How much safety cash do you hold?

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.

Usually around 80k CHF or so but it’s not an exact science. I just want to be able to cover any costs that may arise even if this means buying a new car etc. Also, unemployment insurance has a 1 month waiting period and then you have to accumulate unemployed days for 1 month and then you get paid, so at the earliest you will see cash after 2 months. If you quit on your own there is an additional penalty of 3 additional months max waiting period, so you will see cash after 5 months. I want to have the freedom to quit anytime I want. I want to avoid having to sell assets at all costs. It’s too bad if you have to sell in the worst moment.

It also acts as a cushion for when ideal opportunities arise. e.g. during the Covid crisis I have reduced those reserves severely and made a nice profit from it. In the meantime reserves are back to normal.

Most likely I’m going to increase it to around 120-150’000 CHF or so and when the recession kicks in in around 2023, I have lots of cash to invest when things are cheap. I know such kind of “market timing” is not very popular in this forum, however, it worked out very well for me in the past, just by increasing/decreasing reserves.

I also only have the absolute bare minimum of insurance required. I’m definitely not overinsured and I save costs wherever I can. Through that, I need to hold a bit more cash to cover all eventualities but for that I save thousands of CHF per year in insurance costs that one would have to pay otherwise.

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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.

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Usually 10k, currently 0 :sweat_smile:

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@Cortana Love it, that’s the spirit :grin:!

Guess I’ll reduce my safety cushion, to whatever lets me still sleep at night.

I usually hold 5-15K as well, but my assets are reaching a territory, where I could just borrow against them in an emergency case. I wonder if that is actually smarter than not staying invested with 5 digit sums.

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Can you explain more about your strategy please ?

You say it worked out well for you in the past, would be interesting to know it :smiley:

It’s nothing spectacular I just hold the amounts of cash mentioned above for emergency purposes or to cover large unexpected costs. Then there is a strategic asset allocation (cash is not part of it - the cash amount is basically always more or less the same no matter how large the portfolio is) and all the cash you throw in gets allocated to the corresponding ETFs (some people may have stocks instead) as per target allocation. Every month there is a fixed amount that gets thrown into the portfolio.

Now when there is an unexpected drop in the market, such as when Corona happens, then you either throw in a part of your reserves or you DCA it in by throwing larger sums into your portfolio on a monthly basis and a part of it is financed by your reserves. When the market then goes up again, which it always does, you get nice profits from your reserves. But for that you take a small risk, e.g. your reserves are a bit underfunded until you filled them up again.

Now you can also work with probabilities and do more or less the same depending on how likely certain events are about to happen or not or economic cycles and their indicators, e.g. yield curve inversion etc. Of course you have no guarantee for those events to happen or you don’t know exactly when they happen, but you know that they are likely to happen in the near future, e.g. the upcoming recession. In these times you hold a bit more cash than usually so you can use it when the time is right. Of course, again when it happens you can’t know exactly when how long it will take place, when the bottom will be reached etc. but also here you can try your luck or DCA your reserves in for a longer period.

That’s basically it. If you pay your 3a on a monthly basis you can do the same. When Corona happened I paid the remaining amount in full for the year.

Now I read that most professional investors do something similar with market sectors, e.g. go out of markets which tend to be less profitable and invest in markets which are likely more profitable. This doesn’t mean to go out completely but just adjust your tactical asset allocation a bit so it tends to take additional profits from macroeconomic or sector specific trends. For example, it is very logical that people still need fuel, electricity or food during a recession. They can’t just stop to eat. On the other hand the aviation / holiday business etc. may suffer during a recession. I didn’t analyse this now those were just examples to outline the concept.

But I haven’t tried the second part of what I explained here, I just read that many professional investors seem to be doing stuff like that, and it sounds logical so I’m looking into it, but I can’t tell if it’s more profitable or not. All I’ve done so far is playing around with cash reserves and throw them in at the right time, and that worked out so far.

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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 :wink: 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.

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Could you explain the margin-tactic you’re using? Does that basically mean borrowing money at an interest?

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It is a sort of market “timing”/DCA let’s say, I like the idea I should give a try.

Thanks for sharing!

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.

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What % of your portfolio those 40K represent?

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I hope you mistyped K.
Or you have 40 Trillions CHF on the side? :smiley:

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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.

In the recent discussion, we also discussed about Portfolio vs. Reg T Margin. If you have over 100K and invest in diversified ETFs, Portfolio margin allows you to borrow more or in reverse: reduce the risk when borrowing less. Might be worth checking it out.

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10k… but thinking to increase to „5month of living“

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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.

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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.

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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 :grin:

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