Financial Advice for All Life's Creeks

Month: December 2017

Why You Keep Cash in Investment Accounts

I hear this quite a bit. People see investors who talk openly about their strategies and hidden in their discussion is how much cash they keep on hand. It’s usually a throwaway comment, which is probably why people think they are really missing something as it comes off like something that everyone knows. Here are the two things you are likely thinking, and then here is what they actually mean.

#1. It’s not cash as is hundreds in a brief case.

This is not actually cash, like you would use to buy beers at the ballgame. What people mean when they say we keep 5% in cash is not physical bills, but anything that is not invested. This will become more clear in a second. But short answer: not actual cash.

#2. Why have that money digitally and not invest it?

This one I get a lot. You already have it in an account. It’s like you got all the way to the goal line and took a knee. Why keep 10% in cash in your brokerage account? How about putting that into a money market and at least making a few lousy fractions of a point on it?

Here’s why. Let’s say you have $200k in your brokerage account and 10% in cash or $20k in cash (funds not invested). First, again, this is how people mean this when you hear it. Here’s the reason and in a second I’ll explain why the % in cash also changes.

If you hold 10% in a market that has been soaring, we know from studying the trends that on average every 13 months the market will take a 10% hit. Such as today on Dec 30, 2017, we haven’t seen a significant drop was Feb 2016 so we are long overdue on the averages. This is typically thought of as a correction line in retrospect, but always thought of as the end of the world as it’s happening. The market is just settling, and then at some point it returns.

Now. During these times–and also other times when companies or bonds or funds you like are being undervalued–when you have cash on hand, you can invest in things when there is a price reduction. If you don’t have cash on hand, then you miss out on some good deals. And crucially, here is the point: it takes time to get cash of any size into an into an account, at minimum 3-5 days from the time you execute the transfer. However, if you aren’t on top of it immediately, this adds time. If it happens over a weekend or a holiday, this adds time.

So cash keeps you lose and ready to pounce when something happens.

Fluctuating Cash Amounts

Depending on your age and your investing type and the market, you might hold 5% and you might hold 20%. Right now, for example, I’m looking to add a percent each month waiting on the drop to get in. After the drop and the big invest, given my age and risk profile, I might only hold 1-2% for a while until the market stabilizes. By that point, I might be leveraged enough, I might not be. I might have extra cash, who knows? The point is that you need to use cash to your market advantage.

Retirement: A Calm Stream with No Stillwater

Deciding when to retire is never easy. You need to have a firm grasp on what your current living expenses are and what your future living expenses may look like. Even then, it’s an exercise that based in the fundamental uncertainty that is life and mortality. Sure, there are certain kinds of data you can use to make informed plans. A family history and honest look at your lifestyle habits can create a personal life expectancy, but you just never know. As my mother used to say, you could get hit by a bus tomorrow. And life expectancy is still just an over/under for when your retirement resources need to last.


Choosing a number and having specific goals can be a great motivational tool, but it’s got to be based on the complete picture including both financial resources and personal priorities. A million dollars is frequently thrown about as a kind of benchmark, but it’s largely a moving target and the number itself can be misleading. For more context, check out these twin online sources….the first one from 2015 makes the argument that a million dollars is no longer enough for retirement, while this one from 1017 makes the argument that it’s still possible to retire happily with less than a million dollars. It really just depends.


Ideally, you’ll be financially secure enough to fully enjoy your retirement while still doing away with the idea that you have an expiration date. A calm stream that never stops moving, that’s a creek that can be maneuvered in old age.


More Thoughts on Retirement

Choosing to retire is never purely a financial decision. Some people are seemingly constitutionally incompatible with retirement. They go out of their minds with restlessness. A lot of us only realize how important feeling useful has become to us until we retire. You may have a plan to fill your time, but that doesn’t mean you’re going to find endless leisure as rewarding as you first imagine.


It’s one thing if you have kids to which you can leave a healthy inheritance, but I’ve always thought retirement plans are even trickier for childless couples. How do you ensure you have enough to stay comfortable in old age, while still leaving it all out on the field? Do you have a cause you’ve always believed in so much that you’ll be happy to leave the bulk of your legacy?


