@Green456 wrote:
@Anonymous wrote:
Question: if you have credit cards with a high spending limit, why might you need liquid cash available with a few days' notice?
How else are you keeping your cash?
1. Stocks? What happens when recession or depression hits and you loose 50% of your investment value? Bonds are safer so that maybe a good alternative.
2. CDs? What happens when a bank refuses to break your CD?
What happens when you need to travel outside of the country? A lot of times banks can block your credit card or even debit card. My wife was stuck in Paris with frozen Bank of America accounts and she was unable to call them because they were closed!
Cash is King and during emergencies, it provides peace of mind and when travelling, US dollar can be easilly exchanged almost everywhere.
This sort of touches on how I would answer.
First, think of a "few days" as short-term. Unless there's some major expense where CC just isn't taken (and I cannot think of one), my albeit not large limits can cover the spread. However, I won't carry a balance and so would need to be able to pay that debt back from cash reserves by the next statement due date. A few days notice here means I need to be able to liquidate that cash reserve to a form I can pay with within a few days, and I cannot always do that with invested funds. Several reasons for this:
1. If we're in a recession/depression, the worst thing I can do is sell my stocks. The best way to mitigate risk in stocks is to be able to hold them long enough to weather a recession. In no point in history has the stock market not recovered from a recession or depression, so it's a matter of time. If I didn't have cash reserves, though, I may be forced to sell which could result in a loss of a lot more money than what I really needed for the expense. Fun side fact on this: a lot of my stock holdings are the type I may in fact never sell, using them for passive income via dividends or to pass on to heirs. My ideal retirement goal is to be able to live off interest/dividends, meaning I'd never have to sell any stocks.
2. There's few/no penalties to liquidate funds in savings, or matured CDs. Liquidating stocks, in addition to the reasons already stated, also will incur a tax hit that I have to account for. Selling stock is something that should be done deliberately and with forethought/planning, not on a whim to cover a $15,000 hospital bill. By comparison the interest earned from savings/CDs, while taxed higher, is also a much smaller amount by comparison. $100,000 in cash will earn around $2,100 in interest at present rates, of which somewhere around $500-600 is taxable. I can liquidate that full $100,000 and still only pay that $500-600 in tax. If I liquidate $100,000 worth of stock, I'm looking at as much as tens of thousands in tax consequence for it, depending on cost basis and short/long-term status.
I'm less worried about the short, short term or international situations and more about using cash as a stability buffer to maximize my money's growth.
