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Is 500K too much in regular savings account?

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  • #16
    Just me but I would take 450k and invest it. Take the remaining 50k, open a Gemini account and move it into GUSD, collect 8% a year

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    • #17
      Some questions:
      1. when do you plan to retire? Basically, time when you need this $?
      2. Does your 403b offer low cost index funds?
      3. Does your 403b allow money to be rolled into it (transfer in )? If so, can you transfer your rollover IRA into 403b to allow back door Roth. (i did this in 2017)

      If you told us you were retiring in a year then a cash bucket to avoid sequence of returns risk is a plan, but it sounds like you have a while yet to go.

      When will you spend?

      This determines how you invest.

      It you are >10 years from retirement i would consider:
      1. Small emergency fund of 3 mo expenses in cash
      2. Put some $ into stock index funds (total market fund & total international stock market fund)
      3. Put some $ towards the mortgage
      4. Expect a wild and crazy ride with the market. It will probably drop 50% in the next 3 years and it will be sickening but that is the price you pay for good returns that beat inflation. I think if you put it all in VTSAX & VXUS and waited 15-20 years my guess is it will be a winning strategy.
      5. Turn off the news= noise.

      From a mathematical standpoint your best bet would be to put it all in the market but that might be difficult to tolerate if you are risk averse.

      The market seems overpriced and seems to be on the cusp of a correction but i have said this in the following years: 2016, 17, 18, 19, 20, 21 and now.

      I think we are in for stormy seas, but stocks are where my money is because it is money I plan on spending in 10-30 years.

      Sorry for the long answer.

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      • #18
        I also keep what I consider to be a large cash position, but it is about 5% of my net worth. That's just me, but I am older than you are with less years of employment capital left. I like the security of having the extra cash. However, the extra cash is definitely a drag on portfolio performance.

        You are currently in the range of 20% of net worth in cash. I would try to get that down to something more reasonable, but you have to invest where you feel you can tolerate the risks. Maybe put some of that cash into lower risk investments?

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        • #19
          How old are kids? I think you are done saving in the 529s. If you feel like there’s not enough in there consider having all mortgage debt paid off by the time they go to college in order to free up cash flow. Probably set those 529 investments conservatively if they are off to college in less than 5 years

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          • #20
            We keep $50k in cash (academic doc making +/- half of what you make with stay-at-home spouse).

            As above, another vote to pay off condo, figure out a number that you’re comfortable with (somewhere 25-100k) to keep in cash, then decide if you want to invest, pay down the mortgage, or some combination.

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            • #21
              Wow, strong work. We have similar numbers to yours and we have about 10k in cash 😆 so yeah I'd put some of that to work! If it were me I'd probably pay off both mortgages- the condo for sure! Nice problem to have though.

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              • #22
                Originally posted by White.Beard.Doc View Post
                I also keep what I consider to be a large cash position, but it is about 5% of my net worth. That's just me, but I am older than you are with less years of employment capital left. I like the security of having the extra cash. However, the extra cash is definitely a drag on portfolio performance.

                You are currently in the range of 20% of net worth in cash. I would try to get that down to something more reasonable, but you have to invest where you feel you can tolerate the risks. Maybe put some of that cash into lower risk investments?
                It has been a drag the last 10 years or so. Just saying.

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                • #23
                  If you are very reluctant to take risk, you can still do better with CDs or short term bond funds. They don't pay much but better than a savings account.

                  Beyond that you need to assess your willingness to take some risk. If you want essentially none, you can beat the savings account. If you are willing to take some risk, look at gently easing into stocks and intermediate term bonds.

                  WIth your income.and low debt, you do not HAVE to take much risk but you 500k is sure to lose to inflation.

                  Whether you should pay off a mortgage depends on the interest rate and alternatives. With interest rates going up, holding the debt may be a good investment. The mortgage is probably costing you more after tax than you are getting on you cash but perhaps leas than even a short term bond fund.

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                  • #24
                    Thanks for all your responses! Our kids are still young (13 & 10). We’ll stop contributing to their 529 once it reaches 500K. Fortunately, employment is stable, and not thinking of retiring anytime soon. For now, it’s the half a million in limbo that I must deal with. Yes, it’s a good problem to have and you all gave me some good points to consider.

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                    • #25
                      Originally posted by Mdmulier View Post
                      Thanks for all your responses! Our kids are still young (13 & 10). We’ll stop contributing to their 529 once it reaches 500K. Fortunately, employment is stable, and not thinking of retiring anytime soon. For now, it’s the half a million in limbo that I must deal with. Yes, it’s a good problem to have and you all gave me some good points to consider.
                      You need to have a reason why you keep that $500K in cash. Otherwise it is losing value.

                      If you are just investing in the stock market, dump at least $400K in it. You can have less than 100K as emergency fund.

                      I have sometimes kept 500K or more in a savings account when I was investing in real estate / businesses and having ready cash counted for us to make a deal before it is gone. I am slowly getting out of those markets and hence don't keep a huge sum in cash unless I need to pay estimated taxes.

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                      • #26
                        I’ll play devils advocate and suggest it’s not so bad.

                        Sounds like otherwise wise you are invested in stocks via mutual funds, with no other bonds.

                        So the $500k is you fixed income, which is 20-25% of your assets.

