Stash cash as an insurance policy

piles of u s dollar bills on silver and white suitcase

Well hello there,

I have an announcement to make. My household is about to grow. That’s right. My wife is 20 weeks pregnant!

We are so happy and blessed to hear this news. In between rummaging through garage sales for used baby crap to prepare, I started thinking, how can I financially prepare for this new individual? And that is what today’s post is all about.

At this current moment in time, the American economy and stock market is at a all time high. Also, I am in my early 30s. Due to these factors, many suggest I invest the majority of my income in the stock market. And I do have a majority of my overall portfolio in mutual funds, but let me ask you this? Why should one put more money in the stock market if the prices are at an all time high? See, when stock market prices are high, it’s normally due to speculation. And when all this speculation comes to fruition most of the speculative companies go bankrupt and we have a recession. This act is generally called a market “correction”  because when a company doesn’t produce, the free market doesn’t reward it.

All that being said, this is not a time I feel I should invest more in the stock market. Ideally, I’d like to invest more in the stock market right after a crash because all the prices will be low. You’ve heard the classic saying, “Buy low and sell high“. Investing more in the stock market right now would be doing the reverse.

In addition, here on my site and by consequence, my household, we plan to retire early.

Because of this, I need low risk in my portfolio. If I were to work till I was 62 and retire like the normal person, perhaps I could weather the storm and rebuild my investments if a brutal recession hit my accounts. But that is not the case. I am pushing to retire in about 7 years (early 40s). Therefore, I need low risk to ensure the money is available.


How does one manage risk?

There are lots of ways to reduce risk when investing. And to answer that question to it’s entirety, I’d defer you to the reference material below. However, I’ll list my tactic today. As time progresses, I plan to revisit this post and measure my progress.

I have a 5 tier plan for managing risk,

  1. Invest 33% of my overall portfolio in moderate risk mutual funds. This will ensure that I earn more than inflation. And if I’m lucky, I am shooting for 8% growth.
  2. Invest 33% of my overall portfolio in bonds. This will ensure I don’t lose my funds. Low growth, but low risk.
  3. Invest 33% of my overall portfolio in Real Estate stocks (REIT). This tactic will help me keep up with inflation.
  4. Invest most of my free time in skills that complement my lifestyle and can keep me employed. Meaning, learning how to fix things around the house will reduce my reliance on general contractors for home repairs. Learning more about computer programming will allow me to do some freelancing work should I want to raise some extra capital.
  5. Stash cash: At Least 6 to 12 months of expenses stored in a CD/Money Market account. Most people will have strong opinions on this topic. But first I’ll give a disclaimer, I understand the risk of not investing this portion of my funds. I know that I am negatively being affected by inflation due to this liquidity.  The intent outweighs the risk. Let me explain. Since my wife is pregnant, having this stash of money ensures we are safe should I lose my job. As a matter of fact, if I were to lose my job, I’d probably take a year off work and help my wife raise the baby. How cool would that be? Should I lose a percentage of my funds due to inflation, I would just consider the fee a short-term insurance policy. Having this huge emergency fund gives me peace of mind while my wife and I adjust to the new person in our life. A year after the baby is born, I’ll start to slowly ease this liquid cash into my overall portfolio and go back to the six month emergency fund.


  • Am I missing anything?
  • What do you think about this plan?
  • Do you have any frugal tips for new parents?


Reference for this post


You can find this book at your favorite bookstore


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