FIRE and Holding Cash - What We're Doing

[@TwoSidesOfFI]

What's your cash holding strategy? Let us know in the comments below - and be sure to say if you're retired or not. Don't miss the show notes for this episode! We referenced a lot of material here: twosidesoffi.com/cash

[@MrSilverstacker1]

I love your conversations. I’m still a few years out, but every episode gives me a nugget I didn’t have before. Bless you both for helping me on this FIRE journey.

[@TwoSidesOfFI]

Thank you very much. Best wishes to you on your journey

[@scottrandell4281]

As others have said, once you retire having 2-3 years of cash feels really good and allows you to sleep much better. It also allows you to be more aggressive with your investments as you know you don't have to sell any investment for 2-3 years. Given the way this year has gone and will probably continue for some time, I feel much better having a good bit of cash on hand, even with inflation eating it away.

[@TwoSidesOfFI]

Jason here - Thanks for sharing, Scott. Sounds like we are pretty well aligned on the topic!

[@chaleej5571]

With short term investments with the Treasury (t bills) paying over 3% for 3 month duration and around 4% for 1 year duration, I hope you are not talking about literally leaving it in a cash account... :)

[@sandrarobinson4448]

I love my emergency fund. It helps me sleep well at night. BTW, I am a more traditional retiree who retired at 57.

[@TwoSidesOfFI]

Thanks for sharing, Sandra. This is a great example of the emotional value of money. Our individual risk tolerances need to be respected! Best wishes to you

[@dianncotterell5531]

Yes me too

[@stevenl5922]

Great discussion on the most overlooked part of a FIRE plan. I am retired (May2022, 55yo) into a bear market and my cash position is 5% of net assets. As it turns out, this is more than 24 months of expenses which we are using to get past the current - and possibly continuing - downturn. Do not underestimate how much cash you will need because of all the variables that will pop up: inflation, family expenses, water heater replacement, etc. What keeps us safe was the plan to include 1 year of bonds (which keep re-investing monthly) and an extra portion of higher return savings in our brokerage account that so far is an addition 8 months of "cash" in our 3-5 year bucket. In all I retired with about 42 months of cash and cash equivalents. You really need to figure out if 5% cash is enough to protect you from a 24mo market downturn and adjust accordingly, IMO.

[@TwoSidesOfFI]

Thanks for sharing, Steven. Great points. Best wishes to you

[@Practice_Kindness-1st]

Love your interactions & your topics. If you're over the 250k FDIC limit, you can establish various accounts and the key is how they're styled: You can be the primary holder with your wife as a joint-owner, and then have another acct. with her as the primary and you as joint. You can establish another acct. with you as the primary and her as the beneficiary (and v v). There are many ways to be covered. The list goes on and on! I retired at 53 & keep one year e.m. atm.

[@TwoSidesOfFI]

Thanks! And thank you for sharing this info

[@tamib64]

We have roughly ten years worth of cash in savings. It can also be used to buy a house if my kids need money or I want to buy a second home. But in this financial climate, I can sleep at night. We have no debt and can retire at any point. My husband loves work and has no plans to quit. His RSU program is quite the carrot. I have to say we live modestly and can live quite more modestly yet.

[@TwoSidesOfFI]

Thanks for sharing, Lynn! Being able to sleep at night is priceless, isn't it? Best wishes to you

[@dianncotterell5531]

Wow you can sleep well even in a bear market.

[@jason4430]

Thanks for the content Eric and Jason. I have been a viewer of you guys since your channel started. I was struck on this episode Eric by how much your knowledge of FIRE issues has grown as you have continued down this path that your friend Jason started for both of you...Jason of course you are an equal and great part of the equation - you just started the channel with more experience is all I'm sayin:) It is clear you both have spent a lot of time learning the historical performance of investments and wrestling with the allocation of those investments. analyzing

[@TwoSidesOfFI]

You're very welcome, Jason. Thanks so much for your support from the start! For sure, we've both learned plenty along the way, irrespective of our different starting points. Just having these conversations, seeing the feedback we get, etc. all has been a part of our ongoing (and probably never-ending!) education. Best wishes to you!

[@rocinante6530]

Very relatable conversation. A big part of this is psychological. Big ERN can do what he does and still sleep soundly at night. I might think his is the more rational approach, but there is no way I could do that, I know my limitations. Definitely closer to Jason in my cash holding views. Also, this convinced me that some market timing is unavoidable - even for people who do not have the trading itch. For instance, if I had take money out of my portfolio right now, I would take it from the bond portion and leave the stock untouched. Finally, there is the idea of flooring - putting something in place - a mound of cash or an annuity that guarantees a minimal income until Social Security kicks in. (I plan to start at 70)

[@TwoSidesOfFI]

Thanks, Rocinante. SO much of this is emotional / psychological, right? We do need to know ourselves and remember how important risk tolerance is and not only think about risk capacity. Indeed, many people do like the idea of covering their "dignity floor" with a SPIAm, cash, or something else that helps them sleep well. Wade Pfau's RISA assessment (mentioned in a recent episode) is a great tool that can help people determine what their style really is.

