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Forum
-> Household Management
-> Finances
amother
Gray
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Wed, Feb 22 2017, 11:08 am
I currently have 80k in cash and 35k in mutual funds. My mutual funds increased 3k this past year and my 80 k in cash gave me just shy of 800. I do not own a home and will not buy one in the next two years. I feel like it is silly to have so much in cash when the return is so much higher with mutual funds. On the other hand if the market plummets the more you had in cash the less you lose. I live in NY where I will need all this money for a downpayment which is why I never locked any up for retirement. Does it make sense to put some more in the mutual funds or to leave all the cash?
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doctorima
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Wed, Feb 22 2017, 11:54 am
I would definitely put more in mutual funds. Your balance is way off, and you have far too much in cash, especially considering how little the banks are paying. However, not all mutual funds are created equal in terms of risk and volatility, and you can put the new money into more conservative funds, such as balanced funds that contain a mix of stocks and bonds, or even pure fixed income (bond) funds.
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gp2.0
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Wed, Feb 22 2017, 12:09 pm
Long term, mutual funds are always better. Short term, cash is always better. In between short term and long term, safe stable mutual funds are best.
The market goes up and down, but in the end will always recover which is why investments are better long term. Cash depreciates with time due to inflation which is why cash is bad long term.
Short term, cash is better because it doesn't depreciate that quickly, and there can be short term losses in investments that you will have if you need to withdraw money immediately from mutual funds (for example if the market is down when you need the money.)
If you have plenty of time (like for retirement) you can play with high risk/high gain investments. But since you are saving for something specific within the next few years, I'd put some in medium risk/gain and the rest in low risk/gain.
There's no point in keeping cash, except for some savings that equal 3-6 months living expenses as backup.
Otherwise, when you keep cash for a long time you're actually losing money as inflation goes up.
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amother
Aubergine
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Wed, Feb 22 2017, 12:20 pm
And you can lose a great portion or the entire 80, depending on what you put in and the nosedive, if the market does a nosedive.
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Laiya
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Wed, Feb 22 2017, 12:50 pm
They say one should keep enough cash to cover your family's living expenses for a few months, in case ch"vsh something happens.
I recommend Betterment. It has algorithms to constantly adjust the stocks that comprise your fund. Worth looking into:
https://www.betterment.com/pre.....vice/
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amother
Navy
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Wed, Feb 22 2017, 12:57 pm
amother wrote: | And you can lose a great portion or the entire 80, depending on what you put in and the nosedive, if the market does a nosedive. |
"Paper losses" while maybe disheartening, are not losses until you actually sell them. So while it can be hard to keep your money in a temporarily dropping index fund - "buy and hold" is really the most effective way.
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amother
Gray
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Wed, Feb 22 2017, 1:05 pm
OP here. Thanks all for your advice. This money is basically my downpayment fund. I expect to buy a house in 2-5 years. The vote here is basically to put more money in mutual funds. How much would you recommend to leave cash? I don't have the luxury to wait out a bad market.
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gp2.0
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Wed, Feb 22 2017, 1:55 pm
amother wrote: | "Paper losses" while maybe disheartening, are not losses until you actually sell them. So while it can be hard to keep your money in a temporarily dropping index fund - "buy and hold" is really the most effective way. |
Yep. If funds are well diversified they will eventually always go back up.
When you measure in decades instead of in months, money that's invested will keep steadily rising while money that's held as cash steadily depreciates.
However since OP wants this money in 2-5 years the answer isn't as simple. It's still worth to invest but probably better to stick mostly to low risk with maybe some funds in medium risk.
OP you can see in your experience that the money you invested did well.
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gp2.0
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Wed, Feb 22 2017, 1:58 pm
amother wrote: | OP here. Thanks all for your advice. This money is basically my downpayment fund. I expect to buy a house in 2-5 years. The vote here is basically to put more money in mutual funds. How much would you recommend to leave cash? I don't have the luxury to wait out a bad market. |
Leave enough in cash for 3-6 months living expenses. You can start cashing out funds gradually in 2-3 years, leaving you with the safety net of waiting up to an additional 2 years if the market is bad.
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doctorima
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Wed, Feb 22 2017, 5:47 pm
amother wrote: | OP here. Thanks all for your advice. This money is basically my downpayment fund. I expect to buy a house in 2-5 years. The vote here is basically to put more money in mutual funds. How much would you recommend to leave cash? I don't have the luxury to wait out a bad market. |
I wouldn't leave more than 20-25k in cash (assuming that you're covering your day-to-day expenses from other income, and don't need any of this money to live off of), and invest the rest in a well-diversified, balanced portfolio containing a healthy fixed income allocation. Either find a good investment advisor (feel free to PM me for a recommendation), or else set up a portfolio of low-cost index funds from Vanguard, Fidelity, or Schwab.
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