We Have a Lot of Cash in Hand Now… Too Much!

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We Have a Lot of Cash in Hand Now… Too Much!

Having cash in hand is a good thing. Whether it’s for an emergency fund or money you’re saving up for something short-term like a car, having money at your disposal is a good thing.

But there’s a limit to that goodness and having too much cash in hand can absolutely be a problem. When you have money sitting in the bank, it’s earning a little bit of interest (a real little bit in this day and age!). However, that interest usually isn’t going to be keeping up with inflation and time will slowly erode the value of each of your saved dollars.

Therein, lies the problem. While it’s good to have some cash in hand that’s sitting on the sidelines ready to go when needed, too much is a bad thing.

And that’s where we’re at right now.

Due to a few changes we’ve made over the past few months, we’re now sitting on a fair amount of money… a little more than $182,000.

That number doesn’t even count the bond fund ETFs we have in place for our bucket strategy because each of those serves a purpose. Each fund represents about a year’s worth of living expenses that we withdraw each year to live off of. We keep 4-5 years of these in place and when one matures, I buy another one for the ladder for 4-5 years out. I talk about this more in my post, The Drawdown on Investments – Our Game Plan.

Instead, I’m referring to money just sitting without a job to do. $182k just sitting on its butt doing nothing… that’s a problem I need to rectify!

As a reminder, I’m not a financial advisor and I’m only discussing my thoughts regarding my personal situation. Don’t consider this advice of any kind and please contact a professional before making any financial decisions you don’t fully understand.

Where did all this cash in hand come from anyway?

There were three events that gave us more cash than we’re used to holding onto:

  1. A CD maturing
  2. Rebalancing our portfolio
  3. Selling our last investment property

A CD maturing

Last year around this time, interest rates continued to drop more and more. While that’s great for getting loans, that’s not a good thing for savers so I decided to wring a little bit more out of our savings.

Since we had a general idea of our spending, I took $15k of our spending money for the year and put it into a CD. That was a good move on one hand since we were able to get a little more money than we would have if we had just left it in our Ally savings account. The savings interest rates have continued to drop even more since I had locked in.

It wasn’t all fun and games though. It turned out to be a slight problem because we were barely able to make it through 2020 on the money we had leftover in our spending money account. I don’t think we anticipated a pandemic and that threw off our annual spending (especially because we spent ~$12k on a 2012 Honda Pilot for a random road trip).

Regardless, it all worked out fine for the year and the bonus is that we now just received the money from our CD maturing. So that’s an extra $15,000 plus interest sitting in our savings account ready to get back to work!

Rebalancing our portfolio

We’re careful in not trying to time the market because that’s generally just going to be a recipe for disaster. However, I have no problems with rebalancing our portfolio and that’s something we’ve started doing a couple of times a year.

Essentially, this allows us to get our desired asset allocations back in check. In our case, I’ve been trying to keep our portfolio around the 70% mark for stocks. So if the market is hot, that percentage grows and I need to trim it down and sell some stocks. If the market’s doing bad, my holdings percentage drops so I need to buy more to get it back to where I want it.

Not only does that help keep my risk levels where I want them (which is the main point), but it also somewhat helps in forcing me to buy low and sell high. It’s a beautiful thing!

If the topic of rebalancing seems foreign to you, I’d encourage you to check out the post Selecting your asset allocation from JL Collins’ incredible Stock Series. And if you really want to be on the right track, he’s got a best-selling book which I consider to be one of the greatest investing books ever… The Simple Path to Wealth. This might be the best investment you’ll ever make!

As I discuss in my post, Portfolio Rebalancing: Get Your Asset Allocation in Line, my goal is to rebalance our portfolio twice a year. However, 2020 was no ordinary year and I ended up rebalancing a couple more times than I anticipated. That let me buy during a major drop and sell during a nice high point.

Between the invaluable and free Empower (formerly Personal Capital) tool and my rebalancing spreadsheet, I was able to quickly get my numbers where I wanted them. If you want to be able to have better control over your investments, Empower (formerly Personal Capital) is an awesome management tool… and it’s free! Here’s a screenshot from Empower (formerly Personal Capital) on where we stand in our investment accounts right now:

We Have a Lot of Cash in Hand Now… Too Much! - Empower (formerly Personal Capital) Allocation

Simplicity… I love it!