[@terryhelstrom4736]

Great discussion. A few months from retirement, two years of cash just split into 4 brokerage CDs, 3, 6, 9, 12 months (CD ladder). 12 month CD just hit 3.5%.

[@TwoSidesOfFI]

Thanks, Terry! You're in the retirement home stretch! Best wishes to you

[@Laurar35]

Great discussion.. Im an advocate for 3-4 yrs cash expenses in retirement. I just retired @ 56 and will be using a bucket approach. I think everyones risk tolerance is different. But i dont want to sell anything if market is down, nor go into debt , that is why i have the cash. And yes i also have those thoughts of FOMO sitting on the cash when markets are down., however I’m not convinced its done going down yet.

[@TwoSidesOfFI]

Thanks! Best wishes to you

[@JosephDickson]

I spent my entire emergency fund in January on a plumbing emergency. I just finished rebuilding it this month. The opportunity cost of not investing it is real.

[@TwoSidesOfFI]

Very true, Joseph. Sorry you had to deal with a plumbing nightmare! Those are the worst.

[@shawnpmartin77]

I always enjoy your videos guys. Keep up the good work. Was a nice pre lunch lazy Sunday watch

[@TwoSidesOfFI]

Thanks, Shawn! We appreciate your support

[@KG-oe8oo]

I find this conversation immensely helpful! Thank you both!

[@TwoSidesOfFI]

You're welcome! Glad to hear it, K G

[@anelinck5375]

85% of my liquid assets are invested in individual stocks and ETF’s. 0% bonds. 15% in cash on savings accounts and in my business. This year I experienced great fluctuations in my portfolio, weekly jumps of 50k up or down were not out of the ordinary. But I remain unfazed by those and haven’t lost any sleep over it. I’m more worried about the 15% cash, and missing an opportunity timing the market.

[@TwoSidesOfFI]

Sounds like you're doing a great job staying the course! The question about holding cash always comes down to "why?". If you need liquidity, you can't beat cash.

[@therealrichot]

Great discussion as always. Two things came to mind while listening: 1. I appreciate the idea of not wanting to chase yields for cash, but I recently realized that 3 month to 3 year treasury rates are around 3.5% . So building a treasury (or even a CD) ladder for cash / conservative investments would provide almost double the interest return relative to a money market account / fund. A 1-2% difference in yield on 100k can add up. 2. On whether to call an approximate bottom, sell some bonds and go back more into stocks, this takes me back to the early 2000s when there were numerous bear market rallies on the way down, for 3 years. But it's difficult not to get emotional and get sucked into making allocation changes based on your gut, we can all appreciate that. Good luck guys and keep the great conversations going.

[@TwoSidesOfFI]

Thanks! And thanks for sharing. There's a good reason doing those kinds of ladders is really popular! It makes plenty of sense. I'm also pretty lazy, generally speaking :) -Jason

[@davidgrisco1939]

Doing a 3 mo bill ladder now. Once the market goes lower I'll buy more S&P500 & QQQ. Nope, I'm not market timing either. 🙃

[@user-bs1lj3kv7h]

Personal Finance really is “personal” and how that relates to the view of cash. Is it a risk buffer? Insurance? Money for a “lumpy” spend parked until the time is right? Or is it burning a hole in your pocket and you are itching for more returns? For my situation I see cash as about 30 months of expenses but also a chance to maybe do some home remodeling or replace a car. Either way I am ok in the super low return (even in this inflationary environment). It just depends on what your personal situation, goals and needs are. I sleep very soundly with 30 months but I know I would not with only 6 months. Everyone needs to make their own decision.

[@TwoSidesOfFI]

It truly is personal, agreed 100%. Glad you are sleeping well with your strategy! It's essential in our view. Best wishes to you

[@Aussieartforkids]

Leading up to retirement 2/3 years away a good strategy is to establish a Term Deposit ladder. I.E. buying 24 month term deposits every three months and continue this into retirement so every 3 months you have a TD mature and each of your TDs will always be achieving a 24 month interest rate.

[@TwoSidesOfFI]

Thanks for sharing, Peter

[@davidfolts5893]

Excellent content, gentlemen. Thanks for sharing your journey!

[@TwoSidesOfFI]

Thanks, David!

[@davidfolts5893]

@@TwoSidesOfFI My pleasure.

[@nickdoyle-achievefinancial2464]

I agree with you on I-Bonds. I don't find a guaranteed loss (after-tax) attractive compared to investing in companies long-term. I would only use them as part of my bond allocation.

