Cash makes up 25% of my portfolio, why should I bother having a 6040 allocation?

If you were raised in the American financial system, you probably learned that keeping your money in cash, or not investing it, is the worst thing you can do with your money. But is it really that bad? Are there options to keep your savings in cash while still making a healthy return? Are there secret savings options that the rich are keeping for themselves?

One person was wondering about keeping a substantial portion of their savings in cash, and took their concerns to the people in the r/fatFIRE community — a group of people focused on retiring with “a fat stash”. Here is what they said.

Please remember, that all the comments in the original thread, and the information in this article, are opinions. You should always consult with a financial expert before making any significant decision regarding your savings and financial planning.

The Question

The author of the original post says that they are in their early 40s and recently quit their job. They didn’t say how much money they have in total, or how high their net worth is, but it must be significant based on the information provided. They said that they have around 25% of their net worth in cash, with the rest in various investments. They put the cash into a money market account with Fidelity which is making around 4.4% per year.

They also said that they have no interest in leaving any money behind for family or charities (in keeping with Gen X and Boomer mentalities) and they said that they don’t see the point in investing that cash into more traditional investment strategies. They said they don’t think the risk of investments is worth it at this point.

In the end, they asked the community if there was anything wrong with having this much money in cash.

The Community Response

A few of the most helpful people who responded included information that some investors and financial “gurus” tend to overlook when talking about financial planning.

First, personal finance is personal. You should not structure your financial goals and strategy around someone else’s life. You have your own goals and situations that are specific to you, and nobody else’s strategy will work for you. If you have goals that include keeping some savings in cash, then that is your business.

Second, the primary goal of savings and cash reserves is to protect it against inflation. If the cash savings are beating inflation and the person has other investments that are making a healthy return, then there is no real reason to take the cash out of the account as long as their financial goals are being met. The author was mainly suffering from FOMO (fear of missing out) because they might see the success that other investors are making (while ignoring the losses of all those who don’t post their stories) and compare those to their own returns.

Other users said that there are safer options (like U.S. treasury bills and other similar investments) if they are primarily worried about keeping their savings safe.

A minority of comments disagreed with this strategy, saying that anybody under age 50 should be more aggressive with their investments and their savings. They said that people should be more open to risk if they are younger. They didn’t provide any reason for this, or any specific goals other than “maximizing profits”. But in the end, the vast majority of users agreed that there was nothing wrong with the author’s strategy.

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