                        IMO, a “high yield” savings acct is not a bad source for fixed income these days. Bond fund will probably lose principal this year. So what else to do, other than paying down debt?

                        Maybe slowly move move into US savings bonds (can buy up to $40k total per year as a couple).

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                        • #27
                          Well. Your gross income is pretty nice. If you are conservative, pay down debt. If you like risk, put it in the market. If you’re not sure, do 50-50. It’s a better rate then just holding cash if you apply it to debt, and it increases your monthly free cash flow. Holding a big chunk of cash makes you sleep better, but it costs you in the long run. Still I wouldn’t feel bad about holding a year of expenses in an emergency fund if you are the careful type. There are just better ways to make that much money work for you. In some states your primary home is a protected asset, so paying off a mortgage can be a form of liability insurance also.
                          Last edited by Jaqen Haghar MD; 01-19-2022, 08:54 PM.

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                          • #28
                            Which brand new Ferrari are you about to buy?

                            Oh, well... then ya, $500k cash is insane and your buy power erodes every day. Pay your debts or invest in anything reasonable and get some return on your money.

                            These days, it takes 3 days or less to sell stock and have it as cash in your hand. You have to at least keep up with inflation with the majority of your wealth. If you don't trust banks and markets, gold keeps up with inflation... you can get anything from coins for a few hundred to bricks for about $40-50k based on price. You can turn a 1oz gold coin into $2k cash in your hand in about 15mins in any city. Gold is not ideal as more than 5-10% of your overall since it doesn't do much better than keep up with inflation in the long run, though (you can usually do pretty well in short term gold price spikes by selling in market crashes or shortly afterwards... but there are much better growth investments than gold 95% of the time). Gold does beat the heck out of cash.

                            But yeah, any more than $100k in purely cash savings accounts is crazy no matter how much money you have. Buy real estate, stocks, gold, invest in your biz, other assets, etc etc. Think it through... if you don't trust markets, why trust banks, why put $500k in them with you having over that amount in debt and can get instant return by paying debt? More curiously, how do you feel markets are risky but banks are "good as gold" for a huge chunk of your net worth? Who do you think runs the stock market, and what do you think banks do with that money that is "in your account"? Do you think they speculate in stocks and real estate... or borrow it out to others who effectively do that same thing? Hmmm.

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                            • #29
                              Originally posted by Max Power View Post
                              Which brand new Ferrari are you about to buy?

                              Oh, well... then ya, $500k cash is insane and your buy power erodes every day. Pay your debts or invest in anything reasonable and get some return on your money.

                              These days, it takes 3 days or less to sell stock and have it as cash in your hand. You have to at least keep up with inflation with the majority of your wealth. If you don't trust banks and markets, gold keeps up with inflation... you can get anything from coins for a few hundred to bricks for about $40-50k based on price. You can turn a 1oz gold coin into $2k cash in your hand in about 15mins in any city. Gold is not ideal as more than 5-10% of your overall since it doesn't do much better than keep up with inflation in the long run, though (you can usually do pretty well in short term gold price spikes by selling in market crashes or shortly afterwards... but there are much better growth investments than gold 95% of the time). Gold does beat the heck out of cash.

                              But yeah, any more than $100k in purely cash savings accounts is crazy no matter how much money you have. Buy real estate, stocks, gold, invest in your biz, other assets, etc etc. Think it through... if you don't trust markets, why trust banks, why put $500k in them with you having over that amount in debt and can get instant return by paying debt? More curiously, how do you feel markets are risky but banks are "good as gold" for a huge chunk of your net worth? Who do you think runs the stock market, and what do you think banks do with that money that is "in your account"? Do you think they speculate in stocks and real estate... or borrow it out to others who effectively do that same thing? Hmmm.
                              It's not an issue of trust. Just good old nerves and indecision. Ferrari? I better dump this money to our taxable quick, before my husband gets any idea!

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                              • #30
                                Sounds like you are doing awesome. I agree with several of the posts above. I would try to keep no more than 50-100k in “cash” but you can put the rest of that money to work in a safe place. Here are some suggestions:

                                open a UTMA account for each of your kids. You can invest money for them for later. You have enough in a 529 plan. That has certain restrictions. A UTMA account has different restrictions but similar tax benefits and can be spent for them on expenses other than education.

                                I would also buy I-bonds. 10k per year for each of you and your kids, plus 10k for each trust you are willing to open. $40k per year would be reasonable to avoid having to open any trusts. Just crest an account at treasurydirect.com.

                                I would also recommend paying off the rental loan. Be done with it. Otherwise you might consider refinancing it while rates are low and pulling out 60-80% of the value with a fixed interest rate loan while rates are still low. Not a bad move if you have somewhere to invest the money but if you are going for security and cash flow just pay it off.

                                That leaves you with roughly $400k. I would put $200-300k in a total stock market index fund. You could dollar cost average into it monthly or quarterly if this short term unrest makes you nervous. Say $50k per quarter or 20k per month, scheduled. Don’t try and time the market.

                                not sure how you like being a land lord. If you have access to another property that you think is a good long term investment you could buy that. Put 20-40% down.

                                in short, yes it’s too much cash. Diversity that money where you feel safe.

                                if you really don’t feel safe, pay off all your debt, and save a huge monthly chunk for retirement as your cash flow should look amazing with no debt.

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