Invest the "buffer"

I would not only consider yield but capital you are investing, most important factor is can you lose capital?

Is the share market close to peak? I know most threads on shares are all about holding for the long term and never selling, so they are yield focused, but what if you need your capital back? and the shares are 10-30% down?

Your money, your call.

For me personally I would not bother even if you made 6% yield pa (shares) on $40,000 that is $2400, now take away the interest at 4% makes a grand total of $800 is it really worth the risk??? Makes little sense to me.. what would I know

 

Is the 3 year cash buffer only for those who are retired? If not, what is the cash buffer for people still in the workforce?

Thornhill talks about leverage to increase growth but why would one leverage with cash sitting on the sideline?

A simplified 2 scenarios for cash - you have non-deductible debt, or you don't. In the past I've always chosen to offset non-deductible debt over investing in equities due to my lower risk profile. With only deductible debt, taxation and investment considerations I prefer to invest in equities.

I haven't leveraged into shares but hope that I have the courage to do so if the market drops over 50%. I keep a small amount of cash in IP offsets, everything else is invested in equities.

In summary, what should the cash buffer be for a working person who only has deductible debt that is neutrally geared?

 

@ErYan sorry mate no idea. Haven't thought about it as it's not relevant to my situation.

 

Australia will have a recession one day. Many working Australians have never experienced a recession. Those with more human capital ahead of them generally don't need to keep as large a cash buffer as a retiree who will unlikely be able to work if cash strapped. But how will you you cope if you found yourself unemployed for a significant period of time?

It's not and easy answer as some professions have a higher likelihood of keeping / finding employment during recessions / depressions.

So one needs to look at all sources of cashflow, passive and through employment, and adjust for worst case scenario based on history. Then determine your mandatory expenses. That will then give you a good idea of the size of cash buffer needed for your specific circumstances.

In summary, cash buffers are not just for retirees.

 

What @Alex Straker, @Il Falco, @austing, @Leo2413 and others here are saying is gold. I'm a retired stockbroker, talking from experience whenever clients got too cute with their 'buffer' funds it always ended in tears. Matter of fact it was similar story with over leverage. Only invest funds you can commit and if you use leverage you better make damn sure you understand money management.

No advice

 

I think a good think about investing the buffer in shares is that they pay dividends. So between choosing whether to invest the buffer in LICs or in the offset (for IP) it's probably better to put it in shares.

This is especially useful if the dividends cover mortgage repayments. One would still need to cover 6 month living costs. In my case this is minimal so I feel pretty safe with a small buffer.