Rights Movement; and Women’s Suffrage….all tremendous social, political, and economic upheavals.

        Are you really certain that the next 20 years are going to result in lower results than through periods that saw all of that upheaval?

        Maybe I’m a cockeyed optimist, but I’d predict the next 20 years for the S&P 500 (or a well-diversified total stock fund) to return in the range of 6-8% real per annum…just like it always has.

        1. Compare the last 15 years, to the last 15 years before that. Keep on comparing.

          Interest rates have come way down, and everything is relative in finance. A 2-4% compression in average returns going forward is totally rational.

          1. Actually, there is a lot of data breaking out market returns into high valuation periods and low valuation periods, based upon CAPE, Market to GDP ratio, Tobin, etc. What they show is that there are 30 yr periods of time with close to 0% real returns and up to 10-12% on the high end.

            It is important to understand stock returns in the context of the overall debt cycle. This is the wrong valuation to assume exceptional or even average returns. Of course, I am only referring to US stocks; globally, there are better options, if you can stomach the volatility.

  11. Financial Slacker

    I have also been cash hoarding primarily in my money market and after-tax accounts. We’re cutting non-essential expenses and hope to increase the cash balance by 10% per year.

    Our pre-tax accounts have a 20 year time horizon and are about 95% invested although we have shifted the allocation from an overweight position of 35% in international to a more modest 10%. The remainder is broken down 45/20/20 (US stocks, bonds, real estate).

  12. I’ve been building cash this year and have been slowly deploying some of it. I invested money in my retirement accounts on Friday during the dip but have tried to keep the rest of my cash as cash. I do think a slowdown is coming in the next year or two so I’m waiting things out.

  13. We’re saving new cash, but it’s slow. Once we max out our 401k and Roth IRA, there aren’t a lot left over. I got some cash in my 401k. The rest is in our checking account and a little in our dividend account.
    It’s hard to pass up dividend stocks when I have cash. My greed-o-meter is telling me to buy dividend stocks so I can increase dividend…

      1. I sold some corporate bonds earlier in the week so I had some cash sitting around. I did take advantage of the dip. :)

          1. It (10 yr yield) could go to 0 or below, if you look at this entire last decade in terms of the overall credit cycle and the fact that we are at the deleveraging phase.

            1. With bonds likely to lower as interest rates have no where to go but up, does the typical advice to keep some of your portfolio in bonds to whether the bad times still make sense to you? If not, is there anything better to do with cash than a MM or CD (not interested in REIT or being a landlord)? Thanks!

  14. I jumped in with both feet in the winter of 2008 and made some bank, but I’ve been incredibly leery of the stock market the past few years. Still have some dividend stock investments, but dramatically reduced my index ETF to keep a large cash cushion.

    In this high risk, low interest rate, bank driven economy, it’s difficult to see the end game amongst the chaos, but it doesn’t look pretty from here.

  15. Sam, Where should one store cash to avoid loss of purchasing power due to inflation? And i mean Bay area inflation and not the government produced numbers

  16. What are you specifically expecting to happen? With the Brexit and, possible UK destabilization over the next few years possibly leading to a UK break up, I would think there is no better place for the world to invest than the US. With a huge influx of world investment cash interest rates will stay low for years to come if not go lower, stock values will continue to raise, and most likely real estate as well. I can’t see any other scenario taking place over the next few years. Worst case the US is stagnate. Now granted I think that your micro housing bubble is way inflated and the tech companies are slowing but I’m talking overall big picture. Could you elaborate further on how you see the next 5-10 years?

    1. Can’t. My crystal ball can only really see 6 – 12 months in the future. I didn’t buy the deluxe version. But feel free to share your predictions and how your net worth composition is made up so we can learn. What is your background?

  17. I believe you’ve done polls on this before, but what percentage of your readers have monthly income similar to the example you gave in this article?

    The example is a bit skewed for me since over 50% of the saved cash ($465,000!!!) in the example comes from bonuses and existing CDs.

    Also, they couldn’t squeeze out an extra $1000 in July to make it to $20,000 ?

    1. Ryan – Check out Who Is The Typical Financial Samurai Reader for demographic details.

      Also, because of your comment, and because of my bugging belief that some readers would find someone saving $20,000 a month as unrelatable to them, I put together another chart of a woman whom I’m working with who plans on saving $5,000 a month to accumulate two years of living expenses before leaving her day job in January 2018 to become a freelancer while traveling the world. Check out the new chart in the post!