The Rising Waters of Adulthood

It’s seemingly never long enough before the full weight and responsibility of adulthood hits you. Several years of student loans may have carried you through college and while (hopefully) it’s paid off with gainful employment after graduation, there’s still the ins and outs of managing your student loan debt. Or maybe you took a different path and the financial waters of your adult life starts with creating a business plan, securing a small business loan, finding an accountant, and choosing payroll software solutions.


The financial waters only rise more quickly after that. There’s financial planning for your wedding and the cost of a new baby. There’s saving for early retirement savings and a down payment on a house. There’s qualifying for and choosing a home mortgage. There’s life insurance and estate planning.


Finding and Refining Your Stroke

This is often a time in which, despite being at or near your peak earning potential, it still feels like you’re just trying to keep up. Now, if I can take the metaphor on to dry land, it’s a marathon not a sprint. You can’t save for an entire life in a single day, week, or month. Nevertheless, this is where you put your childhood beliefs and early adult practices into their greatest use. You learn how to plan for the future, while simultaneously remembering to appreciate the current moments for their fleeting, if immeasurable, value. When your finances are a clear creek, you can see more than just numbers in the water.

Teenagers, Youth, and Generational Swells

A generation ago, the big thing was to save for a car. Nowadays, owning your own car isn’t as necessary or as much of a status symbol as it used to be. Take that first paycheck or two and buy yourself a new phone, shoes, or TV. Even still, there are even bigger things teenagers will want. Still, saving strategies for teenagers don’t have to be entirely about planning for a responsible future. Maybe your last year of high school is turning out to be a real drag. Okay, so you decide to work more and save more than you would otherwise. That way, when you get to be a freshman in college, you’ll have some savings so that you don’t have to work as much then. Or, you know, you could end up borrowing a little less.


Tips for First-Time Job Seekers—Even before you graduate high school and are still only looking for a part-time job to save for a car, college, personal shopping habits, or just to help the family, there are things that you should look for, before you settle on the first job posting you find:


  • Can you find a job that pays a “livable wage?” A lot of jobs for teenagers only pay minimum wage with the knowledge that teenagers don’t have to worry about major household expenses. Other employers look to recruit and retain workers, even “unskilled workers,” by paying a livable wage. These employers may not advertise these postings to teenagers, but are willing to consider them. This can be the difference between $7-$10/hour and $15/hour. Wondering how a livable wage is defined where you live? Check out this calculator produced by researchers at MIT.


  • Finding a job you don’t hate, or at least a job where you’re likely to make friends to balance out the negative stuff. It’s never too early to set the expectation that your job should fit your personality and contribute to your life in some way beyond monetarily. Not the social type and have little interest in making friends, for example? Look for a work/study job in which you can pursue your academic goals—or even just read for part of the time.

Kids and Lemonade Stands on the Shore

When we’re very young, we’re still in our parent’s boat on the Clear Creek of the family’s financial life. Simply understanding the concept of money and that things have a cost is an important development stage for the young child. There are a number of ways you can do this as your kid grows up—whether it’s a minimal allowance and a cookie jar, a neighborhood lemonade stand, or physically paying for things with money. Our parents will create a safe environment for us to interact with money. It’s kind of like coming ashore so our parents can create a safe environment for us to interact with money and begin to develop our financial habits.


Tips for Young Parents—Eventually, you’ll want to start to teach them about more complex financial concepts—things like opportunity costs, cost-benefit analysis, coupons, and interest. Of course, these financial lessons need to be age-appropriate to be helpful and instructive. These guides from Dave Ramsey and can help explain what types of lessons should be taught to children at different ages. Before long, they’ll be swimming and paddling in their own creek with all the tools to navigate the clear, if uncertain, waters.

Create Your Own Clear Creek Financial Life

At any particular point in your life, you can probably think of your financial circumstances as a creek of moving water, sometimes getting caught up in swells and eddies, sometimes crashing against rocks, and sometimes rushing forward more quickly than is entirely safe. But we also like to think of a creek as a larger metaphor for our entire financial life. From the headwaters to the mouth of our creek, as we travel downstream, we can look to optimize our current position while also looking ahead to our future travels….


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