[@Pieter2360]

Great discussion, as always! I’m using the 3 bucket approach but find Carsten’s argument for near-zero cash also very compelling conceptually but I’m still a bit hesitant implementing his approach fully (despite finding more people whose views I subscribe to, like Michael Kitches and Nick Maggiulli, who seem to support Carsten’s pov on this interesting topic).

[@TwoSidesOfFI]

Thanks! Glad you liked it. Above all, we find that considering a lot of viewpoints arms us well with a lot of ideas + information to help us decide what we will do ourselves. Best wishes to you.

[@bradk7653]

59 and on the verge of retirement. Currently sitting on about 14% cash, which is 3-4 years of expenses, at least until SS kicks in. This is more that I feel we really need, but this is to make the wife comfortable. Another benefit this provides us the cash if we find a deal on something, I.e. property or something else, we have cash to make that purchase rather than selling investments or borrowing (ugh) to raise the funds.

[@TwoSidesOfFI]

Thanks for sharing, Brad. Your approach makes a lot of sense to us. You're covering both your wife's risk tolerance as well as providing some additional buffering for unplanned expenses. Best wishes to you

[@andrewroth9175]

My strategy: retired early at 59-1/2 last year. Had a great run 100% stocks from 2008 -2021. Pulled the cord and took 30% pretax cash at retirement to bridge gap from 59-1/2 thru 70. Will pay taxes in low MFJ bracket. Will continue to let the other 70% of portfolio grow and hopefully will double in 7 to 10 years. Will do Roth conversions during this time also. The goal is to pay out all pretax retirement in my 60s and only have Roth and SS at 70. After that, No taxes, no RMDs, no widows tax trap. How’s that for a plan?

[@TwoSidesOfFI]

Sounds like you've thought this through, Andrew! Best wishes to you

[@jondiaz3475]

We maintain three years of cash, and backfill annually from a taxable fund. Probably too much, but I want to be ready for anything. :)

[@TwoSidesOfFI]

Thanks for sharing, Jon. Plenty of people agree with having a bigger cash bucket. If you saw our earlier interview with Fritz Gilbert, you know that he sleeps a lot better knowing he has at least three years! Best wishes to you

[@JeremyStLouis]

We are still in the accumulation phase and hold zero efund. We have an interest bearing checking account that basically just holds enough for monthly revolving expenses. I figure, we have enough available credit to pay for an immediate major expense like a roof or a new car if it was an emergency. A trade requires about 3 days to settle. I understand we may be forced to sell off some taxable securities to pay off the credit card bills which may happen during a market downturn. I expect there is some mathematical break even where holding no efund for 7 years doubles the fund, so the market could shed 50% of its value and I'd still be ahead after 7 years of no efund.

[@TwoSidesOfFI]

Thanks for sharing, Jeremy. There certainly are many in the FIRE community who agree 100%. When you have other mechanisms to access cash when needed, it certainly opens up options that may negate the value of an e-fund.

[@jonathandaniels9910]

I am 45, wife is 37...going to retire in 9 years....0 bonds until age 50 then will follow ERNs reverse glidepath while we are enjoying life in Boquete!

[@TwoSidesOfFI]

Thanks for sharing, Jonathan. How did you decide on Boquete? We’ve heard a lot of good things about it. Best wishes to you

[@jonathandaniels9910]

@@TwoSidesOfFI A friend of ours from medical school retired down there at 40ish and has raved about ever since...we will make another trip there for longer period of time as a trial of course but just like how you 4 made your "must-have" lists, we did the same and since climate/hiking were really our only two must haves, san diego and boquete were the winners off of our original list of 20 or so places in the world...and since the tax monster will eat San Diego alive, Boquete is left. Malaga spain was close but again taxes...

[@TylerOKC]

This episode came out 1 year ago. I was making 4.5% in my few savings accounts at that time. Not a bad way to keep cash, IMO.

[@TwoSidesOfFI]

Agreed. Not too upset about cash earning 5% in MMKTs these days

[@andyd102]

Great conversation guys! Love Eric, he still has an accumulation stage mindset! Just wait when you flip the switch and have to play defense on your portfolio, less timing and opportunity and more de-risking then! I am early retired and like Jason I do have a couple of years of cash ( online savings) as well! Makes for a good nights sleep, especially now in this bear market! Karsten may think it’s windowdressing, but he doesn’t take into account taxes which can make things really complex fast. I find cash very handy for playing the very delicate dance of determining income for tax purposes to optimize ACA subsidy, zero capital gains and dividend taxes and low income tax brackets on Roth conversions. Really valuable! Returns on cash can be 10% or even 15% if you can avoid the next tax bracket…priceless…For those who want to know their number, I used a rolling 12 month average for a target, if you hit it, you are good to go imo…

[@TwoSidesOfFI]

