[Charlie]

Hey Folks, just listened to this weeks podcast episode. Very good. The episode raised a question that I’ve had. So, they said it’s a good idea to have 2-3 years of expenses to protect from sequence of return risk in early retirement.

Great idea. I’m planning that anyway. I 100% understand its purpose.

The question is they say have 2-3 years of “cash”. What does cash mean? HYSA? Under the mattress?

A brokerage account? My plan was just to have that cash in a HYSA…just fill it up and once it’s reached 3 years of expenses leave it. Is that best?

Is there another way?

Thanks!

[Cody]

When they say 2-3 years of cash, they mean investing with a prioritized objective of stability and liquidity, not growth and income.

It could mean a high-yield savings account, money market fund within a taxable brokerage account, CD, or a short-term ETF bond ladder, as examples.

[Rick]

An old school term that like most things over time get shortened was cash equivalents.

Anything that acts like cash. Cash, savings or hysa or cma, short term CDs, short term treasuries, etc.

It is a catch all term as which is “best” usually changes over time and no one wants to change the specific word used every year or two.

[Christopher]

Usually you’ll want HYSA plus short term treasuries or CDs (assuming those give a bit better yield in exchange for liquidity you won’t need right away).

A year or two of physical cash is wildly impractical.

A brokerage account money market fund also works, and is usually the simplest option.

[Author]

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