Emergency Cash options.

jlev

I'm trying to understand all the different ways that a more cash focused portion of a portfolio can be run. Trying to create essentially a part of a portfolio where in the event of unexpected immediate cash needs money is found. It's not my portfolio so simplicity is a major plus. I've looked at short duration bond funds. RPHYX would require opening a new account which is not preferred. But as I understand CD ladders can be useful tools as well, but I'm not exactly sure how they work and potential early redemption penalties if more money than expected is required. Any advice or references to learn more would be appreciated.

Ted

@jlev: For your information.
Regards,
Ted
Emergency Plan:
http://www.humbledollar.com/money-guide/emergency-plan/

davidrmoran

if an option, can't beat a heloc

jlev

@davidrmotan I'm not sure I follow How would a heloc work in this case? @Ted it was interesting to see the suggestion that if you're retired, maybe an emergency cash fund isn't necessary?

AndyJ

I would use Pimco's PMZIX in my own accounts if I felt the need to hold cash-plus - i.e., an emergency fund for large unexpected expense where I'd tolerate small changes in NAV. (Run pretty much absolute-value-ish, 3y SD 1.2, 3y Sort 7.1, negative down-capture for all periods.)

But if this is in a TRP account with no brokerage access, it's not available, and the TRP I used to know wouldn't have anything like it.

There may be reasons I'm unaware of not to do this, but what would be wrong with keeping the account at TRP and using their brokerage?

Old_Skeet

@jlev,

This is how I govern my cash.

Within my portfolio I have two cash sleeves. One is a demand cash sleeve where I hold excess cash (outside my checking account) that can be ach'ed overnight to my checking account, at my will, and the other is an investment cash sleeve that is comprised of my savings account, a money market fund and a three step brokerage cd ladder (6mo, 12mo & 18 mo cd's). The advantage of brokerage cd's is that they can be sold in the market place without cash out pentalty. My savings account is held at my bank (although it is included as part of my investment cash sleeve) so it is easy for me to do overnight transfers from savings and checking as well. My demand cash sleeve equals about 5% of my portfolio's value and the investment cash sleeve equals about 10%. Combined these amounts equal about 15% of the portfolio's total value. Generally, my cash ranges for 10% to 20% with 15% being the target and neutral allocation. Currently, I am cash heavy because of the capital gains distributions paid out in December by many of my mutual funds.

This is so, because I have most of my mutual fund distributions set to pay out in cash and this feeds the cash sleeve. In this way when I need money I simply draft the cash sleeve and disburse to my checking account. The residual unneeded cash is left and can be used for investment purposes to help grow the portfolio or just sit idle in the cash sleeve for future use.

I am by no means saying my system would be right for you or anybody else for each of us have different needs and retirement resources.

I hope this might provide some ideas for you to think on as you set up your cash management system.

Old_Skeet

rono

Howdy,

I guess what you're 'saving' it for determines the specifics. I'm at Price so I use RPSIX for a cash parking place while still using PRTXX for my sweep account. That said, I'm 69 so my emergency fund has a different purpose. I'm looking at this account (and others) with having some cash on hand as the cash portion of my allocation but also for use in Buying opportunities. Geez, I've been buying black swans since Iraq I. I believe everyone has checking and savings accts and then various other types of cash type holdings. This can go as far was having a bitcoin wallet and precious metal holdings as inclusions in your emergency fund.

good luck,

and so it goes,

peace,

rono

MikeM

@jlev, take a look at an on-line bank like Ally. I attached a link to their CD's and MM options. In my opinion, these places are an easy way to hold "cash". Short term bonds or the like are not cash, just cash-proxies. Their value can and may go down for different reasons, most notably when interest rates rise. Not saying short term bonds is a bad option - it's not. I also think in years to come, CD's may out pace short term bonds in returns, at least I hope so.

Splitting the cash between MM and CD's is a good way to avert any penalties - no penalty taking from MM. And by the way, often you can get a built-in penalty waver from these places, but I would suspect that comes with a hit on the interest rate. And also remember, the penalty isn't on the principle, only on the interest earned. You don't lose any principle. The difference right now between a MM and 1 year CD isn't that great anyway, so you don't lose much. Also, It is easy to link your checking account to these on-line accounts and move money back and forth within a day or 2, so very convenient. And lastly, what I like most, the same rules apply if you are doing this within a taxable account or tax deferred.

Here is a link to Ally, though there are many good options. I had good luck with Ally when handling my mother's account. It is where I will be setting up a safe cash bucket for withdrawals and feeding it directly from my Schwab account when I retire.

https://www.ally.com/bank/ira/ira-account/