      For your questions:

      * Look at monthly cash savings + potential liquidity events in the future. They may or may not happen. This is taking stock of ALL cash.

      * $500,000 in cash from cash savings is still pretty good. The point is to see what you can do, and add what may be coming in the future e.g. CD expiration, venture debt fund payout, etc.

      * No, only $19,000 for July. Got something he needs to replace for $1,000. Keep it real!

  18. When we transition to FIRE in two years, we will increase our cash on hand to 3 years of of living expenses.

    At my age then (51) we will be allocated to essentially 60/40 stocks/bonds. Loved your previous post. Additional validation of our existing strategy.

    Still not sure why many are so incredibly negative on bonds right now.

    We will have another income stream from my company pension and will be in portfolio protection mode since we will have over saved (conservative couple we like we are) before pulling the plug. Knowing when you have enough is so important and beyond that there is a need to critically ask why more.

    We also have more of a cautious approach in term of our expectations from the market. Folks are very chipper when stocks are on the up with their aggressive allocations. Many clearly did not live through 2008 when nearly 40% of their portfolio would have been wiped. In that scenario which we weathered, the quarterly summaries become rather painful to assemble and look at over a cup of bitter lukewarm coffee…

  19. When times get rough I want to be sure I have a nice pile of liquid cash for sure in bank accounts. I mean I dont have a ton of cash but I have always felt I kept a little too much in my bank accounts. I feel a little better about it now especially when there are times uncertainty.

    Who knows what will happen to the economy in the next few years so Im just hoping Ill be prepared when and if something bad does occur.

  20. I’ve got some cash on hand that I’ve been saving up for a downpayment, but that’s about it. I like to have a decent cushion on hand for anything large that pops up but other than that my net worth is mostly invested. I’m young and I’ve got lots of time for my investments to bounce back if the market takes a turn for the worse.

  21. Justsomeguy

    Close to $250k in cash currently, plan to buy real estate winter of 2018 as Sam.

  22. So it is really interesting as a long time follower of your blog to see the evolution of your life/investing mindset. This is meant as a compliment since we are actually quite similar lol. My belief is that once you get over whatever personal financial threshold you believe is necessary to sustain your lifestyle there is a big shift a persons mindset. Why swing for the fences when it won’t change what you do in your day to day life? I read about how people are “invested for the long term” and they are right to do so I believe, 10 years from now I would bet everything will have risen very nicely and returns although smaller than historic will be reasonably acceptable. I think this transition for most people happens in the $2M-$3M liquid (within a few days) net worth excluding home/stuff. Beyond that most of the people who accumulate this level of wealth usually are on a glide path to much more down the road, but it doesn’t mean they expand their lifestyle dramatically, there is just a nice comfy cushion.

    1. Younger people love to talk about investing for the long term. Eventually you wake up one day older and greyer and realize the long term is now. You have enough. You realize investing is meaningless if there’s no purpose.

      Investing in the long term also makes everybody feel better when they’re losing money. Behavioral finance is awesome.

      1. This is a great way to look at it Sam.

        It’s amazing how your perspective changes when you go from being

        single/little work experience/no real assets except human capital/nothing to lose


        having a partner to share your life with/having kids/having aging parents who need help/significant assets/definitely something to lose.

        I would guess many financially savvy people in the latter category are less likely to have 100% net worth in stocks, renting their primary residence, no cash on hand except a HELOC, etc.

        1. Nobody I know who is financially independent has more than 50% of their net worth in public stocks. Way too many younger investors are confusing stocks as 100% net worth. It just takes some time for thinking to change.

          1. I do… LOL. Over 60%. And I seriously regret selling as much equity as I did.

            Lots of rich people have most of their net worth in public stocks lah. Bill Gates, Warren Buffett, Mark Zuckerberg, most CEOs of public companies, all hedge fund managers, plenty of vested high tech workers, etc etc etc… Don’t you have a lot of high tech pals in SF Bay Area?

            1. No one owning public stocks ever gets wealthy that way. It is a flawed strategy to creating wealth. Ok, maybe Warren Buffett and a handle of others. It is not a bad way to invest as a middle class investor, just as buying a house is, but it will not lead to large amounts of wealth, because it is tough to get above 8% over long periods this way.

              I am 40, married, no kids.
              My allocation is currently:

              8% private equity
              16% public stocks (VTI, and a few international ETFs)
              22% bonds
              30% real estate
              2% alternatives (metals, peer lending)
              22% cash.