This might also be a good time to encourage you to get on my mailing list. I’ll send you a few cool tools including the Portfolio Rebalancing Spreadsheet I created (and use myself) to help determine the adjustments to be made when rebalancing my asset allocation. Sign up right here…

No spam. One email a week. Unsubscribe anytime.

Wow, I’m just full of some great recommendations today! Between The Simple Path to Wealth, signing up for Empower (formerly Personal Capital), and getting on my email list, your savings and investments are going to thank you!

So I sold a bunch of stock (VTI) to get my portfolio back in line and now I have to decide what to do with that money. That’s about $82,000 – a pretty good chunk of change to have as cash in hand just sitting!

Selling our last investment property

If you’ve been following along on the Route to Retire adventures recently (did you sign up for the email list yet?!), you know that we did something I never thought we’d do. We sold our last investment property.

I won’t go too much into this since I just talked about last month in my post, Owning Rental Properties Is Smart, but I’m Out, Jack!. The gist though is that the property appreciated by over 60% in just five years of owning it! It was too enticing to pass up.

When all was said and done, I now have about $85,000 cash in hand from my LLC that owned the property.

Time to put our cash in hand to work!

What a strange problem to have. In my younger years, I would have felt like we were swimming in a pool of money with all this cash in hand…

How awesome is this picture?!

But now I know better. It’s ok to take a step back and even to leave money sitting in cash for a few months while deciding the right way to go with it. It’s probably even fine to leave some of sitting a little longer until rates begin to rise again.

However, if I don’t get most of this money invested, I’ll be missing out on growth in the long run. Not only that but eventually inflation will slowly erode the value of this money.

So what am I going to do?

Well, in typical Route to Retire fashion, I tend to write about things before I completely implement them. I do that for a couple of reasons. The first is that it’s what fresh on my mind and I want to share my thoughts on what’s going on right now.

The second reason is that I don’t proclaim to be the smartest person on the planet (though I’m pretty close! 😉 ). But I’m smart enough to know that there are people smarter than me who read this blog. I love to hear thoughts and perspectives that are different than mine because it gives me a chance to step back and reconsider if I need to pivot with my plans.

I have a few thoughts on this money and what I might do with it…

Invest in REITs

As I mentioned in Owning Rental Properties Is Smart, but I’m Out, Jack!, I’m not ready to get out of the real estate game. I like having that hedge in place against a bad stock market reign. That said, I’m content for now with not owning any physical properties.

So I’m thinking that I’m going to take most or all of the $85k from the proceeds of the duplex sale and invest the money in REITs. Here’s some scoop on REITs if you’re unfamiliar…

A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.

Investopedia — https://www.investopedia.com/terms/r/reit.asp

When compared to owning physical real estate, the pros of owning REITs include:

  • A lot more liquid – you can buy and sell REITs on the stock market just like you would other investments.
  • Diversification – instead of owning just one property, you might own a piece of hundreds or thousands. That spreads out your risk of bad tenants to the whole considerably.
  • Cash flow – REITs are required by law to payout at least 90% of their income to shareholders through dividends.

So, you do gain some great aspects of owning real estate without all the headaches with REITs. But it’s not as advantageous in owning the physical property yourself. Here are a few of the cons of owning REITs instead of the actual property:

  • You miss out on appreciation.
  • You lose a lot of the tax advantages of owning physical real estate.
  • Market fluctuations can affect the value of your holdings.

Although I’m just touching on the subject, there are more ups and downs to each avenue of investment. Do your own research or bring in a professional if you need some help.

For me though, I’m ready to be a little more hands-off with real estate and I think putting my $85k to work in REITs might be the way to go. I already own some shares of Vanguard Real Estate Index Fund Admiral Shares (VGSLX) and I think that will be the landing point for most or all of this cash in hand. It currently has a 0.12% expense ratio and has returned about 8.20% over the past 10 years.