Jason here - Thanks, Andy! So glad you liked it. Indeed, you've got us figured out :) I'd love to hear more about how cash plays into your income determination. You are certainly right that there's much to think about re: ACA subsidies and income management. Your approach on the FI number makes good sense to me as well. Thanks for sharing and best wishes to you

[@andyd102]

@@TwoSidesOfFI Hi Jason, thank you for your comment. With regard to cash. Like you i was blessed with a sizeable Cash (online savings) bucket upon retiring last year, mostly meant for tactical purposes of income and tax management in my early retirement years phase, i.e. 54-59.5, after which I will have full access to my deferred assets and more options. So cash, for me only plays an initial role, i don't plan on using a 3 bucket strategy indefinitely with specific cash flow buckets that feed each other. To me that is indeed Window dressing. I don't care where the cash comes from as long as I can rebalance Equities, and short and intermediate bonds. For me the short term bond is my cash equivalent down the road, 60+, when I run out of my online savings except for maybe 20k or so for unforeseen expenses. My hope is to coast my current cash bucket through 59.5 i.e. 2025 in my case to get to full access of my retirement portfolios. I don't first consume cash and then equities in my brokerage account currently but a mix depending on income / tax management. I can always rebalance sold equities in my taxable account even in a bear market, in my deferred accounts by buying equities there and selling bonds for instance...That way there is no rebalancing tax implication on selling assets. I hope that makes sense. As far as income tax mgmt., in my case ACA subsidies is the current bottleneck vs income tax brackets or capital gains tax treatment due to favorable ACA tables recently extended through 2025. So I am trying to have sufficient income (for me 2.5 FPL) which translates to a 4% of income contribution toward health insurance. This optimizes subsidies for me. Now I need to balance living expense needs with cash flow needs and HSA contributions. So it gets very complex quickly. But it allows me to select favorable CG tax lots with HIGH Capital gains at zero % tax and then cover the rest of my needs with cash. So its about a 50/50 cash flow dance between cash and equity sales and dividends. This way I can stay in zero LT CG and dividend taxations and 12% income tax bracket. This allows me for Income purposes to do Roth Conversions (Standard deduction plus HSA contribution plus 10k or so) while still able to meet living needs plus HSA contribution cash flow wise, and still maximize ACA Subsidies for 2.5fpl level... Like I said this stuff gets complex fast, but for me it means i get a net tax refund after ACA and taxes over my Roth conversion, despite a 45k cash flow need...All in all I am happy with that. This is why its important to really educate yourself on all the tax implications and cash can really help. Now like I said, I will run out of Cash in 2025, bar emergency. Luckily by that time Favorable ACA table will sunset and likely be no longer applicable to me as my income needs would be beyond the cliff. At that point Managing the LT CG tax bracket of zero becomes the next bottleneck, i.e. saving incremental 15% tax on those gains. But still can sell equities in taxable and convert IRA to Roth, so in able transferring equities from brokerage to Roth IRA in essence. This is fun stuff for sure once you get your head wrapped around it! Anyway, here you go, my two cents. It all depends on balancing all the variables and personal circumstances But in my case Cash provides positive returns...I am comfortable with my approach.

[@TwoSidesOfFI]

@@andyd102 Jason here - thanks so much for all the details! I found it useful and others certainly will too. I definitely understand the balance of managing income for ACA subsidy as well as the 0% LTCG. Right now I'm also prioritizing the former, awaiting what will happen longer term. As you say, after 2025 we shall see what happens. I'm also awaiting how things look later this year to consider Roth conversions while also making my HSA contribution for the year. There certainly is a ton to consider re: taxes and I'm no expert, though getting better each day. I still use a CPA but certainly would enjoy having the expense off the books if I could. Have there been any sources on tax that have been more helpful to you? I feel like my own education has been such a patchwork along the way. Thanks!

[@andyd102]

@@TwoSidesOfFI Hi Jason. You are absolutely right, it is a patchwork. I have been educating myself on tax implications before retiring so I knew what I am getting into. Its a lot to wrap your head around but also finite. Understanding Federal and State income tax brackets and LTCG brackets and how it works as well as the ACA methodology. HSA as well. I just dove in myself and even read the IRS guidelines to fully understand how it works. It takes some time but i find it very interesting. Same is true about understanding Social Security benefits, how they are calculated, and how it affects me down the road. Trying to understand filing age strategies and Medicare, Irmaa and RMD rules for timing Roth strategies etc etc. The list goes on. I guess I just enjoy reading up on it, so over time it becomes second nature, so i now can do calculations in my head. I know its crazy, not everyone's cup of tea, but at least I get some financial benefit from it! Measure twice, cut once right? BTW, i think you are doing it right by waiting with conversions and don't get yourself in a corner early on in the year. I tried to take advantage of timing the market, i know the Eric in me, but feel now i have to maneuver a ton to make my income picture year end. Plus you don't have to prepay taxes! ill wait till Q4 next year myself!

