Q: My family of 4 keeps 100K in cash, has 100K in mutual funds (small, mid, global & bond), 10K in 529, maxes 401K contribution & has no debt (house paid-off). Largest weekly expense is child care (nanny). We dollar cost average into Vanguard mutual funds & 529 (GA) every two weeks. My husband is 52 and I’m 43. Our children are under 5. The logic about keeping 100k in cash is to be our own bank (house needs upgrades if we decide not to buy new house). We also want to avoid loans for an auto or other big ticket items. Are we off-base, and would we be better off seeking consult especially considering the large cash position and non-use of leverage?
A: First of all, well done on building a financially responsible household! It seems like you guys are doing great things. To start, we talk about a savings hierarchy with our clients that you can access here. The first step is an emergency fund and the second is large upcoming cash expenditures (short term cash). Without knowing your monthly expenses, I would presume that since your largest weekly expense is a nanny, $100K is enough to satisfy the first two levels of savings. If you are expecting a few large purchases (new house, renovation, car, etc.) there is no issue in keeping $100K in cash and your logic there is sound. If you want to avoid loans, then there is no reason to leverage your cash position.
One item that I’d like to mention is the Roth IRA. You didn’t mention it in your email and IF you are income eligible (phase out begins at $178,000 for married filing jointly) then a Roth is a very tax-efficient way to save. In fact, based on the fact that your husband is 52 and your children are less than 5, it may be a more efficient place to store college savings for your children given the flexibility in options for using Roth distributions vs. 529 distributions.
Overall, Vanguard does a great job of keeping costs low and it sounds like you’ve got a nice allocation mix across different assets classes.
Lastly, you are always welcome to schedule a complimentary review of your overall picture where we could take a deeper dive into your situation if you’d like, but based on what you’ve shared, it seems like you’re doing a great job. Keep up the good work!