              80% of this is post-tax and 20% is 401k (or illiquid). The 401k is only stock and bonds.

              I am also not counting my main category of net worth, which is my business, which is likely 60-70% of my net worth.

              For now, I am hoarding cash and buying more munis as well. I do this because if I wait long enough, I know I will stumble upon solid income-producing real estate or a company to invest in. Stocks are overvalued. US CAPE ratio is about 25x 10 yr avg earnings. There are better opportunities out there. I’d honestly rather make 1% for 3 years than bet on something that is likely only going to earn 4-6% over 20 yrs. It’s not enough of a return to justify the risk imo.

              For my 401k, btw, I never have any cash. I just buy a bond fund and consider it to be the “cash” portion. I realize there are environments where both bonds and stocks can fall at the same time, but over 20 yrs, I think both will do better than cash & in this fund, I can’t buy anything exotic. When we get a market crash, most of the time, my bond fund is stable to slightly up so I just exchange some of those for stocks.

  23. As a relative newbie am lighter on cash than I’d like. My plan is to take my annual employer stock grants and ESPP purchases and convert them to cash until I’m comfy.

    That said, I loved this quote and think this is the best nugget of wisdom in your post: “Sell-offs happen because the future has changed. Stocks are only cheap if the future has not changed.” So true!

  24. I’ve been slowly accumulating cash in my investment accounts waiting for a big market crash. I thought it was going to be time to invest earlier this week, but prices came back up right away, so I’m still waiting.

    I have basically zero cash in my regular bank accounts right now because of the huge remodel I just did on my fourplex. But maybe I’ll have time to start accumulating cash there, too, before the next big market drop.

    1. Zero cash in your most important cash account? I like your guts! No guts no glory right? Just make sure your cash flow can cover all existing expenses in case things get really bad.

      1. I do have a HELOC to fall back on if I have an emergency, so it’s not as gutsy a move as it looks like. I wouldn’t pull cash out of the HELOC to invest in the stock market, but I’m not nervous with a virtually zero balance because of that $100k cushion. All signs point to a positive cash flow going forward, too. The cash flow on the fourplex should net me about $1250 per month, and I’ve still got strong W2 income, too. It’ll bounce back. :)

          1. Chicken. ;) JK. I’m not that worried about it because my house is worth about $650k and I’ve been aggressively paying down my mortgage, so I only owe about $250k on it now. With $400k of equity, it would take a HUGE drop for it to warrant cutting off my HELOC funds.

            I bought my house as a short sale after the ’07-’08 housing market drop for $435k, so I think that’s probably the lowest it could realistically drop to. Even at $435k value, my $250k mortgage plus $100k HELOC would put me at 80% LTV, so it’s unlikely the HELOC would take a haircut or be closed by the bank.

            If it starts to look like the market is starting to tank, I can just transfer $50k or so from the HELOC into my regular account and sit on it there.

            I think it’s pretty low-risk overall, given that (1) it’s not very likely I’ll need the HELOC funds since all the major stuff is already done to the fourplex and I have strong cash flow now, (2) I don’t think a HUGE market crash is very likely, and (3) I’m almost positive I can act faster than the bank to withdraw the HELOC funds if both (1) and (2) happen and if it looks like the HELOC might be frozen.

          2. I think of my HELOC as an emergency fund too. I’ve never inquired about a recall provision. Has anyone experienced that sort of thing, or heard of a HELOC disappearing for anyone else?

            1. If you look at my response to jl923 below, you might see the answer to your question. My HELOC was frozen when the big market crash happened.

            2. That is very reasonable in a downturn, and something I would completely expect. But when I’m investing 100k at a 10% return instead of saving it for emergencies, I will gladly pay $60/yr for my $100k HELOC in the case of an emergency.

  25. Timing the markets don’t work, studies show. Why have the cash if you don’t need it? Volatility in the stock market is the name of the game, and if you can’t stomach volatility then perhaps adjust your Asset Allocation to match your risk profile?

    For me, given that I’ve a 25+ year time horizon, I’m investing all my savings steadily every 2 weeks.

      1. I think he is referring to this statement:

        “Buying anything close to the top of the market is risky.”

        Yes, stocks seem expensive right now but I can think of many times in the past when I thought the same, only to see huge gains.

        Deciding to prioritize cash because we are at the top of the market is an attempt to time the market, no?

