I feel like I’ve written at least 35 different asset allocation articles over the last 15 years. Almost all of them had one thing in common, try to maximize growth.

That’s because almost all of our money is in retirement accounts. With a long-term view of 30-40 years, I don’t mind being aggressive.

All that has changed though. I recently realized that my biggest money mistake may have been maxing out our retirement accounts at the expense of investing in regular after-tax accounts. We can’t easily use 90% of our net worth – it’s tied up retirement accounts or real estate.

The good news is that we’ve been able to nearly double the cash that we can easily access over the last year. We stopped maxing out retirement accounts and are just keeping the cash.

I don’t mind having cash. It makes me feel more comfortable than I have in quite some time. However, having too much cash could be a bad thing. I’ve written about inflation, not once, but twice recently. It’s not great to have more cash around than you might need. The whole point of this website is to make my money work and cash is too… lazy. It doesn’t do enough work to fend off inflation.

That brings up an interesting problem though: how much cash should you have? Everyone’s opinion is going to be different on that one. I’d like to have 6 months of expenses saved up. However, I don’t feel I need to have that right away. That can be a longer-term goal. A shorter-term goal would be to have 3 months saved up. That’s standard emergency fund guidance though.

Our necessary expenses (housing, transportation, food, kids’ private school*, etc.) is around $100,000 a year. We’d need $50,000 to have six months. That’s a lot and I think we should build-up to it. To start maybe 3-4 or months of cash makes sense. This would allow us to invest some of the rest of the money. Then at least some of our money would be working.

How should we invest the rest of the money though? I plan to invest it like a 3-legged stool. The first leg is the cash above.

The second leg would be bonds. They are relatively stable. Even in a bad market, they probably wouldn’t lose too much value. I’m starting to learn about I Bonds and they seem to be paying over 7% interest right now. That’s very good, especially at nearly zero risk. The downside seems to be that we can only $10,000 per person. Between my wife and I, that’s actually a good amount for our current needs. The I Bonds would be a strong second leg of the stool.

If I Bonds weren’t paying so well, I would look at putting the money in Vanguard’s VASIX mutual fund. It holds a series of diverse bonds and doesn’t seem to get hit too hard by market crashes. Over the long-term, it seems to return 6%, which isn’t bad for a conservative investment. This could supplement the I Bonds as well if we need it. Think of a stool leg that splits off into two feet at the bottom.

Finally, I’d want some growth. I know we have it in our retirement accounts, but it would be nice to have it outside of that. For this leg, I’m thinking of buying VASGX. It’s one-stop shopping giving a strong mix of domestic and international stocks. However, it does have some bonds, which may hold it back some. Of course, I could just buy fewer bonds from that leg and more of this for growth.

Over time, I think it makes sense to simply grow these out equally. However, once we have six or nine months in cash, and another 6 months in bonds, we could turn our attention back to all growth.

Much of this could also change based on our income streams. Right now, I’ve got a customer support job, the earnings of this blog, and dog sitting. My wife has her regular pharmacist career. This plan was largely brought about by her plan to retire and collecting her pension. However she switched jobs and likes that better, so she’s changed her mind about retiring (for now). We have a profit-sharing investment that pays around $14,000 a year and we could refinance our rental properties to give us more cash flow. So as we pile on these income streams we may never get to the emergency fund because another income stream helps out. Or maybe we only have to touch a small part of the emergency cash.

So that’s our plan. How do you handle your after-tax allocation strategy? Let me know in the comments.

* I know that the kids’ private school isn’t a true necessary expense, but it’s a big one and we’re budgeting for it. If we got into any kind of real emergency, we could drop it, so planning for this adds some flexibility. Similarly, we could always refinance the house and make the payments very small as it’s almost paid off. Having all these different levers to pull is great, but I’d like to plan as we won’t have to.