[@andyd102]

BTW, i get a chuckle about eric fighting his allocation demons, 90/10, 70/30 now 80/20...What's that based on? Its so funny he, and most of us, think stocks vs bonds are magically better. The reality is that one needs to be agnostic what asset is better. The reality is that both are valued on discounting future cash flows... For bonds its easy, Coupon streams and Principal discounted at market yield. For stocks its discounting future earnings and assumed terminal value...Its just Cash flow in the end. For stocks its more complicated because you don't know earnings which depends on topline performance and margin flow thru. Neither one is known so you have to assume some performance on each, sales growth based on demand estimate and margin performance on innovation i.e. productivity. Is demand increasing due to worsening demographics around the world and aging populations who spend less? Is margin expansion due to innovation and geo arbitrage of low cost labor is done for? No Idea... But it for sure wont be what it was for the last 80 years when the world was growing due to coming out f the ashes of WWII, the fall of the wall and the immense rise of China...Who knows. Right now SP500 is trading at a 16 multiple earnings or so? So that's 6% or so yield. In December it was 22 or 4.5%, The spread between 10yr and SP500 yield hasn't changed much. You just get a 2.5%-3% better yield. Figure out if that makes sense for the volatility you onboard in your portfolio in the short term horizon. The real driver of equity performance over the past decade or so has been multiple expansion since 2009 due to QE. That's done, there is not much more to be squeezed there. So if competition for capital is increasing in the future, due to boomers retiring in droves and selling their assets, no sufficient replacement workforce coming in, and government needing to pay back their debt with deteriorating demographics, its likely that spread will increase, which is not a good thing for equities btw, because multiples are contracting... Anyway, I don't know the future, but it is a likely candidate we are facing. So de-risking makes sense and especially putting it into context and understanding what one is doing. Is having 10 years of exp in bonds bad for a long journey of 30-40 years or so? I don't think so, especially in the first leg of the FIRE journey, in Erics case 40 years or so. How do you make sure that your tank is filled up enough to make it 10 years down the road with likely economic headwinds due to rapidly changing geopolitical and demographic realities surfacing in Eurasia? By hitting the 4% retire easy button, or Karsten's 3.25%..? I guess we will find out in 10, but meanwhile you need to make it there first in your shiny new FIRE car without falling apart...And what about the next legs of the journey? 10-20-30-40? Do they have sufficient fuel in it to make it that far and what and how much are you going to put in the tank here? Better safe than sorry I say. Its better to have a bit more reserve in the tank, and when the car turns out really efficient and you have plenty in the tank to make it, why not do some sightseeing along the way then rather then speeding along the highway with a full tank? After all these are your Go-Go years? Conversely, If you have a lot of stop and go traffic and headwinds along the way, you are happy to have filled up enough reserves... Measure twice, cut once...

[@Bob-yh7ir]

Getting close to pulling the plug on my career, so we have built up to 4 years of expenses in cash. Everything above that goes to investments. That with 3 years in near term conservative investments for intermediate pulling from ( every 2 to 4 years ) and then the big bucket with large IRAs to trickle down into cash as well once or so every 1 to 2 years. Just need to do that for 9 to 10 years then the SS and a small pension for my wife turns on which then covers all our expenses.

[@TwoSidesOfFI]

Thanks for sharing, Bob! Best wishes to you

[@johnl9135]

I feel like I needs to hold at least one year of emergency fund just for my rent, otherwise I don't feel secure.

[@TwoSidesOfFI]

Plenty of people agree with you, John. It's all about risk tolerance and risk capacity.

[@LKtravels]

If you're looking for a bit better rate of return on cash, I find credit unions do better than banks. My local CU offers 3% on up to 25K in a cash account and 1% on up to 150K in a savings account. Beats the pants off what regular banks are offering for accessible cash. On distributing cash, my mother was a child of the Depression and was always careful to keep her deposits under the FDIC threshold in any one bank. Each time there was another merger, she would start shopping for an alternative. Thanks for sharing your thought processes on this stuff. And, yes, *for me* having ready cash helps reduce stress and allows calmer more deliberate thought processes. I know other folks who don't trust themselves with cash and are aware enough of their own psychology to know that they'd blow right through it if it's too accessible.

[@TwoSidesOfFI]

Thanks, LK. Good tip re: credit unions!

[@Bluponi]

I'm sorry to post again, but this has generated quite a few questions in my mind and I'm not retired yet... 1. Is the CASH bucket the same as the Emergency Fund ? or should that be a separate account... 2. Would you do bucket refills in reverse ? If stocks are down in Bucket # 1 ( Long Term Growth bucket ), then use money from the Income bucket to refill the Growth bucket ? Kind of like timing the market, but I look at it as buying investments when they are on sale... Would you personally do something like this ?

