Q. For the past several months my wife has encouraged us to increase the amount of cash we keep at home and on our persons. She worries that if our banks and financial institutions may encounter serious financial difficulties. If that happens, we could not count on getting immediate access to funds in our bank savings, money market savings and checking accounts.
Another worry she has is that there are more and more instances of hacking account information. This could deplete the funds in these accounts. It could cause the financial institution to deny account holders access to their accounts.
Still another worry is the possibility of a weather event where banks close and ATMs shut down or run out of cash. Another situation would be a catastrophic event. This could be a nuclear accident/explosion or a major terrorist attack.
We usually hold anywhere between $100 and $300 in currency at any time. If we are going on vacation, we will increase that amount by $100, or more, so that we are always able to pay in cash, if we choose to. We charge all major expenses on credit cards, pay by check or have payments deducted from our checking account. Charge account balances are always paid in full upon receipt of the monthly statements.
Given all that. How much currency do you recommend that we keep "at home"? Is there a reason related to a bank or financial institution's balance sheet to keep large amounts of extra cash at home (or in a safe deposit box)? —M.J.W., Flower Mound, TX
A. It’s important, when you think about this, to make a distinction between access to cash and access to retail markets. In emergency situations, such as major floods, hurricanes or blizzards, it is possible to have cash for purchases— but not be able to use that cash. Why? Because the local markets are closed or empty (maybe looted) by emergency buyers who got to the store before you did.
It’s also important to recognize that the typical supermarkets restock on a weekly basis. It restocks some items more often. On a recent visit to my local supermarket, for instance, many of the brands of frozen pizza were unavailable. A pizza company rep was busy re-stocking empty shelfspace. I asked how many times he had to come and restock. This, he told me, was his fourth visit in a week!
Whatever you may want at the supermarket may not be available, at any cash price, only hours or days after a major disruptive event.
This means having cash on hand might help you with some emergencies. But it won’t keep you in water and food during a sustained weather emergency. Kathy Harrison’s “Just in Case: How to Be Self-Sufficient When the Unexpected Happens” (Storey Publishing, 2008) covers all you need to know. It tells you how to prepare for such events without making you feel like you’re reading Doomsday Prepper Manual No.1. The book is available as a paperback and in a Kindle edition.
Q. We have accounts as follows:
At Vanguard we have a 401(k) retirement account with 6 items and an IRA account with 5 items. At Schwab we have IRA's for wife and myself. These accounts have 8 items and 33 items, respectively. We also have a joint taxable account with 6 items at Schwab.
We are paying fees at Schwab, but could reduce them by transferring to Vanguard. I feel a need to consolidate and reduce items and expenses if I can do so without endangering our funds. We are also nearing our 80's. What do you suggest? —L.H., by email
A. By all means, merge accounts. It will make your life and your tax return simpler. You will reduce chances of confusion and error going forward. You didn’t mention what those “items” were but no one needs to have 33 different types of investment. Vanguard Balanced Index fund provides a better return than the majority of managed funds using only two asset classes. It uses an index of domestic stocks and an index of domestic bonds.
There are interesting arguments for adding other asset classes with other funds. REITs (real estate investment trusts), international stocks, and emerging markets stocks—are often suggested. But they are just that, arguments.