How much should I set aside in a savings account?

Here is a question I hear often: In addition to saving for retirement, how much should I be setting aside in a savings account?

Think about having at least three months of money in an account where you are going to get next to nothing (or nothing) in returns, just for safety. For more safety, increase the amount.

If you've got the rest of your money in dividend-paying stocks, think about two years of money in that savings -- or the equivalent -- account.

I wrote an editorial some time ago for Marketwatch, To Hell with Bonds! In this paper, as simple as it sounds, my friend, Al, decided to invest all of his retirement account, less two years savings, in the great companies of America and the world. His plan: to live off of the dividends.

Richard Thaler, made famous for many reasons, wrote a nice research paper years ago wherein he discusses the likelihood that the dividends are not only going to be consistent--they're likely going to increase.  Not only that, they're likely to increase at a rate that is faster than inflation. Here's a link to the paper: Richard Thaler: Do Changes in Dividends Signal the Future or Past. 

I encourage you to reach out to your wealth manager to discuss how much you should set aside given your unique situation, time horizon, and risk tolerance.  

That said, here's one caveat: please don't put this safe money in gold.

Here is a question I hear often: In addition to saving for retirement, how much should I be setting aside in a savings account?

Think about having at least three months of money in an account where you are going to get next to nothing (or nothing) in returns, just for safety. For more safety, increase the amount.

If you've got the rest of your money in dividend-paying stocks, think about two years of money in that savings -- or the equivalent -- account.

I wrote an editorial some time ago for Marketwatch, To Hell with Bonds! In this paper, as simple as it sounds, my friend, Al, decided to invest all of his retirement account, less two years savings, in the great companies of America and the world. His plan: to live off of the dividends.

Richard Thaler, made famous for many reasons, wrote a nice research paper years ago wherein he discusses the likelihood that the dividends are not only going to be consistent--they're likely going to increase.  Not only that, they're likely to increase at a rate that is faster than inflation. Here's a link to the paper: Richard Thaler: Do Changes in Dividends Signal the Future or Past. 

I encourage you to reach out to your wealth manager to discuss how much you should set aside given your unique situation, time horizon, and risk tolerance.  

That said, here's one caveat: please don't put this safe money in gold.

If you have a few minutes, peruse the beautiful "Photoshop images" that show the small amount of gold in the world.

  • What kind of feelings do these images generate?  
  • What kind of thoughts do you have?
  • What do you think makes gold so valuable? After all, it's inedible, generates no value on its own outside of what we ascribe to it, and there's not much of it.  
  • What do you think?

I find it all quite astonishing. If you're interested, let's have a after-work happy hour on April Fool's Day--to discuss Gold. Is it only for fools? Or is it worth all that? Send me a note. We'll put together something interesting to spark the conversation.

Make it a beautiful week!

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