How Much Liquidity Do You Want?

by Evan

pond ripples

I am currently in operation horde cash, for two reasons, we want to eventually move (within a year to 18 months) and cash is king when negotiating, and two we are expecting our first child at the end of the year.

I am no where near where I want to be, but as I reviewed my numbers briefly today, it got me thinking how much is too much cash?

When Do You have too Much Cash?

When do you believe you should look into other investments, even if they are “safe” investments?

[poll id=”2″]

Please leave some comments as to why you chose the way you did!

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Samurai June 25, 2010 - 12:30 am

Evan, why did you stop at $250,000? Is that what you think is the magic enough number? I think you’ve got to think bigger… like 10-15X greater than 250K for liquidity!

Evan June 25, 2010 - 10:01 am

I stopped at $250K because after that I think cash may be unwise to keep building…maybe bond/bond funds, gov’t paper, CDs, corp paper, etc. I guess that is still liquid but I was really looking for how much CASH you believe is too much

Early Retirement Extreme June 25, 2010 - 11:47 am

Well, as much as it takes. Currently, less than 10k because I don’t see myself buying anything more expensive than that. If I was looking to buy a 100k house, then 100k in cash would be the magic number.

Jackie June 25, 2010 - 1:29 pm

I voted for $100,000, but my real answer is that I think it really depends on what your net worth and assets are like. I go by emergency fund + a percentage of my investments.

Evan June 26, 2010 - 3:08 pm

percentage of your investments? as they raise you raise your cash?

Jackie June 26, 2010 - 3:32 pm

Kind of. More like I want a certain percentage of my assets in cash or cash equivalents, just like I want a certain percentage in aggressive investments, etc.

Mrs. Frugal June 25, 2010 - 1:01 pm

I’m sitting here with my baby (Evan!) and looking at our goals, including cash reserves. Babies are great motivators! For us 100K in cash is a good target, but I think it’s totally dependent on your situation/goals/expenses.

Evan June 26, 2010 - 2:30 pm

You named your baby, Evan? THAT IS AMAZING! I have been pushing that name on people for YEARS. If we have a boy first it is going to be named after my father (it is a Greek thing).

Investor Junkie June 25, 2010 - 4:22 pm

The question is for what exactly and your monthly burn rate. For some 100k will last a few years, for others a few months.

Financial Samurai June 25, 2010 - 9:58 pm

Evan, there is NEVER such thing as too much cash.

Bad thing? No.

$3million in the bank generates you $100-120,000 a year in interest income risk free doing nothing. Is that a bad thing?


Evan June 26, 2010 - 3:29 pm

But that $mil could also give you a higher return if you took a tad bit of risk with TIPS or some other type of investment

Financial Samurai June 26, 2010 - 8:29 pm

There will be a point in your life when you are happy with the nut you have. Let’s say you have $1 mill a year in cash. It’s giving you $40,000 in gross interest income a year. To many, that’s good enough b/c it’s guaranteed. In 18 years time, your $1mil will be guaranteed to equal $2 million.

There is NO guarantee in any of your investments, period. TIPS? you get crap yield.

TRUST ME on this. Build as big a nut as possible!

Budgeting in the Fun Stuff June 25, 2010 - 11:26 pm

I voted for $25,000 since that’s what our normal target range is…anything over that is either put towards our mortgage, in equities, or in CD’s usually (well, Smarty Pig right now since they are almost the same rate at 1 year CD’s…pathetic, lol).

Craig June 26, 2010 - 7:18 am

If by cash you mean savings account cash then I think you can have too much. If you know you won’t need the money for some time then CD’s may be a better bet for some of you money since you should get a better rate. If you aren’t sure when you need the money then by all means stock up the cash.

When we sold our co-op we weren’t sure when we were going to buy a house. We knew we were going to look within a year so we didn’t lock up our sale money and kept in in savings (high yield).

Kris June 26, 2010 - 7:31 am

I voted 25,000. My vote represents money that is completely safe and completely accessible. After that, I put extra money toward more aggressive investments such as college funds, mutual funds, mortgage repayment, etc.

Bucksome Boomer June 26, 2010 - 8:49 am

I voted $10,000 but was thinking that by cash you meant a regular savings account. Why would I ever need quick access to more than $10,000?

I want to put the rest of my money to work even if in “safe” options such as CDs and government bonds.

Amanda L Grossman June 26, 2010 - 10:36 am

Hello Evan!

I voted for $10,000, because that is our “feel good emergency fund” level. After we reach that, (we are currently going to dip way below that because we are paying off the rest of our non-mortgage debt in one fell swoop in August–hurrah!), then we will start investing again.

Thanks for the post!

LH June 26, 2010 - 8:08 pm

I selected $50K only because you mentioned moving. Does that include needing a down payment on a house? If so, then $50K would be appropriate and anything more than that would be great for investing. If you didn’t mean purchasing a home, then I guess I’d say $10K.

Darren June 26, 2010 - 11:29 pm

After $50,000 in savings, I’d devote more money to a mix of index funds and bonds to try to achieve a better return over a long term. That money wouldn’t necessarily be in retirement accounts. They could just be in a taxable brokerage account.

The $50,000 would be able to cover me for expenses such as doctor’s visits, car repairs, and mortgage payments. If I did need more money, I could always take money out of the investment accounts, though taxes and other fees would be involved. But I’d like the extra money to work harder for me.

Geoff June 29, 2010 - 10:40 am

I’m with Sam on this one. The bigger the nut, the more safe income it generates….of course, I also like to dabble in some risky ventures, but that’s a little more entrepreneurial focused than assest selection. And I’ve still got a LONG way to go before I’ve hit any magic numbers.

Barb Friedberg June 29, 2010 - 8:10 pm

I voted for 100K. That amount of cash offers a cushion for the unexpected; including investments or financial emergencies. Best regards, Barb

CO July 31, 2010 - 7:21 pm

6 months pay or 10% of your net worth (whichever is larger) – arguably two very different numbers, but it depends on where you are at in life. Finite totals like $100K, if your 23 years old, seem a little ridiculous. However if you assign 6 months or 10% it becomes relevant regardless of age. I picked 6 months due to the fact in this economy who knows what is bound to happen to you. I picked 10% for the same reason. If the dow drops 1000 points in one day that 10% is going to look like a really smart play and will help you sleep better.


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