We paid off our mortgage, and have a chunk of money in high interest savings. We also have pensions and social security, so don’t need anything extra for our regular cash flow needs. I am not the best person to consult with regarding financial issues. We are eligible for a no interest long term loan for a backup battery system for solar that we are having installed next month. The “no-brainer” wisdom is to take the loan, and invest that money. But that’s not comfortable for me, and I would rather pay for it up front, so that’s what we are doing. I prefer to minimize any ongoing expenses, so that if times get tough, we can live on beans and rice.
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This.
Plus a bunch of credit cards with ridiculous credit limits we could tap if necessary.
Plus I can get money out of an IRA in a day if necessary.
When banks were paying 0.01% interest, it made zero sense to us to keep a lot in cash.
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No mortgage here. No debt whatsoever. Other than credit card usage that gets paid off monthly.
I am in the anti-debt camp. That may indicate that I am not very sophisticated with how I manage my money, but I don’t care. I just don’t like debt.
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In the financial world, stocks are considered a liquid asset. They can be easily sold and converted into cash. Whether it is a loss or a gain is irrelevant.
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Question for you - why not have your Roth funds invested in more “risky” funds and enjoy the tax free gains, and use some other funds for short term needs?
I ask this as a “do what I say and not as I do” person… I feel like I should have done a lot more Roth investing along the way, and am still considering a big Roth conversion if the market continues to go down.
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I totally agree, and now that I think of it, I realize that a decent chunk of our 401K that is in Roth is actually not in money market, but is in equity index funds. I made sure my husbands big move into the money market a few weeks ago was non-Roth. I always want to have the higher return stuff in Roth.
An issue, though, 2-3 years ago a friend who was managing our Roth IRAs and doing a fantastic job, retired, leaving us with a big chunk of stocks that we didn’t want, so I started selling them and couldn’t decide what to put them in, so a bunch of it is in a fund paying 4.4% now.
Moral of the story is, I mismanaged this. 
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Municipal bonds are not risk-free.
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They have infinitesimal default rates and if you buy AA insured (agm/bam) backed by cities, airports, states etc or lots of AA and AAA school district bonds with state loan guarantees - they are bullet proof.
Is U of CA or UIUC or Morehead State going bankrupt ? Nope.
Lots of classes, highly rated, you can buy. But one can buy insured bonds if concerned. The big Puerto Rico nightmare - the AGM and MBIA bonds have paid in full - never missing a principal or interest payment.
But nothing, including US Treasuries, are assured.
Should someone buy a baa3 rated hospital or charter school - no ?
But munis in general don’t default, and bonds with fantastic backing never do.
So it would be the appropriate hedge….with near zero worry.
@1214mom, I’m not sure I’m doing this (ShawWife and I only have small Roth’s from backdoor route), but shouldn’t you put all fixed income investments in your tax-free vehicles (like the Roth) and put investments likely to create capital gains in the taxable accounts? Except investments with huge potential (venture investments or the next Microsoft/Nvidia) – if you knew which investments were going to be the big hitters, you would want them in the Roth.
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I am no expert, but believe you should put things you’re hoping to see big gains in in Roth accounts, and things you see as “safer” in regular IRAs or whatever accounts you did “pre-tax.” The reason is, Roth accounts are taxed when you put the money in, and then not taxable again, including any gains. If you put money in your before tax IRAs, etc., and invest those accounts in things that do really well, you have to pay more tax.
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Agreed. Big gainers in Roths. But, interest/dividends producing investments should go in 401ks or Roths so you can get the compounding without tax and regular cap gains creating investments in taxable accounts.
I have not quite done that as I have some investments in a dynasty trust. I was putting some potentially big gainers in there as there will be no estate tax on them. But, maybe those should go in a Roth.
I’m confused by what you say. Generally, I think of the “gains” in 401Ks as taxable, UNLESS they are Roths.
I like the idea of using HELOC as a slush fund and keeping less cash on hand, but wouldn’t the HELOC need to be at a low interest rate? We have a lot of home equity so this is very tempting, but I’m seeing HELOCs still at 8-9%. Happy to be wrong, though.
I don’t love the HELOC or credit cards for slush fund/emergency account as both of those were cut down/closed during the 2008-09 financial crisis. Depending on home equity or credit card in an emergency has its risks and fairly high costs.
I know some really like to have all their money invested, and I wouldn’t recommend keeping large amounts of money in a checking or savings account earning 0.10%. But it is fairly easy (currently) to find high yield savings accounts paying 3.75+% and fairly short term CDs (3-12 months) paying 4+%.
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If we can predict what the big gainers will be, all of us can likely retire ASAP.
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Well said or as my dad said, if people could predict the markets with assurety, they’d be billionaires, not brokers.
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Sorry @1214mom. Here is what I was thinking:
Gains in a 401k are taxable eventually, but they compound without tax in a 401k. Then you pay tax on them in the end. Because compounding is exponential and taxes are, in effect, linear, you end up with more after tax putting an interest-producing investment in a tax-deferred account than putting the same investment in a taxable account. If another investment pays no annual tax, but only pays tax at the end and pays tax at the lower capital gains rate, you are better off leaving that in a taxable account.
To make things concrete, let’s imagine two investments of $1 MM each that both grow at 10% a year. One is fixed income and pays 10% interest per year. Let’s assume that the ordinary income tax rate is 40% and the cap gains tax rate is 20%.
The $1 MM fixed income investment taxed every year grows to $3,399,564 at the end of 20 years. Put it in 401k and it grows to $7,400,250 in the fund and after tax it you have $4,440,150. Putting that investment in the 401k puts $1,040,586 more in your pocket at the end of 20 years.
In contrast, invest the $1MM in an investment that also grows at 10% but only produces a taxable event when you sell. So, you sell at the end of 20 years. In a taxable account, it will grow to $7,400,250 at the end of year 20 and you will pay the cap gains tax of 20% and you will end up with $5,920,200. In contrast, if you put it in a 401k, it will also grow to $7,400,250. But you will pay ordinary tax rate (40%) when you withdraw, so you will only end up with $4,440,150. So, you would end up with $1,480,050 more in your pocket if you put the cap gains producing investment in your taxable account than in your 401k.
Of course, everything is better in a Roth if you can get it there, but a Roth has a greater relative effect for fixed income investments than for cap gains producing investments. Of course, if you were going to invest in the startup Paypal in a Roth, like Peter Thiel was somehow able to do, the gains would be so great that you would be thrilled to have allocated that to a Roth. (See https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank)
Does that make sense?
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Or as my grandfather said, if one could predict the spot where he would fall, he could put a big pile of soft straw in that exact spot! 
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I was being a bit facetious about putting the big gainers in the Roth. But, you can put in investments like VC investments that have the potential to be huge (or zero). I have not done that in part because my Roth IRA and ShawWife’s are pretty small.
Given the likely chaos in Washington, are you thinking or revisiting your estate planning given possible tax law changes?
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