The Benefits of Using AI Legalese Decoder to Navigate Complex Financial Decisions: Is Holding More than 6 Months Expenses as Cash Necessary?
- May 10, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Financial Planning: Maximizing Savings Potential
I have diligently saved more than 6 months’ worth of living expenses to secure my financial well-being. Over time, I have diversified my savings by allocating some to term deposits and experimenting with both high and low-risk investments. Currently, the majority of my savings are parked in a savings account, yielding approximately 4.5% interest.
## Investment Strategy: Exploring Options for Increased Returns
Considering my stable financial situation and absence of immediate large expenditures such as a mortgage or extensive travel plans, I am contemplating whether it is prudent to retain a lump sum in a savings account. Would investing in the S&P 500 and/or NZ50 index provide a better return on investment in comparison to traditional savings accounts?
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I suppose depends on how quickly you need the funds. Some managed funds may take a few days to close out your position. And obviously the risk of a market drop off. Depends on your risk.
Personally I have a managed fund that I kind of see as our emergency fund, have a credit card and some other cash but not near 6 months worth of
If you have a morgage – using it as an offset in the current market, otherwise, No unless you do not want to take a risk. 4.5 historically is a good return on a term investment (you should be getting more than that currently).
Kernel’s Cash Plus fund may be worth looking into (~6.12% p.a.), at least till the OCR starts to drop.
https://kernelwealth.co.nz/funds/kernel-cash-plus-fund
You get TD level returns without the lock-in. Though good idea to have a credit card for emergency expenses, then pull money out of the Kernel fund to pay off the card when it comes due. (as the fund will take a few days to withdraw from)
Personally I wouldn’t hold emergency funds in general savings account, the returns are just too low. If you really want to keep them in the bank, you could stagger TD. e.g. Put 20k on 6 months today, 20k next month etc. and keep renewing them. This way each month you’ll get 20k free for emergency costs. (combined with a CC, leaves fair amount of flexibility and decent returns)
> Is there any reason to hold a lump sum like that in a savings account when it could just go on the S&P 500 and/or NZ50
Simple. These instruments are a risk in the short term where you’d need access to $ from an emergency fund. You’re welcome to take that risk if you are comfortable with it.
Like others have said, it depends on your risk levels, but from a generic “normal” person perspective 6 months is plenty for most people. If you lost your job, do you feel confident in your ability to find work in this time period? Are you entirely dependant on one salary or do you have a partner who also earns?
We have two incomes, one large, one small. We need keep about 3 months of the larger income as an emergency fund, but if we really had to, we could live on the smaller salary almost indefinitely.
In your situation I’d be investing, but I’m not in your situation, you are.
It depends on you.
Money market will give you 5 % or so per year.
ETFs are higher risk and not guaranteed.
So you need to examine if you are comfortable at 5% or take on more risk that could drop significantly, or go up, or do anything
Well if you have no plans for it in the next ten years then I guess not. Although depends on your risk appetite as well as how antifragile your overall situations – eg do you only have a job or do you also have a second job, are you single, do you have dependents, how healthy are you, how much family support, how in demand are your skill sets, how old are you, how solid is your accommodation long term, how skilled are you at hacking your cost of living down etc. The less antifragile the more the need to have a big cash stash, the less you are, the less you need to go beyond 6m.
Equities (funds that are 100% equitites) are not low risk.
The risk you run is that you may blow through your 6 month buffer and then need to draw on funds invested in equities. Which might see you crystalising a paper loss.
Of course, this risk needs to be weighed against the risk of a sub-par return on anything you do keep in lower risk investments, also taking into account the probability that you would have something happen that chews through your 6-month cash buffer.
If you have no dependents then pretty much no.
You are wasting gains by not putting that capital to work.
If you have dependents there may be a case as loosing your income may have drastic effects for them, so having a bigger safety net might be a good idea.
Tbh it’s all about risk tolerance.
Cash is king. Banks term deposits and funds can halt withdrawls in a crisis.