Author Topic: How put money in my savings account to good use  (Read 2835 times)

minimalistgamer

  • Bristles
  • ***
  • Posts: 264
  • Location: United States of America
  • Gamer and minimalist.
    • Minimalist Gamer
How put money in my savings account to good use
« on: May 05, 2017, 05:50:11 AM »
Greetings,

I have a question regarding money I have in my savings account.

So here is my situation -

Age - 34
House paid off.
Maxing out RothIRA and 401k

Here is my partial networth (without the value of my house)

Checking - $2,222.78
Checking - $1,000.00
Checking - $600.00
Savings - $36,083.55
401k - $36,216.65
Roth IRA - $20,812.10
Taxable account - $11,902.85
Cash - $41.00
Overseas - $440.88

100% of the taxable investment is invested in VTSAX fund.

My question regarding $25,000 of the money I have in my savings account is this -

1. Should I leave it there?
2. Should I open a CD? If so, where and how many months?
3. Should I invest it in the taxable investment account.

If you need more information to make a recommendation, please ask.

Thanks for your responses.

nereo

  • Senior Mustachian
  • ********
  • Posts: 12945
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: How put money in my savings account to good use
« Reply #1 on: May 05, 2017, 06:08:56 AM »
Quote
My question regarding $25,000 of the money I have in my savings account is this -

1. Should I leave it there?
2. Should I open a CD? If so, where and how many months?
3. Should I invest it in the taxable investment account.

Broadly speaking you should never have that amount of cash (I'm including your savings account here) if its for long-term savings.

We need to know: a) your monthly spending rate, b) what you want to use that money for (long-term, short-term, saving for a down-payment, etc)

Generic answers:
1) no.
2) invest according to your Assett Allocation (AA).  If you haven't considered your AA - now's a good time.
2b) CDs pay almost nothing right now.  They are ok for medium-term (~1-3 years) savings if you plan on using the money, or if your AA has you holding a certain amount in fixed securities.
3) YEs, since you have no debt and are maxing your IRA/401 options the taxable account is the next step, BUT: if you have an HSA fund that first (before the IRA/401 even).

reading this will help answer a lot of the questions you are certain to have:
http://jlcollinsnh.com/stock-series/

minimalistgamer

  • Bristles
  • ***
  • Posts: 264
  • Location: United States of America
  • Gamer and minimalist.
    • Minimalist Gamer
Re: How put money in my savings account to good use
« Reply #2 on: May 05, 2017, 06:12:27 PM »
Thank you for your response. Here are the rest of the details -

Spending rate -
We able to live under $1000 per month because we do not have a house payment.

The money I want to save is for retirement, therefore it is all long term investing. I do not have any big ticket items that I want to buy. IF this is the case, should I be investing 100% of the amount in VTSAX or should I look into other Vanguard funds?

Thanks for your time.

Inaya

  • Handlebar Stache
  • *****
  • Posts: 1621
  • Age: 35
  • Location: Chicago, IL
Re: How put money in my savings account to good use
« Reply #3 on: May 05, 2017, 08:24:01 PM »
You can use some of that cash for account opening bonuses. I like to keep ~$15000 in liquid cash, and bonuses like these are way better than the .95% interest I get in my "high" interest savings account. See: http://www.doctorofcredit.com/best-bank-account-bonuses/

nereo

  • Senior Mustachian
  • ********
  • Posts: 12945
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: How put money in my savings account to good use
« Reply #4 on: May 07, 2017, 08:35:40 AM »
Thank you for your response. Here are the rest of the details -

Spending rate -
We able to live under $1000 per month because we do not have a house payment.

The money I want to save is for retirement, therefore it is all long term investing. I do not have any big ticket items that I want to buy. IF this is the case, should I be investing 100% of the amount in VTSAX or should I look into other Vanguard funds?

Alright, first let's talk about the cash accumulation...

Typically people hold cash as an emergency fund (e-fund), and it's a good idea to have some to cover the unexpected - job loss, sudden repairs, out-of-pocket medical.  How much depends on a bunch of factors including your risk tolerance, how stable your job is and what your monthly 'burn' (spending) rate is.  A good place to start is 3-6 months worth of expenses. 
With your 'burn' rate that would be $3k-$6k.  Adjust accordingly to your own comfort and circumstances.

