Dedicated to Deposits: Deals, Data, and Discussion
Featured Savings Rates
Featured Accounts

How Much Of Your Money Should Be In Cash?

Monday, October 28, 2013 - 5:29 PM
We all know the expression that cash is king. But with rates on savings, checking accounts, and CDs in the low single digits, the question is, how much of a king? How much money should an individual hold in cash?

http://www.bestcashcow.com/articles/how-much-of-your-money-should-be-in-cash-8847
8
ShorebreakShorebreak2,621 posts since
Apr 6, 2010
Rep Points: 14,210
1. Monday, October 28, 2013 - 7:30 PM
Are you referring to cash, cash or money still left in banks in liquid accounts?  I still am on the side of keeping real cash on hand even if it doesn't earn me any interest.  If things were better with our government or even with other nations, I would not be so concerned but until things change, if they do, I like to be "close" to our cash.
3
paoli2paoli21,372 posts since
Aug 10, 2011
Rep Points: 6,011
2. Monday, October 28, 2013 - 7:33 PM
There is no one-size-fits-all answer.  My rule of thumb is "whatever it takes so that I sleep soundly".  At the moment I'm 56% in cash with an eventual (gradual) goal of 70%.   

The argument that CD rates - even the superior ones we find thanks to Ken's diligence - are not keeping up with inflation have not fallen on deaf ears.  Nonetheless, given my personal circumstances, this is what I choose to do.     My cash balance is in a combination of RCAs and laddered CDs. 
7
pearlbrownpearlbrown1,436 posts since
Nov 2, 2010
Rep Points: 6,264
3. Monday, October 28, 2013 - 7:43 PM
Re: 1. Monday, October 28, 2013 - 7:30 PM
That was pretty much answered in the article.
4
ShorebreakShorebreak2,621 posts since
Apr 6, 2010
Rep Points: 14,210
4. Monday, October 28, 2013 - 11:34 PM
I think around 75% cash is good.
3
mustsavemoremustsavemore49 posts since
Jun 26, 2013
Rep Points: 152
5. Tuesday, October 29, 2013 - 7:11 AM
Interesting article and reading the responses from others I guess I am in the minority. I keep track of this on my investment spreadsheet and currently have 11.54% in liquid cash.  I like to keep my liquid cash between 10% and 15% so if it starts creeping up to 15% I need to look at moving some into a cd.

Don’t think I will be loaning money to Bank of America any time soon like Warren Buffet so for my needs I do not hold too much in liquid assets. With my cd laddering I always have a one or two cd’s that mature each year and I plan any large purchases based on that.

The writer of the article mentions that they like to plan two years out for a major purchase and hold the funds in a liquid vehicle. Even at the current low rates 2% is better than 1% so I see this move as losing interest.

Everyone’s circumstances are different so no one rule fits all. This seems to work for me and I am comfortable with it.
3
FARFAR106 posts since
Feb 26, 2013
Rep Points: 381
6. Wednesday, October 30, 2013 - 3:37 AM
Pearlbrown seems to be including CDs as cash while others are not. Any consensus on whether CDs should be considered cash?
2
loulou544 posts since
Aug 3, 2010
Rep Points: 3,397
7. Wednesday, October 30, 2013 - 6:35 AM
I consider liquid as money I can get obtain within a week or so without any penalties.

Money market,savings,checking and stocks are liquid.

Cds or money in an ira account I do not consider liquid.
5
FARFAR106 posts since
Feb 26, 2013
Rep Points: 381
8. Wednesday, October 30, 2013 - 8:22 AM
I have never heard of CDs being considered as cash since they have EWPs  and may or may not be available to you until maturity according to the fine print of some.  Cash has always been the funds itself or those we have in accounts readily available to us without penalties.  Now if one has any of these "no-penalty" CDs and know they can get the money instantly when needed without fees or penalties, I guess that type of CD could be considered cash and maybe that is what Pearl is referring to by adding CDs to the group.  I, personally, never put any funds into CDs and consider that a cash account.  I don't even like it when my local bank sometimes puts a 2 day hold on a large check I try to deposit and won't release the funds until they check out the bank it's from.  I make sure I have other funds in my account to cover it while waiting.
1
paoli2paoli21,372 posts since
Aug 10, 2011
Rep Points: 6,011
9. Wednesday, October 30, 2013 - 9:09 AM
My original answer was along the lines of "what is not invested in the stock market" therefore I included CDs. 

If the Sage of Omaha asked me to lend him extra money for his next investment, I could plunder my RCAs and the Sealy Bank to offer him 4% in liquid assets within 3 business days. 
4
pearlbrownpearlbrown1,436 posts since
Nov 2, 2010
Rep Points: 6,264
10. Wednesday, October 30, 2013 - 1:28 PM
I think Pearlbrown is correct in that CDs are considered by most investment professionals to be a cash equivalent asset distinct from stocks and bonds.
5
loulou544 posts since
Aug 3, 2010
Rep Points: 3,397
11. Wednesday, October 30, 2013 - 5:35 PM
Since one's principal can be returned with the payment of an EWP, I guess one could consider the CD to be more of a cash equivalent more than stocks or bonds where one is not certain of getting back what was invested.  However, I don't think the majority of savers use CDs for holding cash they want to keep liquid. At least I don't. 
2
paoli2paoli21,372 posts since
Aug 10, 2011
Rep Points: 6,011
12. Thursday, October 31, 2013 - 7:10 AM
One definition I saw to be considered a fixed investment:

"A long-term tangible piece of property that is not expected to be converted into cash any sooner than one year."

So guess real estate, furniture , auto,collectibles would all be considered fixed. Cds stock,iras  are  liquid.

For my own purposes I will still consider my cds to be fixed and off limits until maturity.
3
FARFAR106 posts since
Feb 26, 2013
Rep Points: 381
13. Friday, November 1, 2013 - 8:30 AM
Here is an update to the original article:

How Much Cash Should Retirees Hold?

http://www.bestcashcow.com/articles/how-much-cash-should-retirees-hold-9067
3
ShorebreakShorebreak2,621 posts since
Apr 6, 2010
Rep Points: 14,210
14. Friday, November 1, 2013 - 8:59 AM
"For the cash that you do hold, make sure you are maximizing its return by getting the best possible rate. BestCashCow's rate tables provide the most competitive rates on savings, CDs, and other FDIC insured or NCUA insured bank and credit union accounts."

Correct definition on "Cash" (including CDs); liquid or non-liquid (immediate cashable with EWP).
4
51hh51hh1,476 posts since
Jan 16, 2010
Rep Points: 6,426
15. Saturday, November 2, 2013 - 7:12 AM
I am 100% in cash (CD's and reward checking) and sleep every night without waking unless I hear a strange noise. None of my friends can say this.  We have read of  algorithms bringing the market down hundreds of points in minutes. We know the computers can do 10,000 trades a second to make a fraction of a penny without any human input. This is not investing. It is gambling on which computer is fastest and what genius can write the best program. My opinion only. 

This link below is nearly 3 years old. I am not willing to put even a portion of life time  savings into something that I feel is not well understood. (at least by me) I love new ideas etc but to trust my savings in them is a choice I am not willing to do at this time in my life. 

Log In - The New York Times 
www.nytimes.com/2011/01/02/business/02speed.html?pagewanted=4&  r=0

 “Sometimes, too much technology without the ability to manage it effectively can yield some unintended consequences.
3
Ally6770Ally6770912 posts since
Jan 16, 2010
Rep Points: 2,655
Reply