Cash

Author
Discussion

bitchstewie

Original Poster:

50,767 posts

209 months

Saturday 4th July 2020
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I'm having a bit of a debate with myself over the appropriate level of outgoings to hold as instantly accessible cash in the bank.

Cash in the bank is a drag right now but in the current environment where few things seem certain especially around employers it's good to know I have a few years outgoings covered.

I'm a cautious investor anyway so this isn't a "should I stick it all in PH Recovery?" type question (no offence Julian) it's more a Troy Trojan or LifeStrategy 40 level of volatility.

It's probably a psychology question as much as anything else.

Simpo Two

85,147 posts

264 months

Saturday 4th July 2020
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Well, if it is cash in a bank there is no chance of it increasing, only becoming worth less from inflation. If invested, whilst it may of course go down, it at least has a chance to go up. If you stay in cash you will be 'immune' from whatever turbulence may lie ahead. But you will also miss out any gains.

Unless you have significant chunks already invested, my personal view is that 'a few yearsworth' of cash is too much and you can afford to take a modest punt. But that is me, and I don't know your full position.

Edited by Simpo Two on Saturday 4th July 10:41

VR99

1,258 posts

62 months

Saturday 4th July 2020
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Similar to you, am naturally of the cautious high risk averse type which is not always a good thing.
I am saving for a property...pre-covid was 10% investments Vs 90% cash...took advantage of the market crash in march then got nervous recently after the sharp gains. I am now 98% cash and 2% investments lol. For now I will run with that split, I moved some of my investments to my LISA to get the 25%(1k) uplift for this tax year. That is my only solace with the depressing interest rates in the banks.

At times I think stuff it, will just fill my s&s ISA and go all out but the risk of a 20%+ drop hitting my cash in the event of market turbulence has stopped me. I am continuing to invest 5% of my monthly take-home into a global tracker so not fully out and it suits my risk tolerance.

In terms of emergency cash, there doesn't seem to be a single consensus...6 months outgoings...3 months take-home pay..

Edited by VR99 on Saturday 4th July 12:36

Halitosis

153 posts

56 months

Saturday 4th July 2020
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Maybe I'm missing something but I don't understand why anyone should keep a few months of outgoings in cash... Most ISAs or fund investments can usually be sold at the press of a button with the cash transferred to your bank account in no more than a few days. Add to this available overdrafts, credit cards and other quickly available debt I see no reason to hold onto a "buffer".
I do understand caution in respect of a market crash, but one can at least put the money into gilts/government bonds where they can earn some return with practically zero risk?
The UK has never defaulted on its bond scheme and government debt is nowhere near as high now as it has been (peaked at the end of the Napoleonic wars according to t'internet)

bogie

16,342 posts

271 months

Saturday 4th July 2020
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I use premium bond account as my near term 6 months savings account. At least theres a chance of a bigger win and bit of interest is better than nothing in the bank.

Everything else in stocks ISA and SIPP pension.

cash is doing nothing in the bank other than devalue over time.

You need to get your money out working for you, and eventually you should have enough so you dont have to work for money

bitchstewie

Original Poster:

50,767 posts

209 months

Saturday 4th July 2020
quotequote all
Halitosis said:
Maybe I'm missing something but I don't understand why anyone should keep a few months of outgoings in cash... Most ISAs or fund investments can usually be sold at the press of a button with the cash transferred to your bank account in no more than a few days. Add to this available overdrafts, credit cards and other quickly available debt I see no reason to hold onto a "buffer".
I do understand caution in respect of a market crash, but one can at least put the money into gilts/government bonds where they can earn some return with practically zero risk?
The UK has never defaulted on its bond scheme and government debt is nowhere near as high now as it has been (peaked at the end of the Napoleonic wars according to t'internet)
You sum up my dilemma quite nicely.

It's actually not fear of a market crash as I'm not fully exposed to equities anyway.

And as you say they can be sold at the push of a button and I'd struggle to conceive of any emergency that might need more than a few grand immediately (and even then I can't think of a likely one off hand).

It's just this weird "comfort blanket" that knowing the cash is there gives me.

Simpo Two

85,147 posts

264 months

Saturday 4th July 2020
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bhstewie said:
And as you say they can be sold at the push of a button and I'd struggle to conceive of any emergency that might need more than a few grand immediately (and even then I can't think of a likely one off hand).