[@TwoSidesOfFI]

No apologies needed! An emergency fund would typically be regarded as a part of one's cash position, but not the whole of it. In most people's description of the bucket strategy, equities are in bucket 3 (long term growth). bucket 1 is cash reserves from which you are funding life's expenses. if you're post-retirement, you're typically not buying more equities unless as a part of rebalancing, which means you're funding that purchase via sale of something else (fixed income/bonds, for example). unless you have more cash in bucket 1 than defined by your investment policy statement, you're typically not taking money from it to add to buckets 2 or 3.

[@stevemlejnek7073]

I'm thinking seriously of taking my bond position and buying a Fixed Index Annuity, one which will grow the account for future lifetime income at a guaranteed 7.2% for 10 years. That would give me at that time 2 sources of guaranteed income in retirement, social security and annuity. That leaves me with a Roth IRA stock portfolio for additional income, an HSA account that I will continue to feed until medicare, plus a cash bucket for emergencies. I hope to sleep well with that in place.

[@TwoSidesOfFI]

Thanks, Steve. We're no expert in annuities and there are of course so many different ones available. But to be sure, there's a good reason many elect to cover their 'dignity floor' expenses with an annuity of some kind. As long as you've done the math to understand the costs involved, it's an eyes wide open decision being made. Best wishes to you

[@ReesesPieces81]

As I get close to RE, I've been strugging with the cash thing. I hold about a year of cash in a HISA and it feels really good, especially with the higher interest rates now. But I know in the long run I will be losing out. I still believe it's a good idea to hold some cash for peace of mind, I just can't settle on how much.

[@TwoSidesOfFI]

Thanks, Charles. It's a common concern to be sure. The question we recommend you think about is what the purpose of the cash you're holding, is. In Jason's case, this is a source for monthly expenses i.e. he pays himself from it. It covers two years of expenses to buffer the portfolio selling that would otherwise be required to pay expenses. Twice a year, he refills that bucket, as a part of regular rebalancing.

[@alanyoung159]

for the fixed income (or cash bucket), what about CDs? I heard there are No-Penalty CDs out there. Maybe that would be a viable option for those buckets. If there's no-penalty, maybe that could be a good option for the cash bucket.

[@TwoSidesOfFI]

Thanks, Alan. CDs (laddered or otherwise) are also pretty popular, along with Treasuries.

[@shawn4692]

I don't understand the negatives towards 1 year treasuries paying out 4%, or vanguard money market paying 2.5%. Some people want cash to sleep at night, and a portion of your portfolio should be cash or equivalent. it's a new world dude, equities are currently 5-5.5% earnings yield (trailing 18 p/e). And that's not with recession prices. It's a totally new risk reward calculation than compared to 1% treasuries.

[@TwoSidesOfFI]

We don't disagree! More people are certainly coming around on cash lately...

[@sarahsunsetpark]

Hi guys, interesting video on holding cash in retirement. I am not retired yet, but planning to do so in 5 years at 65. How do you guys handle your taxes as you withdraw your spending money monthly? My understanding is some money is withheld from retirement accounts money when you take your draw down. Does one have to pay quarterly income tax? Thanks

[@TwoSidesOfFI]

Jason here - Hi Sarah, Thanks. I'm only withdrawing from taxable brokerage account assets, so there is no additional tax withholding at the time I sell assets. Rather, capital gains (or losses, like this year!) manifest and are accounted for at tax time @ end of the year.

[@Bluponi]

Gentlemen, great discussion as always... Quick question for either one of you... With inflation being at 8.5 %, and with the unusual situation of stocks down, and bonds down at the same time, which would be the smarter thing to do ? Continue dollar cost averaging routine in the investments, OR stop 401K contributions that seem to disappear and accumulate cash or perhaps buy some physical Gold, which is supposed to keep pace with inflation...

[@TwoSidesOfFI]

It's an individual question of course, and this isn't financial advice. But both of us would continue DCA into our existing investment strategy. You're buying everything on sale, right? Additionally, most 401k plans have some kind of match so you wouldn't want to give up that free money either. Lastly, have a look at the rates of true return over time for gold vs. the S&P 500 and we think you'll have your answer. Many people choose to hold a small position (perhaps 5%) in gold and/or other precious metals as part of a diverse portfolio. This can be a reasonable option if it fits your investment strategy (we don't choose to hold any gold/silver/etc). But wholesale swapping retirement contributions for physical gold would not generally be a strategy recommended by many. Best wishes to you.

[@Bluponi]

@@TwoSidesOfFI Thank you for the great insight. Have a good day...

[@foodieryder]

I still struggle to hold cold hard cash in bank accounts which have APY of < 1.5% while holding huge Bay Area size mortgage. I like to target high interest rate loans to pay down if I have extra cash. Do you think a zero balance HELOC can be labeled as an emergency fund?

