It is personal finance dogma to maintain a liquid (i.e. cash) emergency fund which would be expected to cover three to six months of living expenses in the event of job loss, illness, or other personal or financial catastrophe.
While this is considered by many to be the first thing that you do in your financial plan, before contributing to 401(k) accounts or 529 plans, many are woefully unprepared for what life throws at us on a fairly regular basis.
A well-publicized 2016 survey revealed that the majority of people could not manage a $500 surprise car repair without going into debt, let alone being let go from work.
And we both expect to be retired from our current professional jobs in three years. The $500,000 cash position transitions nicely to the cash bucket of a Three Bucket Strategy.
Interest rates are likely rising in the next few years, after a prolonged period at historic lows. As interest rates go up, the value of your bond holdings will decrease.
It is very likely that when there is another financial upheaval, some of the other assets that you own will lose their value and or their liquidity. It happened in the early 00’s and again in the late 00’s.
Do you really want to be forced to tap your Roth IRA when the S&P 500 fund in it is down 50%? Or sell your house or investment property when no one can get a mortgage loan to buy it? Both are great ways to lock in a loss.