It's just this weird "comfort blanket" that knowing the cash is there gives me.
It would be interesting to see a graph of the spending power of £1 over the last 100 years. Then think - 'would I invest in that?'

JulianPH

9,912 posts

113 months

Saturday 4th July 2020
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bhstewie said:
I'm a cautious investor anyway so this isn't a "should I stick it all in PH Recovery?" type question (no offence Julian) it's more a Troy Trojan or LifeStrategy 40 level of volatility.

It's probably a psychology question as much as anything else.
No offence taken mate! biggrin

It very much is psychological, but this does not diminish the importance of it in the slightest.

The UK still has a very focused cash deposit (and property) based culture, just as the US is very much equity focused and France (for example) is very much bond focused.

We all know that cash is not the best (historical) performing asset class, but it is ingrained into us to cling on to it.

At the end of the day, what makes you sleep more comfortably at night will probably have a far greater value to you than anything else.

If you are really looking for an alternative then check out something along the lines of IM Optimum Defensive (I am in no way saying invest in it). If you look at the sector holdings and weightings it will give you and example as to how to achieve higher returns at low risk.

I can chat over this approach with you if you like and then you can decide if you want to construct your own version for part of this money.

smile


Julia121

329 posts

53 months

Saturday 4th July 2020
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I seem to remember a theory that people were happy when they had £6,000. I haven't read the article so can't comment but someone had run the numbers.

Typically we have around £5,000 each in a current account with a debit card. We go abroad often so need it just in case our credit cards played up. We also have instant access savings which we can transfer funds over from if necessary. We've tried different amounts but we're comfortable with this.

On saying that apparently the police are telling OAP's not to let money amass in their current accounts and especially if they have a debit card. Makes them easy targets for the unscrupulous when out and about.

bitchstewie

Original Poster:

50,767 posts

209 months

Saturday 4th July 2020
quotequote all
Simpo Two said:
It would be interesting to see a graph of the spending power of £1 over the last 100 years. Then think - 'would I invest in that?'
Put like that probably not.

As I said though it's perhaps more a question about the "right" amount of cash to sit on rather than the sense of sitting on cash.




xeny

4,260 posts

77 months

Saturday 4th July 2020
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bhstewie said:
As I said though it's perhaps more a question about the "right" amount of cash to sit on rather than the sense of sitting on cash.
Enough that you can survive until you can access your next easiest to get to source of funds?

Skyedriver

17,655 posts

281 months

Saturday 4th July 2020
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It's a case of risk versus comfort

Whilst history has shown, apparently, that cash in a bank account reduces in real terms and investment in other forms whether it be Equities, Bonds etc rise, it all depends upon your level of comfort and peace of mind.

I'm much more into various investment options, funds, bonds, individual equities however my wife is on the extremely cautious side of the fence, not prepared to "risk" money in things that may reduce, having had friends who "lost" money in 2009 etc.

I lost money in 2009 but that was because I needed the cash, previously invested for a house purchase. If I hadn't had to use that money, by 2019 it would have been a much greater sum than previously invested.

At the turn of the year I took money from the cash we had in a savings account and placed it in a S&S Isa as the dividends were much greater than the savings account interest. that money has halved in 6 months although it will hopefully recover over time (RDSB, AV. BP ).
We still have (to me anyway) a considerable sum in the savings account and maybe now is the time to place more in the ISA but once bitten etc.


Simpo Two

85,147 posts

264 months

Saturday 4th July 2020
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bhstewie said:
1921-1933 is interesting. The only thing I can think of is the Great Depression but I'm not enough of an economist to connect them.

xeny

4,260 posts

77 months

Saturday 4th July 2020
quotequote all
Simpo Two said:
1921-1933 is interesting. The only thing I can think of is the Great Depression but I'm not enough of an economist to connect them.
The UK left the gold standard in 1933. I'd guess the graph before that represents changes in the value of gold being reflected into the currency?

PugwasHDJ80

7,522 posts

220 months

Saturday 4th July 2020
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if you want genuine comfort are you not better off holding physical gold?

say you keep 30k in the bank- move 20k to gold and keep 10k cash. Stash the gold in a safe.

When a big crash happens there is invariable a flight to gold, which you still have in your safe because your bank hasn't gone pop.

holding cash in a bank seems no less risky than putting it in a ftse tracker to me.

