Why your nest egg needs a cash cache
January 14, 2014
MSN Money- The accounts without the cash reserve had considerable trading costs because the investment portfolios needed to be tapped every month for expenses, says study co-author John Salter, associate professor of personal financial planning at Texas Tech University.
With savings accounts and certificates of deposit continuing to pay next to nothing, you may fret that you'll throttle your nest egg if you follow the widespread advice to maintain a cash reserve of up to a year for expenses.
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The accounts without the cash reserve had considerable trading costs because the investment portfolios needed to be tapped every month for expenses, says study co-author John Salter, associate professor of personal financial planning at Texas Tech University. Each trade was assumed to cost $30, far more than fees charged by discount brokers but less than typically charged by full-service brokers. The study assumed two trades each month.