No. of Recommendations: 5
Pretty much spot on.
I have also heard folks argue that a cash-equivalent "bucket" provides a portion of your
net worth outside of the typical investment risk areas. Similar to an annuity but without a
fee - outside of lost upside potential. Course this assumes that negative interest rates do
not become a banking feature.

The problem as always is how do you re-fill the cash bucket? That has to come from other investments, right?

Back in the day, I took the usual advice and raised my insurance deductibles as high as possible, and pocketed the difference. Then I realized if you are going to self-insure, you actually have to self-insure, so I created a separate savings account where I would save the difference in premiums. After a while, the savings account was overflowing with cash far beyond the deductible, so I just started investing the difference.

After a longer while, I realized the investment part was bigger than the savings part. So I invested all of it and closed the savings account. If you are just starting out, you absolutely should have some cash on hand for protection from some unexpected bill. But as you save more and more money, the less and less protective value that cash has. After a while, that cash actually becomes a liability, because that cash drag costs you money. And the less money you have, the less able you are to weather some financial storm.
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.