(yes i know you have 85k coverage in a bank, but that's never been tested, and i'd be willing to be you have to wait a good few months to get it back....)

bitchstewie

Original Poster:

50,767 posts

209 months

Saturday 4th July 2020
quotequote all
PugwasHDJ80 said:
if you want genuine comfort are you not better off holding physical gold?

say you keep 30k in the bank- move 20k to gold and keep 10k cash. Stash the gold in a safe.

When a big crash happens there is invariable a flight to gold, which you still have in your safe because your bank hasn't gone pop.

holding cash in a bank seems no less risky than putting it in a ftse tracker to me.

(yes i know you have 85k coverage in a bank, but that's never been tested, and i'd be willing to be you have to wait a good few months to get it back....)
I'm not looking for zombie apocalypse comfort hehe

The funds I'm in are around 10% physical gold and if I wanted more direct gold exposure I'd probably just buy a gold ETF.

It's literally a loop I go around in every so often of how much is a sensible amount to hold in "there in the bank right now" cash.

God knows what I'd ever use it for though which is sort of the point of the thread i.e. what sort of buffer/cash reserve does everyone else have confused

Simpo Two

85,147 posts

264 months

Saturday 4th July 2020
quotequote all
xeny said:
The UK left the gold standard in 1933. I'd guess the graph before that represents changes in the value of gold being reflected into the currency?
I'm sure that's in the mix somewhere. So, if we'd stayed on the gold standard I wonder how the graph would look today...?

PugwasHDJ80

7,522 posts

220 months

Saturday 4th July 2020
quotequote all
bhstewie said:
PugwasHDJ80 said:
if you want genuine comfort are you not better off holding physical gold?

say you keep 30k in the bank- move 20k to gold and keep 10k cash. Stash the gold in a safe.

When a big crash happens there is invariable a flight to gold, which you still have in your safe because your bank hasn't gone pop.

holding cash in a bank seems no less risky than putting it in a ftse tracker to me.

(yes i know you have 85k coverage in a bank, but that's never been tested, and i'd be willing to be you have to wait a good few months to get it back....)
I'm not looking for zombie apocalypse comfort hehe

The funds I'm in are around 10% physical gold and if I wanted more direct gold exposure I'd probably just buy a gold ETF.

It's literally a loop I go around in every so often of how much is a sensible amount to hold in "there in the bank right now" cash.

God knows what I'd ever use it for though which is sort of the point of the thread i.e. what sort of buffer/cash reserve does everyone else have confused
Honestly 6m of cash coverage sounds a bit zombie apocalypse smilesmile

There are two realy existential risks that need cash- a systemic risk (ie the world goes to pot) and personal risk. IF you are worried about the former then you probably are better off holding physical gold, if you are worried about the latter, then i can think of very very few risks where you need £50k lying around just in case, actually i can't think of one......i'm sure there must be one, i just can't think of it!

Wacky Racer

38,099 posts

246 months

Saturday 4th July 2020
quotequote all
xeny said:
Simpo Two said:
1921-1933 is interesting. The only thing I can think of is the Great Depression but I'm not enough of an economist to connect them.
The UK left the gold standard in 1933. I'd guess the graph before that represents changes in the value of gold being reflected into the currency?




Julia121

329 posts

53 months

Saturday 4th July 2020
quotequote all
Wacky Racer said:
xeny said:
Simpo Two said:
1921-1933 is interesting. The only thing I can think of is the Great Depression but I'm not enough of an economist to connect them.
The UK left the gold standard in 1933. I'd guess the graph before that represents changes in the value of gold being reflected into the currency?
I love that video. I'm a Cognitive Psychologist with an interest in Human Factors Engineering. I wanted to design cockpits for Search and Rescue Helicopters. Anyway I worked for a few companies whilst getting my degrees and couldn't get work anywhere. Mid 1990's I decided to give it one last shot and applied for a junior accident investigators role in the company I worked for. It was company policy at the time to hire internally before going outside so I filled in the application form confident that I was the only one with the necessary qualifications.

A week later I got a letter from personnel saying I hadn't been successful. So I phoned them up and asked why I wasn't offered an interview given it was company policy to promote internally and I was the only person qualified. Reason: 'there are no women's toilets'. A male school leaver got the job hehe