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There’s a lot of uncertainty for people in their 20s and early 30s. People are trying to figure out where to live, what they want to do, and they have to factor in meeting a significant other and what effect that will have on their decisions. These life changes can happen frequently every 1-3 years. Meanwhile they have student loans they need to pay down and are trying to maximize their youth to travel and do social activities now rather than later.
In trying to balance all of that, it’s easier to rationalize I can make those decisions if I have cash available on-hand, rather than investing and risk having the market crap out in the next 1-2 years when I need it and now forcing me to relegate my life to secondary options.
That makes sense - thanks for the thoughtful reply.
This post reads pretty entitled to me. There are many people who can’t borrow money from mom and dad in a pinch (hence the emergency fund), rent instead of buy due to the large down payment needed, etc. Some people don’t have the option other than to be “conservative” as you have labeled it purely due to their life circumstance. I feel like this is very obvious information.
A1 - I don’t think it’s a false dichotomy. This thread is more targeted to the lower spectrum of income earners and how they use their money. OP was trying to understand reasoning behind their decisions and what they weighed in their risk assessment.
As you mentioned, high-income earners like yourself have the luxury of aggressively both investing and saving. You can choose to do both with little worry of consequence.
I graduated into a dead economy, scraped by for a couple years, finally got a decent job to pay off my student loans and am back in a dead economy.
Everyone I know wants a house, a family, stability, and wealth. Their average loan payments are $800-$1200/month. My friend is 34, makes 125/year and plans to live in her mom's basement at least 3 more years.
I don't find work especially fulfilling. We are slaves. I'd prefer to minimize my work life by empowering myself through financial independence.
There are ways to pull from age-specific retirement accounts without incurring penalties.
But yes, generally agree! I want to be free!
Pro
Just because you have an emergency fund in a HYSA doesn't make you conservative.
Having a HYSA gives me the ability to be aggressive with my investments. It allows me to save for an investment property and buy it when I'm ready (not when my investments are cooperating).
And like someone else said, I love having FU money. I know that I can up and quit my job, even in this economy. I am sooooo much happier with the peace of mind. And what is the point in all of this money, if you don't have peace of mind?
At the end of the day, I'm not making a trade off between investing and saving in a HYSA. I'm making the decision to spend less so I can invest more and have an emergency savings account. In other words, if I decided I wanted to invest more, I would spend less. I wouldn't take from my HYSA
Love the FU money part. Definitely recommend highly
What kind of single-digit IQ person thinks those are ways to decrease long term returns? These are ways to safely increase long term returns while minimizing risk. Over leveraged companies are the major reason for recessions, you think individuals should follow their lead or what?
Chief
D1 oof. Go back to grade school
OP - it feels like you’re talking down to a lot of people on this thread. Everyone has different goals and different risk tolerances.
I’m on the more aggressive front, but I do still keep a cash reserve in case I want to quit my job (hard to do when you’re all in on the market).
I know that some of my friends who don’t have a safety net (e.g., poor relationships with their parents) prioritize independence and safety vs incremental returns.
FWIW, I didnt get a sense that you were talking down to ppl in this thread
Pro
Cause we’re trying to save that cash money for a down P.
Makes sense if you need the money in the short term.
Rising Star
Lol if you think people holding 6 months expenses in cash will have any effect on wealth inequality you have no idea what causes wealth inequality
Pro
Thanks for the insightful comment, and for answering my question. You’re clearly on top of your game :)
I mean 3 - 6 months for most people is probably in the neighborhood of $30-$50k depending on lifestyle. Keeping that much out of the market is not going to severely cripple anyone’s long term financial plan. Maybe at most they work an extra year or two because of it? Plus the flexibility of having cash on hand for either a trouble movement like being laid off, the flexibility to do something different, or the opportunity to buy a deal when the market tanks is well worth that risk.
Yea even if you are more than likely going to pull from it when the market is up- you have nothing when the market is down. The cost of not investing can basically be viewed as an insurance premium.
Now would I put $100k+ in my savings account? More than likely not unless I had a particular purchase coming up (house, business, etc) in the next year or two. But I will always try to keep like $30-50k as a stop gap.
Perhaps it’s conservative, but in my household our mental health is the most important for us to make the right moves to make lots of money. The mental weight that is released by knowing we have 140k in a high yield savings account and can face pretty much any job loss, family emergency, whatever with that allows us to sleep well at night and focus on the right things professionally. I think the stress of having not enough cash on hand is significant and I wouldn’t underestimate how it impacts mental health, anxiety, and ability to excel. I think more people are working on being balanced mentally, and more money in a savings account helps with that. (31, husband 29; ~390k annual household income)
That’s the differentiator. Security.
Cash is immediate security. New worth is long term security. Some are luckier than others, but those who clawed their way toward security are typically more conservative from my anecdotal experience. Some have family to help with long term security; others don’t. The more secure the safety net the more risk you can assume.