I’ll need to dig around to determine if there are other REITs I want to consider investing in as well.

Here’s an important piece of the equation though. REITs are not considered to be very tax-efficient because they’re routinely paying off dividends. Because of that, I’d prefer to keep these holdings sheltered in a retirement account… but how do I get money into my retirement accounts to use?

I won’t literally move it in this case. Instead, I’ll move the money to my taxable investment account. I’ll sell ~$85k of Vanguard Total Stock Market ETF (VTI) in a retirement account (likely my Roth IRA or rollover IRA) and buy the VGSLX there. Then I’ll buy ~$85k of VTI in the taxable account to bring my holdings back to where they were. VTI is more tax-efficient than VGSLX so that should be the right move there.

I’ll more than likely take the $15k from the CD maturing and move that to my taxable account to invest in VTI as well. That’s money we shouldn’t need for several years so it’s time to give it room to grow.

What the heck else to do with our cash in hand… invest in bonds?

This is where everything falls to @#$%. My normal plan from rebalancing would be to take the money sold from stocks and buy Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) to help smooth the waves from stock volatility.

But with interest rates at rock bottom, things aren’t looking so pretty. With nowhere left to go but up for rates, that’s not going to fare well for bonds.

I’m no expert, but I don’t like putting my money in an investment with a really bad outlook for a while.

That said, like a lot of us, I’m not as versed in bonds as I should be. Maybe there’s something to this that I’m not understanding.

So right now, that money’s sitting in a money market account (Vanguard Federal Money Market Fund) just rotting away.

I have a feeling that a lot of my money from the rebalancing isn’t going to be invested in bonds. Assuming that’s the case, a lot of my cash in hand might simply need to stay as cash in hand. The bad news is that it’s not going to earn a lot that way. The good news is that I’ll be ready to jump on opportunities to buy when the market takes a turn.

Finding a good place to store cash you don’t want to be invested in stocks right now is a struggle. We’re in a unique period of time nowadays and patience might just be the key.

I planned to run these thoughts by my financial advisor/accountant. But after he prepared my 2020 tax return, he let me know that he’s only doing long-term financial planning now rather than one-off fee-only advisory sessions like we were doing. I don’t blame him for making that move but that does mean I’ve got to find someone smarter than me to run things by.

Eventually, I’m going to need to find another financial advisor. Although we have a nice plan in place, I think it’s still good to have a fiduciary fee-only advisor to run things by periodically. When looking for a financial advisor, there are only three places I’ll be looking:

Two of the most important factors to consider are that the planners are fiduciaries and fee-only. Those three sites help ensure that I’ll be covered in both respects. Next, I’ll need to find someone who we click with and understands our long-term goals.

In the meantime, I reached out to my good friend Fritz from The Retirement Manifesto to see what he thinks. We’re going to do a video chat later this week. It’s been a while since we’ve talked so that’ll be fun and I’ll bounce some of my ideas off of him as well.

I’m curious to hear what you’re doing with your spare cash in hand right now. Let me know your thoughts below.

Thanks for reading!!

— Jim

UPDATE (04/13/21): I talked to Fritz and decided on a plan to handle my excess cash. You can read more about it in my “Investment Portfolio Changes I’m Making!” post.

You know you wanna share this!!

37 thoughts on “We Have a Lot of Cash in Hand Now… Too Much!”

  1. Hey Jim, great post, perhaps taking time to meet with Alan Roth or Rick Ferri might make since. These gentleman are well respected & I assume you know who they are. They are expensive though (around $450/hr) but far better than paying 1% AUM. I have been buying Ibonds lately to help hedge against inflation & it’s the best rate I can find anywhere. Stay safe & enjoy your time in Panama.

    1. Thanks for the recommendations, Tom. $450/hr is probably too steep for what I need but I appreciate the suggestions – and you’re right, much better than a 1% (or more!) AUM pricetag! That’s also a great thought on iBonds – TIPS might be another option that might fill the need. Much appreciated!

