‘With almost 50% in cash/cash equivalents, is this too high?’: I have $100k net worth and need to decide where to put my savings for early retirement. How can I optimize my allocation?

Hi Money Minder,

I’m 24 and pulling in $80k a year in a pricey city, with a net worth of just over $100k. Here’s where my money is parked: I’ve got around $7k in federal student loans (with interest rates between 4.2% – 4.8%). My goal is to hit barista/coast FIRE ASAP. I’m maxing out my Roth each year and chucking in about 7-10% to my 401k (with a 7% employer match). Plus, I’m stashing about $1k a month in a HYSA.

I’ve heard you’re supposed to be pretty aggressive with your investments when you’re young. Right now, almost half of my dough is in cash/cash equivalents (granted, half of that is my emergency fund and short-term savings goals). Am I too heavy on the cash? Should I dump more into my 401k? And do I need to start squirreling away into a taxable brokerage account since you can’t touch your IRA/401k until you’re closer to 60?

Thanks in advance for your help, Money Minder!

Sincerely, Curious Investor

Response from THE MONEY MINDER:

Hello There,

Congratulations on having a net worth of over $100k at 24 years old, that’s an impressive accomplishment! It seems like you are on the right track with your financial planning, but it’s great that you are seeking advice on how to optimize your strategy.

Based on your current allocation, having almost half of your assets in cash/cash equivalents is quite high, especially considering your age and financial goals. Typically, younger individuals are advised to have a more aggressive allocation with a higher percentage invested in stocks for long-term growth potential. Since you are aiming for barista/coast-FIRE, it might be beneficial to reassess your risk tolerance and consider shifting some of your cash holdings into a taxable brokerage account for potential higher returns.

Regarding your question about whether to put more into your 401k, it could be a good idea to increase your contributions, especially since you are receiving a 7% employer match. By contributing more to your 401k, you are not only taking advantage of tax-deferred growth but also accelerating your path towards financial independence.

Additionally, it’s worth considering your investment horizon and potential needs for funds before retirement age. While traditional retirement accounts like IRA/401k have restrictions on early withdrawals, taxable brokerage accounts provide more flexibility for accessing funds before age 59.5 without penalties. This could be a suitable option for your coast-FIRE strategy.

In summary, you might want to evaluate your risk tolerance, increase contributions to your 401k, consider shifting some cash into taxable brokerage accounts for higher returns, and ensure you have a balanced approach that aligns with your financial goals. Remember, financial planning is a dynamic process, so it’s essential to regularly review and adjust your strategy as needed. All the best from THE MONEY MINDER!