Like someone above said, the extra 10-30k cash is not what is systemically driving wealth inequality.
Rising Star
Honestly - to me it’s a lack of education about money for most people, most don’t know about anything beyond their local bank, and then when they do learn about it, they are behind. The US education system at all levels lacks financial education outside of simple budgeting - which is where all of the people on this bowls children will be luckier, we know the game and can teach it earlier. My nephew at 13 is trading stocks and investing his dads money, it’s only $1000 but he is learning a ton doing it, so when he is making his own money, he will have learned a lot already. My nephew has made $250
Tbh I'm an immigrant and with the economic and political uncertainty I dont know if I will still get to stay on my Visa. I try to save a lot and invest in stocks, i really do want to buy and invest in a house or start a business but my current visa category wont allow me to (h1bs last only 3 years and I cant make a 20 year commitment if I cant keep up the same income level
Yep I max our all of my tax advantage accounts and then some. Why? Because I want to retire by 55, have millions in the bank so I can just live off of dividends and never have to work again in my life.
Those who do not save properly will just keep working for another 10-15 years until they’re 65-70. Sad really
C1, did you enter the workforce near the Great Recession?
I'm 24 and the reason why I'm so conservative with my money and live below my means is bc this 9-5 (realistically way more than this in consulting) game is not what I want to be doing all my life. It is unfulfilling and I don't want to be stuck building wealth for a company that looks at me as another number. I want to build my own wealth not someone else's. On my way to build my own business and create my own revenue streams that benefit me. Corporate America is just a machine.
Also not sure I agree with your comment on renting. I'm renting rn but that's bc I can't afford anything in my area. I am saving for a house and income property and I know several others my age who have already purchased a house or condo. Also paid off all my student loans within 2 yrs of graduating ug. So I probably could have had a home by now but I didn't want that debt.
Rising Star
I don’t get the sense on here that everyone is holding cash nonstop. Sure some people talk about trying to time the market and sitting on cash right now, and there are a ton of people obsessed when their HYSA drops a couple bps, but i wouldn’t call this group overly conservative? Where do you get that? Just curious.
I am assuming most of the HYSA accounts (or CDs) are seed money for down payments - and people assume that getting 1% is better than nothing, but are not looking at that as an actual investment
I just see a lot of posts asking about best HYSAs and where to keep relatively large emergency funds. I correlate that with being conservative compared with investing in equities.
OP, I think you are assuming that those who are saving in HYSAs/renting and such are NOT investing in the market at all and do NOT have a growth mindset. These principles are not mutually exclusive. One can do both - keep a bit in HYSAs and put the rest in market or towards real estate or whatnot. It’s all about planning for the future and mitigating short term risk at the same time, in case of a financial downturn or sudden loss of earnings.
I also want to point out that for many folks (maybe not on this bowl but in the country), they are making just enough to get by and therefore can’t be thinking about long-term investments period when they’re so focused on the short term. There aren’t value judgments to be made about those folks - it’s just how their personal situations are. You can’t say those folks are stupid or don’t know better - the math may say one thing, but we’ve got to remember the human element of this too.
Rising Star
I agree that probably most people on here have a mix of more and less conservative approaches to investing - as you describe. That’s largely my question - why they feel the need to make some of those more conservative choices. It sounds like your opinion is that it is to mitigate short term risk. That seems plausible, but certainly a drag on longer term returns.
To your second point - I agree. I have members of my immediate family in that situation. I was more curious about those in this bowl. By and large, we aren’t in that situation you describe.
Rising Star
This thread is BANANALAND 🍌 🍌 🍌
When it comes to the buying homes point if a majority live in HCOL cities (where higher paid jobs tend to exist) buying a $500k+ home or having a long commute for a cheaper home doesn’t make sense.. not sure how that’s fiscally conservative
Lol at a $500k home or longer commute - $1m for a home in HCOL city fosho
I think more than anything, the responses here indicate how easily wealth inequality compounds upon itself.
For someone whose wealth is already a multiple of income, it doesn’t seem very risky to invest all your free cash, and not distinguish that from an emergency fund since you can always sell a small fraction of your portfolio if needed for “emergencies”.
But for lots of working class folks, an “emergency fund” of 3-6 months’ expenses is close to their total wealth (or it’s an aspirational target beyond their total wealth). In that situation, investing that whole pot in equities would mean a risk that you only have ~half that when you really need it.
For my own part, I haven’t always been wealthy but I have always been frugal (and sometimes lucky), so I can’t think of a time when I had savings less than 3 months of living expenses, even right after college. So I applied the strategy OP described even during 2008 and it worked out well for me, as I was able to keep buying stock at the lows. But it’s fair to say there are plenty of people for whom that would just be too risky.
Rising Star
I agree. I was mostly thinking about the population of this bowl, who is doing better than average. There are definitely many others who have a negative net worth and the idea of an emergency fund is laughable.