  2. Hey Jim,

    I love the strategy. A few other bloggers have done something similar until enough of a buffer is created and then they have just gone all back to vti or something similar. I did have a question regarding the yield for vgslx: you stated 8.2% return over the past 10 years, is that an avg every year including the yeild? I am seeing a 3.8 yield currently.

  3. You’re going to talk to that guy at The Retirement Manifesto? Man, you really ARE desperate….

    (BTW, I love your explanation of how you’re moving the REIT into your retirement account. I’ve used a similar strategy to work on “tax location” at the same time I’m rebalancing. Great explanation. Looking forward to our chat…

    1. Easy friend – that Fritz guy’s not too bad. Sure, he’s got a few screws loose but if you can look past that, he’s not all that bad of a guy! 😉

      Thanks for reading the post and for lending me a little bit of your time this week!

  4. There is an old saying to “keep some of your powder dry”. So cash won’t get you much right now but use it for opportunities in the future.

    For ways to generate yield I use the following (I’m not an advisor either, do your own research)…
    FFRHX- Fidelity- Short term bank loans not as influenced by interest rates. If rates go up that is good.
    VWEAX- Vanguard High Yield Corporate Bond
    PGX- Preferred Stock. Doesn’t fluctuate a lot and yields 5%
    SPHD- High Yield-Low Vol. S&P 500. Has stocks like ATT, XOM etc. and pays monthly dividends currently over 4%. Wasn’t very good last year due to energy stocks but better as of late. Good for yield if you ignore price fluctuations as it hasn’t been low volatility. I think of yield shield from FIRECracker.
    SCHD- Schwab Strat Dividend is my favorite high yield dividend at 3+%.

    These are all riskier than cash but if you have some tolerance….

  5. I’m not sure that cash isn’t less volatile than bonds right now. I’ve got $400k in cash instead of bonds for that reason. Inflation is low, plus it’s not major part of our portfolio.

    1. I figured there’d be some others like me who are sitting on a bunch of cash – this is a pretty unusual time we’re in right now. Since that’s not a huge part of your portfolio, that makes sense that you’re holding tight for now. I probably need a little more growth out of mine since it’s still a good chunk of my portfolio. Maybe TIPS might be an option for the time being?

      1. I’ve thought about TIPS, if you go that way let us all know about it please. Can you get them from all the same brokerage houses or do you have to get them from the Treasure like I used to get Treasury bonds?

  6. Hi Jim,
    I love your articles.
    I will appreciate if you can share the contact info for the financial advisor that you find.

    1. Thanks, Zion – I have no problem sharing the info on any advisor I find (assuming they’re good with that). I’ve mentioned the one I was using for the past few years in a bunch of posts. However, I think it’s important to point out that just because an advisor might work well with my goals and click with me doesn’t mean he/she will work well with everyone else. But we’ll see what happens! 🙂

  7. Gotta put that money to work! I feel bad at times because I think I have about $10 – $20k in my retirement accounts that I haven’t invested for one reason or another. I wish I had that invested when I was continually contributing to them last year.

    I can never say my investments were optimized because I kept a bit in cash. Live and learn.

    1. You know what they say… “The best time to invest was yesterday. The second best time is today.”

      That stinks on money that gotten forgotten to be invested but at least you put it to work eventually. Considering that’s money in a retirement account, years from now that small amount that sat out should hopefully not make too much of a difference to make or break you. That’s me trying to make you feel better! ?

  8. We’re in the same boat. Had a large CD mature last month. Another matures next week. No sense renewing when the CD rate is the same low rate as a savings account. However, we did invest in a $10,000 CD at 3% interest when we arrived in Panama. Despite no FDIC insurance, it’s a small risk we’re willing to take & they post the interest to our savings account each month! 3% is tempting to invest more, but I’m not sure of the bank stability here plus it’s quite costly if we ever want to transfer funds from Panama to the U.S. I know it’s not feasible for you since you’re leaving next year. Don’t know what to do with the rest of the cash at this point!!!

    1. Smart move on the CD here in Panama. I would be doing the same of we were staying here (we don’t even have a local bank account here). It’s not a ton of money but enough to make some money on without risking your whole portfolio on. It’s awesome how much better the rates are here versus the US right now.

