Why Holding Cash May Not Be Wise in Chaotic Times

I recently had a big chunk in 1 month Tbills because the rates have been good and I didn’t know any better. Thanks to videos like these and others, I recently deployed it all into my AA of stock and bond funds. I realize that the high cash interest rates are not going to last forever either.

90% BIL
4% VOO
3% VTV
3% SCHD

1 YR CD's 4.6% in 2 Credit Unions plus Vanguard Federal and Schwab Government MM funds, plus cash shares and checking in the credit unions and Schwab checking are where we have monies not invested in individual stocks or Vanguard 500 index fund

I have just one question... When you say "cash" are you referring to actual cash sitting in the bank, or is a Money Market fund considered "cash" also? Reason I ask is my cash in actually in a Moneyy Market fund and from what I understand MM funds invest in short-term treasuries. So is that cash or more like *bonds*?

Thanks I’m thinking you were answering my question from yesterday l have a lot of cash in brokerage accounts and cds . I’ll look at the bonds .

Rob, is it smart to let Vanguard manage your portfolio or just do it yourself? If doing it yourself is better what is the best tool for doing it with? I appreciate any help you can give me.

Would rather just make a safe 4-5% than invest new $$$ in S&P at 29 P/E ratio.

When you do need to sell a bond fund some point you will do so at a profit or loss. When you sell at a profit you will have a capital gain making for a somewhat tax inefficient scenario depending on your tax bracket. It is also possible that you may be selling at a loss. While your advice is sound there are other factors to consider.

We have a yearly RMD on an inherited IRA. Instead of taking that, paying the taxes, and rolling the balance into the brokerage, we put that in a MM account. It's making 4.41%. It's been north of 5% until recently. We arent making market return but we also aren't worried every time some geopolitical soundbite happens, and the market flops like a petulant child in a checkout lane that didn't get a lollipop. It is, in essence, our emergency fund beyond our monthly withdrawal. 70 or 80K not being market invested isn't going to ruin us.

Is SGOV, a 0-3 mo Treasury OK?

Thank you.

Don't agree, but appreciate the thought process!

How about a total market bond fund like FXNAX from Fidelity? I’m using a simple three fund portfolio approach, Total Stock, Total International and Total Bond.

Good list. For better mortgage/life flexibility, get a 30 year mortgage and prepay fhe next months interest to effectively make it a 15 year mortgage. Look it up to educate yourself.

What do you consider to be "cash"? Obviously money in a checking or savings account is "cash". But what about very short term T-bills? A stable value fund in a 401k? Bank or brokered CDs? Money market funds like SPAXX? I would like help on this so I can better define what I have as cash vs bonds for allocation purposes. Thanks

A good alternative for those want the comfort of knowing you have a large cash reserve, is the barbell approach. Split the non-stock part of the portfolio between longer dated bonds (I prefer government securities), and a short term bond fund. The latter effectively turns your bond allocation into intermediate term while still leaving you with a solid chunk of money in short term bonds which can also function as a near cash equivalent in case of need. (TLT & SGOV)

I would add that the market volatility of bonds can be eliminated for bonds purchased directly from the issuer at par value. I-bonds are my favorite in this regard, since they protect against inflation as well. You can buy not only $10K/yr for yourself, but also in the name of a spouse or child or other dependent.

I’m thinking of converting some traditional Ira to Roth but leaving it in cash for pulling out for emergency fund

I also disagree with Rob on this. I think being cautious right now is not a bad thing, if you’re older. Cash is paying us to wait it out. My money market funds are kicking out 4-5% every month. Im ok having a portion in these instruments. As a 49 year old nearing retirement, I’m not comfortable sticking with high amounts of risky stocks at all time highs and a mad man at the helm. I’m mostly(60%) bonds and stable value funds right now. The rest is allocated to low volatility ETFs.

I have cash in SWVXX in a money market mutual fund where i sell cash secured puts on quality stocks that i want to own at a discount. I have made $24,000 this year doing that while I also earn over 4% on the cash as well. However, I took early retirement 8 years ago, so living off Dividends and options income is what I do. For the first three months of the year I have nearly $38,000 of dividends and options income. As such, I don’t have to worry about trying to time the market or sell shares to pay the bills. For those of you that are retired Dividends and options income is the way to go.

Reasons why it's unwise: Argentina, Venezuela, Mozambique, Germany (after WW1), Ecuador etc. Basically, during chaotic times, the government sees hyperinflating the currency as a way of raising revenue when other tax measures have failed or fallen out of favor. But hyperinflating the currency only provides up to about 50% of the base value of the currency prior to hyperinflation. At this point, foreigners stop investing in the country's bonds, smart money exits to other countries, and working folks switch to a barter system to avoid the crushing effective tax implied by hyperinflation. When Monopoly Money signed by a friend is worth more as a currency than the official currency, hyperinflation ceases to be a productive way of raising revenue. The next step is for the government to fail catastrophically or be saved by an outside power. In the case of Venezuela, a deal with the U.S. Govt. and Chevron enabled it to hobble along after hyperinflation was fully utilized. Now we'll see the final state of this. Short Summary: Holding Cash is a horrible idea as a secure store of value.