        1. Fair enough. In this sense, everybody times the market in someway because everybody has different financial needs. What is someone supposed to do, invest in the stock market forever until they die? I continued to time the market and bought about $60,000 of stock on Monday, June 27 from my pre-tax retirement accounts. I hope things work out when I get to tap the money between 60 and 70

          I think some people are confusing new money with existing investments. I’m on a mission to save as much cash as possible and pay down debt because I think the markets are going sideways to down for the next couple years. Again this is for new savings. Everybody’s always free to invest how they wish for their own individual financial goals.


          I’m also afraid that too many people have a large majority of their net worth in public investments. Please take a look at a previous post on how endowment funds invest.

          Finally, since we are near the top of the market, it is an undeniable truth that investing right now is near the top of the market. Whether The top of the market continues to increase over the next one or two years remains to be seen.

          I really hope people think about their entire net worth composition. Think about their existing investments, their existing asset allocation, their existing cash and cash flow, as well as what they plan to do with new money coming in.

          My personal goal is to get The risk-free portion of my network up to 10% from about 7% currently.

          1. “What is someone supposed to do, invest in the stock market forever until they die?”
            Nope, but invest until they’re done with their accumulation phase sounds like a good plan. Some portfolios have cash, up to 25% of it to reduce risk, so you make a fair point, but some parts of your article do sound like market timing, which, it has been proven over and over again, does not work.

            Also, you say:
            “It may take 2-3 years for the markets to figure things out. Therefore, spread your investments out over time.”

            Studies have shown (unfortunately I don’t have a link anymore) that dollar cost averaging is statistically not useful, and if spread over more than a few months, actually leads to lower performance than investing the money as soon as you have it. Food for thoughts?

            1. At the end of the day, every investment is a type of market timing. Everybody needs to decide what’s good for them as everybody’s goals are different.

              I timed the market by buying about $74,000 worth of equities on 6/24 and 6/27 (see chart above) after the Brexit vote. Or, you can just say I invested. Let’s see what happens in 20+ years time when I get to tap my pre-tax retirement accounts.

          2. Sam, you’re not expecting to do anything with those stocks for the next 20-30 years (except receive dividends)?

            How quickly do you think the dividends will return the initial investment amount? 5 years, 10?

            What’s your advice with regards to purchasing stock and the time bracket in which you should expect your initial investment amount returned?

            I know a lot of people who invested in a local company’s share sale about 9 years ago. Those people are only going to get their initial investment amount back (for some years they didn’t even receive dividends).

            I think that was the rottenest deal because if they had stuck their money into a fixed deposit over the same amount of time they would’ve made a tonne more as interest rates at that time were around 12%!

            1. Can’t touch my pre-tax retirement accounts until age 60 without a 10% penalty and I don’t want to due Rule 72t.

              My post-tax investment accounts is a different story.

            2. quantakiran

              @ Chaddogg (I can’t reply to your message?) In South Africa. I can still remember the letter I got from the bank notifying me of my 32 day notice account’s interest rate decreasing from 11% to 8%. So the one year and greater fixed deposits were probably more at the time.

              Interest rates fell even more after 2008 and only recently started to pick up to about 10%. However, thanks to Brexit, they’re on the decline again. :(

              @ FS: oh, so your stock investments fall under pre-tax retirement accounts and incur taxes if you touch before 60. Makes sense. Thanks for the reply.

              1. Cash in three main places for investing:

                1) Cash in pre-tax retirement accounts. Check your 401k, IRA, or Roth investment portfolios to see their latest compositions. Are you happy with your cash holding percentages? Are your investment portfolios aligned with your investment objectives and risk tolerance? I’ve held roughly 30% in cash for all my portfolios since early 2015 because I’m bearish on global stock markets. At the same time, I don’t know when such opportunity will arise, which is why I’ve got a 70% exposure.

                2) Cash in post-tax investment accounts. Check your cash weightings in all your after-tax investment accounts. Overtime, your cash holdings may increase due to dividend payouts. Post-tax investment account objectives are often different from pre-tax retirement account objectives due to time horizon and liquidity needs e.g. you might be investing to buy a house. I’m fully invested in my Motif Investing account with roughly a 50/50 weighting of stocks and bonds and I’m also fully invested in my Citibank Wealth Management account with mostly structured notes that offer downside protection.

                3) Cash in your bank account. Cash in your money market account is the most precious cash of them all. I would not deploy any money market account cash until after you deploy cash in your pre-tax retirement accounts and then your post-tax investment accounts. Cash in your 401k and IRA isn’t liquid, which nullifies one of the great benefits of cash. It would be foolish to squander your liquidity when you already have illiquid cash available for investing. Remember the FDIC insures up to $250,000 per individual and $500,000 per joint account. If you have more cash than that, spread it around to different institutions.