[@TwoSidesOfFI]

Some people definitely think about HELOCs and other lines of credit in that way, yes

[@irinab7524]

HELOC will be decreased by a bank if times are tough. It happened in 2008-2010 with quite few people I know

[@harryb7216]

Check out Ally for stashing your cash. They are paying 2% APY for their MMA that is FDIC insured.

[@TwoSidesOfFI]

There's a good reason they are a favorite in the community! My own bank is at 1.95% right now so not compelling enough to disrupt my own setup. -Jason

[@fruitloops3718]

If you think stocks are overpriced there's nothing wrong with sitting on cash until you determine a better time to enter the market. If an advisor tells you different you probably need another advisor.

[@TwoSidesOfFI]

We Each Hired a Flat Fee Financial Advisor. Was it Worth It? kzbin.info/www/bejne/enu5pIqvnMZ3pLs

[@GruncleJohn]

Not retired. Cash holding more than a year and accumulating more, while DCA’ing retirement funds.

[@TwoSidesOfFI]

Great! Best wishes to you

[@johanneshaselgrubler8555]

I really enjoy watching your videos. @Jason my wife saw your new haircut. She said now you don't look like a homeless man now you look hot! How much did you paid for the haircut? You are really building your spending muscle. I still strugle to spend for a haircut. I still need a lot of training. 🤣

[@TwoSidesOfFI]

Jason here - Hi Johannes, Ha! I'm glad she likes it. My aim wasn't "homeless guy" but during lockdown admittedly I let "growing it out" get a little wild :) I get my hair cut locally for $25 and I got every 5-6 weeks now

[@mechthildhaeussler5736]

I am suprised you do not consider glidepaths. If you go through ALL the tabs of Karsten's spreadsheet (which I must admit I have done only recently ;-) you will come across a "case-study", where you can simulate glidepaths and it does look very convincing. This has confirmed my decision to start by spending down on my (actually still) 39% of cash/bond-like assets - which is quite reassuring given the general bearmarket (in spite of the rallies). Karsten has also published several blog posts on glidepaths. (These "cash-bond-like assets" = "Euro-Fonds" are a typically French product - perhaps best compared to floaters, fixed principal, yielding 2,8-3% in the last years, accessible any time, tax advantages after 8 years)

[@TwoSidesOfFI]

We talk about glidepaths (and why we're not using them) in this ep: We Each Hired a Flat Fee Financial Advisor. Was it Worth It? kzbin.info/www/bejne/enu5pIqvnMZ3pLs

[@GruncleJohn]

I’ve noticed since the 90’s that stock/ bond allocations are kinda 20th century. Love Bogle but now in the 21st century I think we should change how we manage our portfolios. I’m not a FA. 😊

[@TwoSidesOfFI]

What would you suggest as an alternative strategy?

[@jgg204]

First Foundation Bank is 2.25% savings rate

[@TwoSidesOfFI]

And we suspect those rates are only going to continue to rise...

[@mikesurel5040]

Still have a few years to retirement, but currently taking advantage of the stupid high interest rates in IBonds and laddering money in there over time for my wife and I. When those rates come back down to earth we'll be selling some of them off and putting back into a money market or an online savings account like ally or capital one 360. We have a few months of expenses in cash. 3 maybe? I've mostly been in the same boat Eric talked about with wanting to get money invested since day 1 and if I really need the cash, I'm ok with selling some portion of my assets at a loss, worst case. Definitely not by the book and conventional wisdom. But conventional wisdom has you working until 65 or later. Hoping to get out of the rat race 10-15 years before that. As for your "market timing" conversation, I think of it as buying things on sale. I buy groceries every week to eat, and when things are on sale, I'll stock up on items so I can spend less later. Same thing with financial assets. I'm scraping together every extra dollar I can to boost the amount of capital going into the markets on top of my regularly scheduled investments. If y'all are being "dumb", I should be sitting in the corner with my dunce cap on. I plan on wearing it and laughing all the way to the bank. We'll see what happens. I plan on continuing this for as long as the market keeps swinging up and down like it is right now. 10% drop from local highs, find more money to dump into my stocks. Thanks for another great video.

[@TwoSidesOfFI]

Thanks for sharing, Mike. We certainly wouldn't describe anything you're doing as 'dumb'! It's just that many elect to automate buying + selling as best as they can to remove the potential for emotional selling as well as risk. There's a reason it's called personal finance, right? So long as you've done the math (including tax impact), and reviewed the risk factors and projections, re-evaluating as new information becomes available, you're doing the right thing for you. Best wishes to you

[@mikesurel5040]

@@TwoSidesOfFI thanks. Love the show.

[@zedzed5276]

I wanted to have double my salary in passive income to retire, which i achieved in 2019. Now my old job is begging me to come back with a 25% raise. Does that mean I have to un-retire because I now technically don't have double my salary in passive income?

