Still not sure if I’m a sucker for having basically my entire net worth (excluding retirement accounts of my spouse and I and 529 accounts for my daughters) sitting in Cit Bank earning 5 percent interest.
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My allocation is like…
- 40%: 401k (Vanguard target date fund)
- 40%: general market investments (most in broad market ETFs, some in Wealthfront’s roboinvesting thing, none actively managed)
- 20%: cash
- other: home equity & lolcrapto
One could probably argue the cash allocation is still too high as it’s more than I’d need in an emergency. It makes me nervous that 80% of my money is directly tied to the performance of the stock market but that’s basically how our financial system is structured and as long as 1929 doesn’t happen again everything should be fine 
The video @ParlaySlow posted above here was interesting and is worth a watch; he mostly talks about the risk (over a long-term horizon) of holding cash compared to other assets, so maybe that would change your perspective a little, particularly since the idea of cash being “risky” is somewhat counterintuitive.
Maybe one way of seeing that is that the interest rate itself is inherently volatile and subject to whatever the Fed does with it, and presumably you did not over the last two years sell a bunch of assets in order to hoard cash at these high interest rates; rather, before 2022 that same cash was likely earning much closer to 0%, and if the Fed slashed rates tomorrow it would be earning 0% again, so the idea of getting 5% returns is really just temporary.
It really depends on your net worth relative to your retirement accounts and the 529 accounts and your stage of life. I currently have in the neighborhood of 60% of my net worth in cash or similar (I bonds), but a lot of it is bankroll and I’m a couple jumps in stakes away from where I’ll feel safe putting a lot of my bankroll into investments.
If I had a regular job I would probably have six months living expenses in cash, six months in I bonds, and the rest in the stock market. Then I’d adjust to take some risk off the table as I got older and as I got closer to my number.
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Doing research on a stock today, I pulled up three of the most recent articles written by so-called financial analysts (very low bar here). The first two talked about how the company had no moat and no competitive advantage whatsoever. The first sentence of the third one was about what an incredible moat they have.
Gotta love it!
Anyone selling/planning to sell their Ibonds? I bought may 2022 apparently.
I guess I’m close to 50/50 cash versus retirement and 529 accounts so when you put it that way it makes sense.
Yes, and just moving them to a high yield savings account
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Yeah I mean, if you take my bankroll out of it, I’m like 67% IRAs and 33% emergency fund, and like 90% of my emergency fund is in I Bonds. My IRA is currently about 65/35 equities/cash and I’m actively trying to get it to 100/0.
So in your case (assuming you have a salary that covers your expenses), what I’d suggest is no more than a few months living expenses in cash, the rest of your emergency fund in something inflation protected like I Bonds (you can get most of the emergency fund into them over time, just stagger entry for liquidity’s sake). Everything else should probably be in stocks, bonds, or other investments.
Not really enough information to say, but if the money is primarily intended to replace income 10, 20 years down the road, then it’s probably not a rational allocation.
What are the other options for you to allocate this money?
When prices go up they’re passing that on to the customer maybe?
Are I-bonds even still worth it? I thought they were down to close to the 5 percent im currently getting in a savings account? Coupled with the likelihood that they fall way below 5 percent over the next 5 years aren’t they a bad bet at this point versus a savings account?
I suppose I could purchase index funds or individual stocks and bonds? I’m already maxed out on deferred comp so there aren’t any tax-deferred options if that’s what you’re asking.
Long term they’re indexed to inflation and I think the permanent rate right now is 0.8% or something like that. If you’re going to sit in cash long term they’re probably the best or one of the best ways to do it. Short term the high yield savings are doing better.
It really comes down to what the money is for and when you’re going to use it.
Yeah, if you’re maxing out your 401k and Roth, I don’t think a high yield savings account is a bad plan. You could get a slightly higher rate if you want to invest in treasury bills instead, but I do like earning 5% on what is essentially my emergency fund while maintaining easy access to it anytime I would actually need it.
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The thing is, it sounds like he has a lot more in there than just his emergency fund.
If they have that much extra, could diversify into real estate.
I hope you’re not under the impression that a 4.65% dividend yield is in any way comparable to an investment like a bond or a CD or a savings account where actual returns are being generated.
A dividend is just a company returning part of your equity to you in cash. The value of the company (and the stock) is reduced accordingly, The result is no net gain.
In an efficient market that’s true, but if the market is fundamentally undervaluing the company then the returned capital is good for the shareholder (because usually the price isn’t going to drop by the full amount of the dividend, or it’s going to be gained back more quickly than it would in an efficient market on a fairly priced stock).
Another way I think about this is, let’s just say BSET is worth $21 because they were offered that and turned it down last year. If I’m expecting it to some day either hit $21 + or be sold for $21 + per share and my time horizon is such that the value between now and then is totally irrelevant to me, every dividend I get in the mean time is extra value for me.