          3. “What is someone supposed to do, invest in the stock market forever until they die?”

            Change that “until they die” to “until I decide to retire” or “until I reach financial independence” and you basically have my investment philosophy.

            I set an asset allocation I’m comfortable with (I’m 37, right now it’s 80/20 via the Vanguard LifeStrategy Growth Fund).

            I have a suitable emergency fund, that I continue to grow slowly via 0.75% interest at CapOne360 and small occasional contributions.

            As I have cash to invest (i.e. not cash needed to pay bills or directed to other purposes like vacations or the kiddos 529), I invest it at my asset allocation, as soon as I can.

            Rinse and repeat, until I’m ready/my accounts have enough to comfortably fund retirement (probably 33X expenses without factoring in anything from SS, but maybe less).

            Hoarding cash (unless for a specific known purpose, like an upcoming home/car purchase or to have runway for 2 years of freelancing) is missing out on the fundamental truth that timing in the market is not as important as time in the market. Invest as soon as you can, as often as you can, as much as you can.

            1. Sounds good to me. Whatever works for you.

              Does this mean you did not buy anything post Brexit given that would be market timing?

              What is your net worth composition by asset class percentage?


        2. Steve Adams

          Timing the market is one thing. Investing in good opportunities is another. At current PE ratios many underlying business are highly valued. Warren Buffet has made a pretty good pile of cash investing in undervalued businesses not over valued business that’s what I am doing. Unfortunately private businesses have such a better ROI opportunity it’s hard to get interested in 7-10%. When that changes to a high PE and lower odds of increased gains stocks look even less attractive.

      2. Again, one must ask yourself what the cash is for.

        See below Bogle’s take on current economic climate:

        If you don’t require cash and your time horizon is at least 5 years then having cash will result in a reduced portfolio. I invest in index funds; my goal isn’t to beat the market but get exactly what the market will yield based on my risk tolerance.

        I’m 31 and I have invested 70% of my portfolio in equities (split evenly between domestic, US, and International), ~27% of my portfolio is in bonds and the remainder in cash. I like to hold some cash on hand but I fully understand that cash in and of itself is a horrible “investment.” Inflation alone will erode the value of your cash over a long time frame.

        I’m very bullish on stocks if they’re held over the long term. I’ve been actively “investing” since 2004 and I’ve been burnt enough times to know that actively picking stocks is a loser’s game. I’m all in on low-cost index funds.

  26. Apathy Ends

    We have some cash in our Roth accounts and Brokerage accounts (and obviously our emergency fund) – it will sit until it makes sense to throw it in the market – I thought that would have been this week but stocks rebounded quickly

    We try not to hold much cash outside our emergency fund and a small savings account – we can wait 10 years if that’s what it takes

  27. At your stage I’m wondering if you actually NEED cash liquidity.
    I understand you are balancing risk from a bear market. But with guaranteed 2% yield from the market (sp500) why not just keep it there?

    What capital event would cause you to withdraw so much cash with the strong cashflow that you currently have?

    1. Hi Jason,

      Are you asking about me? Or a general you?

      I haven’t been withdrawing cash from the markets this year. I have rebalanced to a more 60/40 asset allocation and am aggressively saving NEW cash in anticipation of real estate weakness by winter 2017/2018 so I can buy. Houses are expensive here.

      I actually bought about $74,000 worth of equities on 6/24 and 6/27. See the chart of my purchases above. Public equities accounts for less than 30% of my net worth.


  28. This is great advice. Especially to spread out your money over multiple institutions. My cash hoard is much smaller, but basic emergency planning tells you to keep at least $200 in small denominations easily accessible in your home and your gas tank full (if you have a car). It continues to surprise me when my friends don’t do this.

  29. The Green Swan

    Cash, cash and more cash. All talk about cash! I keep a detailed spreadsheet of all our cash. In addition to funds and where my money is stored, I don’t keep much physical cash around, but a couple reason: 1) I don’t need paper money in my day to day life very often (if I’m going on vacation or an event that I’ll need it, then I’ll hit up an ATM) and 2) this make monitoring my cash level much easier because it’s all electronic.

  30. We’ve done a good job of keeping track of the cash and “looking” at it (over and over)…time to make a written plan and cash savings chart. Looking at it doesn’t turn in to an actionable event that will move you forward. The “status quo” is fine decision at times, but this isn’t one of them.

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