I was wondering how much safety cash you should be holding. I know this depends on your individual situation, but just assuming you have no specifiic need for cash, a regular income, not planning any special acquisitions, no special needs etc… Just a pure safety deposit for no particular event.
I’m currently holding enough to keep me above water in Switzerland for a year, but I’m really wondering if that isn’t too much, considering unemployment insurance etc. and also the possibility to sell assets if need arises.
My emergency fund is 6 months of living costs. No exact number as this varies from person to person. This fund is purely for emergency. Car, holidays etc. is not included.
Everything on top gets invested as soon as I receive it to follow suit what has been scientifically proven many times on when to invest.
I don’t hold any cash privately. I keep some money in Selma (low volatility) and I have a cash buffer in my company. My wife holds lots of cash, though.Unless she divorces me unexpectedly, I should be fine Happy wife, happy life, as they say.
Even when I was on my own, I did not need any big cash reserves. Reasons:
I avoid owning a car like the plague.
I don’t spend much on myself.
I am not interested in cash intensive real estate deals.
Now that I’ve discovered margin trading, I really don’t think I need cash.
Should I need cash unexpectedly or if there was a market crash and a buying opportunity, I think I have lots of resources:
5 credit cards with a combined limit of at least 20k
Go deeper on margin against my ETF (I usually keep a margin of 5-10 %).
Stopping investing for a few months should bring me back to zero within a few months.
If I needed a car, I guess I could rent one for 500-800 CHF a month with carvolution or something similar.
I have friends with money.
Of course I could end up in a bad place, but I usually land on my feet. I’ve been poor, I know I’ll live.
I have a cash buffer of ~40 TCHF. That this covers by far most of what life can throw at me short-term:
cost of living for a few months
any waiting time between being let go at at job and receiving unemployment benefits
anything I would need to buy on short notice
surprises from the tax authorities
It’s probably more than I would need, as I have a stable income & a partner who earns well. I also invest a significant part of my income, so I could reduce investing to become liquid. But that cash cushion also has a psychological function. I gladly pay a price for liquidity and a good night’s sleep.
The main thing is not to get addicted to cash, either for oversized fear of risks (covering all "what-if"s) or trying to wait for a good time to buy (i.e., market timing).
Also, keeping track of your cash accounts: Putting money aside to pay the tax authority, using a pre-paid credit card (e.g, Revolut), having USD or EUR at a broker a portfolio until the next buying day, a checking account abroad… that all adds up to essentially money that doesn’t earn anything.
I think 6 months of usual expenses plus a significant part of any big-ticket item that could fail (car, washing machine) is a good starting point for consideration.
Cheers,
J.
Just a short answer, as margin trading has been explored elsewhere in the forum. Search results for 'margin' - Mustachian Post Community
Margin (or lombard loan) means that you can borrow money from the broker to buy stocks or ETF. Your assets in the portfolio serve as collateral.
You basically go below zero. On the part below zero you pay some interest rate, which is around 1-3% depending on the currency and the broker. This way you have more ETFs which have a higher expected rate than 1-3%. In the long run, you should make more money in most cases.
Last couple of years I have been hovering around 100-200K in cash. It’s a lot, but it gives me peace of mind with regard to high tax bills, possible real estate chances popping up, possible market downturn to invest in. If I eventually make another RE deal then I’ll decrease it a bit.
I follow my investment plan:I have 80/20 split (stock/fixed income).
Fixed income is comprised by all fixed income stuff inkl 2nd pillar and cash.
The cash hovers around 15k, so that is my emergency fund.
If something happens and the stock market crash, and I need ot rebalance, I’m planning a cash floor of 5k. I won’t rebalance under that, even if it brings the asset allocation off.
Margin Loan from IB is there for everything bigger.
Since I’m realizing that there are few instances where I would need that 5k, all of them not so pleasant (like the apocalypse of the banking systems etc) I’m actually thinking of taking a part out and keep it either cash or exchange it for other stuff (gold vreneli etc). I know it sounds paranoic, but I’m realizing I don’t really have any emergency I’m not already covered. The only thing I can think of is dentist + krankenkasse freibetrag (up to a max of 3200 chf).
I rent, we can live without car…
the rest is end-of-the-world-Russia-is-bombing-us scenarios. For which 5k on my banking account app do not really help, if I cannot access them/use an ATM etc. so maybe is time to convert some of them in vreneli/cash and hide them somewhere.
You can’t drink or eat gold / cash, so perhaps bottled drinking water and canned food as currency might be more valuable than vrenelis in this situation
With my girlfriend, we have 40k as an emergency fund which represent our annual fixed expenses. And this emergency fund will be usefull in 2 months as I willl start a legal internship in a Data Protection Authority in Switzerland, right after my trainee lawyer internship (long process to work in the field I aim to; sort of a reconversion). I will earn 2x less than now
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