While I accept the concept that holding cash loses investment opportunity and is subject to inflation loss, I do believe it’s necessary to have cash on hand, readily available. Physical cash is liquid. Banks and investments are not instantly available in an emergency. Doesn’t mean you need to stuff the mattress, but I believe it’s prudent to have some cash at your reach.

The fortune 500 company i work for is shipping jobs to India and Mexico City one person at a time. Of course I'm holding more cash than I probably should. It's in CDs

Cash could be helpful in preparation for the April 2nd tariffs just n case the market tanks next week.

Had some cash in etrade at 4% but seeing SPY on this big of sale no more.

so, no dry powder during wealth accumulation either, or just in retirement? I wouldn't sell positions for dry powder, but if I have recurring income I may hold dry powder reserve in times like this rather than immediately purchasing equities or bonds with a predetermined trigger of 10% or more correction to buy rather than locking in intermediate or short term bonds.

I’m 700 Likes! 🎉 Good stuff 👊

This is kind of like when vanguard for generations told us you have to have 40 to 60% of stocks in foreign funds....how well has that worked out over the past 20 years?

You convinced me. I have gone to 50% cash because I am 61 and plan on retiring in two years. But after your video I have decided to buy more shares of AOA etf which is an 80/20 fund. Thank you for the education.

Buy SGOV or BIL if you are nervous. 4%

Depends on your view how chaotic you think things are right now and how chaotic you think they are going to get. I tend to think of cash equivalents vs pure cash.

Cool video, but with Moonacy Protocol, you can actually earn passively through exchanges

Seeking some education please. So what is the difference and benefit then in keeping the cash in bonds vs in a high yield savings account?

The one time I “cashed out,” I didn’t lock in a loss, but I definitely MISSED the growth. Choosing a proper asset allocation (stocks / bonds / cash equivalents) was key for me going forward. 80/15/5 was too aggressive for me in early retirement. I’m more a 70/20/10 guy at the moment with higher savings yields locked in a 3 yr CD ladder. I’ll return to a more 70/25/5 allocation as interest rates drop.

Can you please give an example of a low cost bond index you use ?

Thanks for the content

Ty for all the great content . My son just turned 13 and has about 20k between roth and UGMA (custodian acct). Could you do a dive into these types of accounts to see if iam missing anything? Like,reinvesting dividens from ugma into roth. Since it's earned income ? Ty

My plan for this year is to hold cash and wait for the market to re-level unless there are tips on avoiding a crunch and maximizing my $550k savings?

You know, holding onto cash has always felt like a safety net for me, especially with how unpredictable things are taxes, home expenses, all that. But I’m starting to wonder if keeping too much in cash is actually costing me in the long run

I use cash to hedge my portfolio by shorting the market or a particular stock like Tesla lately.

My mom cashed out just after the election. She in her words beat the market. Shes 76 and now lives off of the interest from the MM fund where she rolled her money. Best part is that shes stress free now and could care less about watching the market daily. No more Cramer for her...lol

3 years cash and 25 years fixed income. I sleep well.

CFP's give advice that make themselves money off your account. The financial recipe that works is to live humbly and save greatly, thus building a safe fixed income stream foundation (Tbills, Mygas) that meets your expected income needs, and then invest the excess income by dollar cost averaging small/modest amounts weekly into the market via a low cost sp500 ETF to hedge inflation.

The MYGA's are better than CD and tbills, and pay 5+%, just choose a company that has a good Weiss rating of B or better. (equals AMbest of A+)

I’m 55% in cash. I’m waiting for the crash that will happen soon

Sure, but you also say keep bonds in a tax sheltered account, where it's much more difficult to get if you aren't yet retired. Where do you keep your bonds if you want to have access to them?

What could possibly be more 'stable' than T Bills, especially if their return, albeit more modest than other investments, adds some reliable padding to your portfolio? No state or local tax, and no fees compared to bond funds. The potential for higher return on bonds cannot be ignored, but there is a compelling difference between stability and return. Viewed in the context of the current chaotic administration, the importance of stability approaches that of returns.

Inflation has a negative impact on bonds unless the bonds have inflation protection.

What do you mean by "cash"...do you mean literally, do nothing, cash in a checking account? I've got plenty of cash in a Schwab Money Market fund which is basically cash (can get it out dollar for dollar in a day), and it's paying over 4% like bonds (unless you have long term or risky bonds).

TIPS have near-zero value when US's new admin will simply lie about the inflation rate.

Thank you so much for sharing your knowledge!