1

I am wondering how much (if any) of my liquid assets should be in a money market account.

It's worth mentioning that I think this varies a lot based on how big your portfolio is. For example, you could make the case that for someone with $5k in assets, $2k should be in a money market account, $2k in other investment instruments and $1k in cash, but maybe your viewpoint is that for a portfolio of $100k only $4k should be put into a money market account.

If you can answer this question for varying portfolio sizes I think that might be helpful for other readers.

To make the question easier to answer, let's assume you expect to grow your assets by 20% this year (i.e. your expected revenue - your expected expenses is equal to 20% of your current portfolio value). So from this, you can safely say that your revenue meets your expense needs with some wiggle room.

Improve this question
4
  • 2
    It seems hard to answer this in a generic way. Different people have very different needs in terms of liquidity. Do you have a fairly high regular non-investment income (such that you don't really need your assets to be very liquid)? Do you frequently go on vacations and such where you need more liquidity? Additionally, how risk tolerant are you; someone very risk tolerant might have almost nothing outside of their investment instruments, while someone extremely risk averse might avoid MM accounts and prefer cash.
    – Joe
    Commented Jan 7, 2015 at 15:55
  • @Joe good point, I've clarified the question to explain that the owner of the portfolio has an income that more than covers the expenses.
    – user35581
    Commented Jan 7, 2015 at 16:09
  • One of the considerations you don't appear to have made is: retirement vs non-retirement accounts. In my IRAs, direct deposits go into a MM. I transfer them to other funds monthly, or leave them there to accumulate to be able to invest in a new fund that has a minimum purchase requirement. I would only keep money in MM if I believed the market was about to crash and wanted liquid funds to buy when there is blood in the streets (market bottom - or close enough). I have about $250k spread across my various IRA and 401k accounts. I don't have enough non-retirement savings to comment.
    – Tangurena
    Commented Jan 7, 2015 at 16:19
  • Also, are you referring to a money market account at some random bank or a money market mutual fund with a proven track record of never "breaking the buck"?
    – dg99
    Commented Jan 7, 2015 at 16:52

1 Answer 1

Reset to default
4

I would disagree with your analysis. To me there are two purposes for a money market (MM):

  1. Emergency Fund
  2. Pre-purchase money parking fund

Your emergency fund should be from 3 to 6 months of expenses. Think of it of an insurance policy against Murphy. You may want to have some money designated for big expenses, or even sinking funds. For example, I keep some money in a MM for a car as both the wife, daughter, and I driver older vehicles. I may need to replace them.

If you were planning on making a larger purchase car, house, boat, engagement ring I would put the money in a MM fund so you are not subject to the whims of the market.

After that you are free to invest all your money. Its likely that you should have some money outside of tax advantaged funds so if you want to start a business you will not have to do high cost withdrawals.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .