JamesBond

That right there is why I think it's a bad idea. Yeah you are 'paying yourself' interest, but you lose that TVM. Interest rates aren't going anywhere for awhile. If I had to buy the house and didn't have enough downpayment, I would suck it up, pay the PMI and throw as much as I could at it until I could refinance without it. jmho.

bugman61

Unless you are in your 20s you should have some in cash/bonds. Even in your thirties a small percentage doesn’t take a large total 401k to equate to 50k in cash.

But to what everyone else is saying, I agree that it doesn’t make sense to take money out for a loan that is allocated to equities.

tennisguru

I have zero cash in my 401k. Why waste the tax advantages offered (I’m all in Roth) by having dead money? Don’t get me wrong, having a strong cash emergency fund is critical for anyone, and especially in our volatile industry. But I hold that outside of any retirement or other tax advantaged accounts.

Iceberg

Can you explain why I should have cash in it? I get having a rainy day fund, but I have that elsewhere where there isn’t a penalty if accessed. I also can understand it if you are close to retirement in case of a down market you have cash to use while the other shares recover. I’m sure there’s a reason, I just can’t come up with it.

WIPilot

Because obviously to be a patriot someone has to agree with you? What a joke.

flyinthrew

I don’t think this is the poster’s intent, but I started racking up some cash in my IRA back in 2019 when we could kinda feel some kind of recessionary pressure coming after such a long run up. I was basically waiting for either an actual recession or a major correction to commit it. Never saw Covid coming, but having that reserve to commit near the bottom made me look like a genius. Thinking about doing it again. I think the boomer greed machine can eek out another major crash before they hand the reins over.(that last sentence is only there because this is APC (and also it’s what I actually think)).

bugman61

To you and tennis guru, if you want to combine your emergency fund with the cash portion of your portfolio, fine. I won’t argue with that one bit. But whatever you consider to be under the umbrella of your retirement funds should have a portion of cash that increases as you age. How much is up to your individual risks/needs. If you are really in your 30s/40s with no cash retirement, you are setting yourself up for disaster in a down market.

Gunfighter

An alternative to a larger cash position is investing in cash flowing businesses or real estate. Keeping a cash position that sustains income property is a perpetual motion cash generator. Retirement funds that produce income are safer than timing the drawdown of a money pile.

tennisguru

But that cuts both ways. Yes, a cash position will buffer against a loss in value during a downturn, but it also holds back an increase in value during a bull market. I had no cash on my 401k going into 2020, and now my portfolio is up even higher than it started last year. All a cash position would have done is reduce my losses while at the same time leaving less in my account today. As I get closer to retirement I will dial back risk but with 30+ years to go I have no fear or panic going into any sort of downturn because I know I will come out ahead long term.

And again, I have a strong non-retirement cash position now and will certainly increase that many times by the time I retire. You can only put so much money into a tax-advantaged retirement vehicle, while there is no limit to how much cash you can save outside retirement. Why not put as much of those limited retirement dollars to work growing year after year instead of missing out on growth with dead cash when I can keep all the dead cash I want outside my 401k?

JamesBond

One question. The sentence I highlighted. It might be hard for you to put yourself in the mode for this, but if you were there right now, where would you put money to reduce risk and get any kind of return? I'm just curious because I really don't think there is any place at the moment other than perhaps high dividend yielding stocks. Bonds suck... wwyd?