      It seems like right now that it’s smart to just sit on cash right now that you don’t want in the stock market and then just look for little opportunities… like you did with the CDs! 🙂

  9. Yep, global low interest rates are a problem – it pushes everyone into higher risk assets than they should have been, hello equities/dividend shares for 100% of a portfolio, or even worse, speculation/crypto/whatever else is on a tear at the moment. Not suitable at all for retirees.

    As an aside, REITs will follow the bonds as well, if rates go up, property company’s borrowing rates will go up, hence their price goes down. They’re effectively a version of bonds/fixed income.

    You could have a look at higher-yielding bonds and hold them to maturity – like a long-dated CD? Then you won’t be impacted by prices moving up and down and if you’re happy with the rate, there isn’t price risk. Again, a problem is you’re locked into a lower rate if rates go up. There is no real answer for decent income in a low interest rate environment unless you take the risk of international bonds that may provide higher yields. the problem is chasing yield.

    A quick question on your ladder – do you buy for year 5 at the amount you’d expect to spend then? So is it a years worth of cash but including say 5×2% of inflation? With such a long-dated cash portion, do you lose out (opportunity cost) with this cash sitting for 5 years versus inflation rate due to low interest rates and equity returns? Or is your piece of mind worth it?

    1. Good perspective, Charlie, and much appreciated. That makes sense that REITs are similar to bonds due to interest rate fluctuations. The big difference though is that REITs are also paying dividends during this time and can have ebbs and flows like a regular business. Solid management, raising rents due to demand, and buying and selling properties can help to increase profits. I’m admittedly not an expert in either area but I feel like REITs would suit me a little better in the long run with some of my cash.

      With the ladder, you pretty much nailed it, but I’m not so worried about increasing it for inflation right now. Since inflation hasn’t been a real factor in years and we’re spending less than what we have available to spend, I’m not too worried about increasing it right now. But yeah, that peace of mind of losing out on the possibility of growth is a big deal for me… for now. Once the sequence of returns risk becomes a little less concerning over the next decade, I might drop that down to just a few years in the ladder but that’s a real concern that I have right now.

  10. smart move getting those reits in a tax advantaged account with that swap. reit dividends are taxed at ordinary income rates as i suspect you already know. i had the same problem last fall with a cash build up and i couldn’t abide those miniscule interest rates at ally. i ended up taking 50k and using 60% of it to buy preferred stock etf’s that pay out monthly. the other 40% i split among 3 stocks. those investments are up around 20% today so the move looks good for now but i had to be prepared for their value to temporarily drop with the added risk. i’m still not sure it was all the right thing to do. cash is ok.

    a word on those preferred shares: they have a high yield (we own pff, spff, and jps) but can be very volatile. i’m willing to trade a 6% yield for the price risk right now but you often can’t “rebalance” and buy stocks when the market tanks like you can with bonds. the preferred shares are likely going to be lower just like your stocks! looking forward to see what you decide.

    1. That’s interesting, Freddy – I don’t know much about preferred shares but that’s some good information. And if you’re ok with the risk, it sounds like you made a good move so far.

      I’ve received a lot of email replies from those on my mailing list wanting to know what direction I’ll be going so I’ll write a follow-up post in the near future.

  11. I think REITs are a good play to hedge against the market right now. As part of my decumulation plan (still a work in progress), we are holding about 2 years worth of cash, but I want it to be fairly liquid, so that I can pounce on any potential market downturns and/or invest opportunities that may arise without having to worry about capital gains. So anyways, I saw an article on Financial Panther that was taking about taking advantage of the banks that pay higher 3-5% rates. It piqued my interest a bit, though definitely is much more active than a REIT ETF: https://financialpanther.com/some-perspective-on-my-1099-int-income/

    1. Kevin’s always had some good and interesting ideas for squeezing a little more money out of your cash. Some are fantastic and only involve just a little effort and some might not be worth the effort for a lot of people. I love hearing about the different options regardless. I haven’t read that one yet so I bookmarked it to check out later. Thanks for the heads up!

