4 ms·

Need to save something for emergencies too.

by shahbaby 5y ago

greenyoda 5y ago
Not to mention everyday expenses. You can't pay your rent or phone bill with stocks or cryptocurrency.
- toomuchtodo 5y ago
  It really depends where on the income and wealth ladder you are. Lower and middle income, cash is king. Upper income, you’re as invested as possible and you’re able to pay for expenses with a combination of credit/margin, investment income, and comp (salary and equity liquidation). You’re keeping as little cash on hand as possible because “cash is trash” and doesn’t keep up with inflation such that assets do.
  - jltsiren 5y ago
    Shouldn't that be the opposite? The less money you have, the more effort you should put to using it efficiently. Once you have enough money, it's worth keeping a tiny fraction of it as cash for convenience, because investing it won't change anything.
    - adamnew123456 5y ago
      It has to do with how long you expect a given dollar to live. Below a certain point a dollar doesn't persist very long since you're mostly living paycheck to paycheck. If you're spending most of what you earn, then what matters is that you can pay for all the essentials. It doesn't really matter what the price is in absolute terms if your paycheck keeps pace. (It would be really weird to cash your paycheck, buy some ETFs with it, then sell them all back a week later to pay rent and buy groceries. You'd just get back what you put in.) Higher up a given dollar lasts a lot longer. Even the dollars in a retirement fund will last for decades - imagine if you were wealthy enough that 95% of your assets were like that. At that point you have two choices: - Either keep it under a mattress, and lose a few percent of most of your money each year - Or put it somewhere more active, where you have enough growth to keep pace
    - leetcrew 5y ago
      there's a reason why most finance advice lists "3-6 months expenses in cash" as priority one. being forced to sell assets during a market downturn hurts you a lot more than parking a couple extra thousand in an index fund helps you. when you're barely making ends meet, the smart move is minimizing variance. when you can comfortably cover your expenses, you prefer to accept more variance to maximize EV.
  - kcb 5y ago
    You still need a buffer to pay for expenses...$3000 to someone with Upper Income is not a lot. I don't think anyone is liquidating assets to pay for their electric bill.
    - toomuchtodo 5y ago
      Expenses can be paid from margin and credit, and that paid back when the income lands in the brokerage or cash management account. Credit cards are usually ~20 days float, margin is 1-2% for as long as you’re extended with it (ignore margin rack rate on brokerage sites, high net worth folks aren’t paying that). Higher level, being poor is expensive and it gets cheaper and easier to get ahead as you get ahead.
      - loeg 5y ago
        Credit cards are at least 20 days - you also have on average 1/2 a month before the monthly statement, and then another 20 days until the statement is due.

Need to save something for emergencies too.

greenyoda 5y ago

Not to mention everyday expenses. You can't pay your rent or phone bill with stocks or cryptocurrency.

toomuchtodo 5y ago
It really depends where on the income and wealth ladder you are. Lower and middle income, cash is king. Upper income, you’re as invested as possible and you’re able to pay for expenses with a combination of credit/margin, investment income, and comp (salary and equity liquidation). You’re keeping as little cash on hand as possible because “cash is trash” and doesn’t keep up with inflation such that assets do.
- jltsiren 5y ago
  Shouldn't that be the opposite? The less money you have, the more effort you should put to using it efficiently. Once you have enough money, it's worth keeping a tiny fraction of it as cash for convenience, because investing it won't change anything.
  - adamnew123456 5y ago
    It has to do with how long you expect a given dollar to live. Below a certain point a dollar doesn't persist very long since you're mostly living paycheck to paycheck. If you're spending most of what you earn, then what matters is that you can pay for all the essentials. It doesn't really matter what the price is in absolute terms if your paycheck keeps pace. (It would be really weird to cash your paycheck, buy some ETFs with it, then sell them all back a week later to pay rent and buy groceries. You'd just get back what you put in.) Higher up a given dollar lasts a lot longer. Even the dollars in a retirement fund will last for decades - imagine if you were wealthy enough that 95% of your assets were like that. At that point you have two choices: - Either keep it under a mattress, and lose a few percent of most of your money each year - Or put it somewhere more active, where you have enough growth to keep pace
  - leetcrew 5y ago
    there's a reason why most finance advice lists "3-6 months expenses in cash" as priority one. being forced to sell assets during a market downturn hurts you a lot more than parking a couple extra thousand in an index fund helps you. when you're barely making ends meet, the smart move is minimizing variance. when you can comfortably cover your expenses, you prefer to accept more variance to maximize EV.
- kcb 5y ago
  You still need a buffer to pay for expenses...$3000 to someone with Upper Income is not a lot. I don't think anyone is liquidating assets to pay for their electric bill.
  - toomuchtodo 5y ago
    Expenses can be paid from margin and credit, and that paid back when the income lands in the brokerage or cash management account. Credit cards are usually ~20 days float, margin is 1-2% for as long as you’re extended with it (ignore margin rack rate on brokerage sites, high net worth folks aren’t paying that). Higher level, being poor is expensive and it gets cheaper and easier to get ahead as you get ahead.
    - loeg 5y ago
      Credit cards are at least 20 days - you also have on average 1/2 a month before the monthly statement, and then another 20 days until the statement is due.