The Wealth Farmer

The conventional thinking of cash management is to have 6-12 months of emergency cash stashed away and the rest right into your retirement portfolio. The cash should be in something liquid like fixed deposits or simply just in high yield accounts.

For myself, I have decided on keeping at least 20% of my overall portfolio in cash. Fun fact: Based on some research by Chatgpt, Berkshire Hathaway has close to 20% of their portfolio in cash too.

The reason for 20% on my end is mostly for peace of mind. I want to have enough cash to feel safe if there is a big crash or life emergencies and also enough capital to deploy when good opportunities arise. I am OK to miss out on some cash drag if I can sleep well at night.

Although 20% is my plan, right now a big portion (close to 40%) of my portfolio is still in cash as I have not fully deployed my cash proceeds from the sale of my company. The plan is to DCA it over a period of months. Again, it is against conventional or evidence based thinking, but I am doing it for peace of mind.

This got me thinking and exploring what are the best way to allocate my cash and this is what I came up with:

Emergency funds: Bank accounts. There are a slew of high yield accounts to choose from plus the new digital banks are also offering interest rates higher than 0.05% in normal savings accounts. The interest rates are lower than MMFs of course but they provide immediate liquidity. Maribank is one example.

Funds for investment: MMFs and Short Term Treasury Bonds funds. As this cash will be used soon for investment, I have placed them mostly in brokerages. Example like IB01 for USD.

For USD, I have already estimated how much I intend to allocate to my World Index which is denominated in USD. So I will just convert it into USD and park it in IB01. When it is time to invest, I will sell some IB01.

For SGD, not all so called “cash management portfolio” in the brokerages are the same as some might contain higher risk bonds. It is important to read through what they are invested in to prevent risk of capital loss.

Rest of Funds: Endowus MMF and T-bills and fixed deposits. There is always the fear of institutional risk, so I just wanted to spread out the funds into some other “safer” alternatives.

Once I am done with my DCA, I hope to simplify these cash management tools and just keep to MMFs and banks. T-bills are a hassle to keep track with as with fixed deposits. For now, as the sum is large, I have no choice but to diversify.