  12. We’re pretty low on cash right now. I just funded both our ROTH IRAs and caught up on 2020 i40k. My RE crowdfunding investment also issued a capital call. So not much extra cash at the moment.
    I think REIT is a good way to go for you. It’ll give you back some alternative investment allocation. Last year, we had too much cash and I didn’t mind too much. I was able to move cash and bond into stocks when it dropped.
    Looking forward to a follow-up post.

  13. There are a lot of folks sitting on a pile of cash (dry gun powder). These are unprecedented times with the fed printing trillions out of thin air so everyone’s dollar is worth less. Can’t get anything significant in interest on liquid cash so it’s really eroding in value by the second. The bond market has been all over the place. After reading Liar’s Poker and the fact I have about 30+ years on the retirement horizon, I am not that big a fan of bonds (currently hover around 6% of net worth). Many believe the stock market is overvalued (P/Es completely detached from reality). The Buffett indicator is at an anxiety-inducing high of +226%. Given the fed printing bonanza and the fact more and more people (myself included) are investing in indexed funds via their 401(k) and stimulus checks, should we just bet on the fact the stock valuations are the new normal?

    I am quite unsure what to do myself with cash. I thought REITs generally return less than the stock market and are more volatile than real estate, so I think their benefit in comparison to the two is nominal. It’s going to be a wild couple of years given the fact that the wealth gap has become a massive crevice due to the pandemic.

    1. Being more than 30 years from retirement, I’d say that you’re in a good position to just keep pushing into the stock market. Even if it’s over-valued and comes crashing down, in the long run, you should come out far ahead.

      I have a feeling you’re right about the next couple of years being a little wild. The economy’s on track to get even stronger this year but things are still pretty volatile – should be interesting! 🙂

  14. Yep, there’s nothing wrong with letting the cash sit for a little bit while you make a decision. As long as you don’t let it sit for too long (like a year or three), the inflation erosion will be minimal.

    I believe it’s more important to make the right decision about which assets to buy for the long-term than to worry too much about 1-2% inflation. If you holding that asset for 10-20 years (and it does well), the loss from inflation will turn out to be a rounding error.

    But everyone is worried about a big increase in inflation right now. It’s the current popular thing to worry about. Will it actually happen? That’s hard to say, but so far the CPI data isn’t showing it.

    1. Thanks for the thoughts on inflation. Funny enough, I’m considering putting some of this money in TIPS through Vanguard. It’s not going to be a great return, but it’s something and keeps the money liquid for when opportunity strikes.

  15. Robert D Stanley

    *Most likely* there are still a few months 3 to 6 of the Crypto bull run. There are also less risky alternatives to holding coins like BlockFi (I get 8.6 apr) and Arbitrage options (25+% apr).

  16. Robert D Stanley

    Other alternatives Estateguru, Groundfloor, Republic, Acre Trader, WeFunder, Yieldstree, and P2P loans (Iuvo) – all offering 9-13% apr.

    1. Thanks for the info, Robert. Personally, I’m not into any crypto and don’t have a desire to be. I just don’t like that it’s not tied to anything and is really just a speculative investment at this point. I don’t judge anyone for going that route, but it’s just not my thing.

      Some of the other alternatives you mentioned are pretty interesting. I’ve had a big curiosity about P2P loans and have wanted to dabble with them years ago but they weren’t legal in Ohio (not sure if that’s still the case). Since we’re now legal residents of Texas, maybe that’ll be something worthwhile for me to dig into again.

      Thanks for the recommendations!

      1. Robert D Stanley

        My experience in P2P is based on a company in Estonia (www.iuvo-group.com), which allows me to diversify to have account in Euros.

        I was not much into Crypto until about 6 months ago. Got lucky I’m sure but my gains are close to 100%.

        I have been interested in robot high frequency trading, making a little money on tiny volatility – see VIRT. They make money on sideways markets. The one thing you can count on with crypto is volatility, so I use Grid Trading and Arbitrage bots which profit with the ups and downs. BlockFi is basically a savings account which pays 8% only difference is that it is based on stable coin (USDC) rather than dollars.

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