[@TwoSidesOfFI]

Only you can define your goals, Zed! To us it sounds like "no"!

[@jeffgriglack9624]

The inflation rate this year is around 8.5%. The market, since the start of the year, has lost over 20%. Seems to me like you lost less money with cash than being invested in a market fund.

[@TwoSidesOfFI]

Great way to put it, Jeff! This is why I hold two years of cash. -Jason

[@adamharvey3524]

What are your thoughts on putting cash into real estate? With home prices decreasing and the likelihood that rents remain the same. Is that a better option than the stock market over the next 20 years?

[@TwoSidesOfFI]

Hi Adam, many people like having real estate as part of their portfolio, whether as rental properties, REITs, or private real estate investing - just to name a few of the most common. These can certainly be part of a diversified investment approach. However, we'd be hard pressed to call real estate a substitute for the long term results achievable from equity investing. For sure it's no substitute for cash, which is about having liquid assets that are accessible for spending needs within a 12-18 month time horizon.

[@paulturner4419]

Shiller CAPE at 30 almost 2x its historical average

[@TwoSidesOfFI]

22 now! earlyretirementnow.com/2022/10/12/dynamic-withdrawal-rates-based-on-the-shiller-cape-swr-series-part-54/

[@tonychendds]

It sounds like most of people here dislike iBond. We discovered Ibond late last year, and have Ibond for myself, wife and kids. It turned out to be the best decision we have made. During this market down turn, our Ibond had grew. Althought it is locked for 12 months, we plan to move it to the market if the market continue to fall. We will loss three months of interest, but if the market fall dramatically in 2023, it will be worth to move Ibond back to the stock market.

[@TwoSidesOfFI]

Jason here - I like iBonds, just for specific reasons. In an earlier episode I talked about having a portion of my "cash" allocation in iBonds. That makes sense because it's money I don't need to access for >12 months.

[@tonychendds]

​@@TwoSidesOfFI do you guys talk to your audience in private?

[@TwoSidesOfFI]

@@tonychendds Generally speaking we like to have exchanges in the open so that the community is able to benefit from the information

[@cyrillebaillif]

Hello guys! Love your discussion. I'm 45, hoping to retire in 10y. I have 15% in crypto (-60%right now), and when you talked about cash position, I have started to build mine on Gemini, where I get 7.15% and no fee (GUSD). I know it's not FDIC but I'm not planning to exceed 50-75k anyway. So I understand both of you are not at all into crypto, but I can't recall an episode where you actually explain why, and why not. Food for thought :) keep going!!!

[@TwoSidesOfFI]

Jason here - I think Eric and I are on the same page on this, but I'll speak for me. Basically I like to keep it simple. Low fees, diverse index funds, easy peasy. Crypto is too speculative for anything other than "play money" for me.

[@robertgadawski7298]

Eric, is your 70% stock allocation still all held in VTI or have you diversified? Btw this podcast and channel are awesome! Thanks.

[@TwoSidesOfFI]

Cheers, thanks for the support! I use a Boglehead-style 3-fund portfolio made up of broadly diversified index funds.

[@garrett7101]

You laugh bc his cash is losing out to inflation, but how is the stock market doing this year in comparison?

[@TwoSidesOfFI]

Eric here...I love buying the dip! You might've missed it in the vid, but J is tempted too.

[@kasmstamps1897]

Ive started allocating funds to that i can't afford to lose in bitcoin for 5 years. So much easier now with BTC ETFs.

[@ph5915]

Next April I will be 59.5 and start withdrawing from my IRA. Currently, that's 70/30 equities/fixed. I don't like bonds b/c they can lose. my fixed income is a 2 yr CD ladder and a 3 yr MYGA. I also have about 3 yrs in 'cash', as I was saving up for my next big toy that never happened. So between my severance ad savings, I will have existed 4 yrs off this. The worldwide economy seems different this time. Globalization is ending, and much of the world is about to depopulate, baby boomers are all retiring so consumer spending will decline, because of the war, and energy and fertilizer shortages are going to cause a lot of people to go cold and hungry this winter. So I'm looking at having about 8 yrs of fixed/cash available. I think inflation will be with us for a while. Of course, I'm a pessimist 🤣

[@TwoSidesOfFI]

Thanks for sharing, Pete. You do you, right? Best wishes

[@timisaac8121]

"Cash" in my pocket is $40. This is bc my credit/debit cards aren't 'cash" to me. How bonkers is this? First, you are in the cashless system, not making huge revolutionary decisions. Second, you aren't looking for bargains and carrying enough to fund good deals you may encounter. Oh, wait. you use Venmo. oh, you are deprived poor thing.

[@TwoSidesOfFI]

What the FIRE Community Gets Wrong - Talking with Karsten Jeske kzbin.info/www/bejne/kImrmWSdqbRkoqM