Everything that is leftover should be invested according to your own personal asset allocation (AA).  Your AA is whatever combination of stocks/bonds/real-estate etc. that you feel most comfortable with, and there is no one-size-fits-all AA.  Broadly speaking, stocks have outperformed bonds in most decades+ time frames and due to their inherent nature most people expect them to continue to do so.
Around here in the acclimation phase (when you are saving) it's popular to have anywhere between 75% to 100% of your long-term savings in the stock market.  Bonds help 'smooth the ride' and can be useful if you get jittery everytime there's a market crash/correction. 

Beyond just the stocks/bond question is which sector you want to invest in.  For example, VTSAX is the total market index, and a very popular choice because it invests in the entire US stock market.  However, because of how its weighted about 71 of each dollar invested in the VTSAX is put into the largest US companies - only about 6 gets invested in smaller companies.  Again, it's fine to have all of your savings in the VTSAX but just understand it only invests in US companies and almost all of it goes towards very large companies (e.g. Apple, IBM, Microsoft, Amazon, Exxon-Mobil...)

If you want more international exposure you might invest some money in Vanguards Total International fund (VGTSX)
If you want more money invested in smaller domestic companies there's Vanguard's Small Growth Index fund (VISGX)


What's important is to decide what your AA should be FIRST, and then invest accordingly.  Too many people try to 'chase' the hot market by dumping money into whatever has been going up; that's almost always a method for poor returns.
For example, if you want 100% total US Market, invest everything in VTSAX.  Simple!
If you want 60% US Large cap, 20% foreign and 20% US Small cap, invest in VFIAX (60%), VGTSX (20%) and VISGX (20%).  Also easy!

Vanguard also has bond funds if you want to incorporate those... Finally, Vanguard has "Target Date REtirement funds" that are designed to do all the balancing for you.  They start with a high percentage of stocks/bonds, and always include some international and small-cap exposure.  As you get closer to your chosen retirement date the portfolio gradually shifts to include mor ebonds and fewer stocks.  A bit more conservative than most here would choose, but it's about as easy a setup as you can get, since Vanguard will do all the rebalancing and adjustments for you.  One such fund is VTIVX.

I hope that helps.  If you have further questions just ask.

minimalistgamer

  • Bristles
  • ***
  • Posts: 264
  • Location: United States of America
  • Gamer and minimalist.
    • Minimalist Gamer
Re: How put money in my savings account to good use
« Reply #5 on: May 07, 2017, 11:13:25 AM »
Thank you very much for the explanation. I appreciate it.

Based on your feedback I came up with three plans. A conservative, moderate and aggressive plans.

Conservative plan

1. Job loss fund (6 months of my income) - $20,400
2. Taxes and insurance - $5000
3. Roth IRA - $5500
4. Home/Car/Medical expense fund - $5000
Total - $35900

Money left to invest - $1783.55

Moderate plan

1. Job loss fund  - $10000
2. Taxes and insurance - $5000
3. Roth IRA - $5500
4. Home/Car/Medical expense fund - $5000
Total - $25,5000

Money left to invest - $12,183.55

Aggressive plan

1. Job loss fund (6 months of expenses) - $9000
2. Taxes and insurance - $5000
3. Roth IRA - $5500
4. Home/Car/Medical expense fund - $2000
Total - $21,500

Money left to invest - $16,183.55

Before I go into asset allocation, I am hoping you all can give some opinions on these plans, and that will help me pick one.

Thanks!

nereo

  • Senior Mustachian
  • ********
  • Posts: 12945
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: How put money in my savings account to good use
« Reply #6 on: May 07, 2017, 11:24:27 AM »
My main opinion here is that your "job loss fund" (aka E-fund) should NOT be what you earn but rather what you spend after IRA/401 contributions.  If you lose your job you won't be contributing to your retirement accounts. Your taxes will also go down due if you suddenly have no income.

 What you should do is determine how many months-worth of savings you need to bridge a job loss, knowing that you could also sell some of your investments if absolutely necessary.

That said, personally I would be in favor your "aggressive plan".  We actually keep just 1-2 months of expenses in cash as an e-fund.  We feel comfortable doing this because 1) we both work and can survive on a single income, 2) we have lots of other sources we could draw on in an emergency (investments, HELOCs, and family members as a last resort) and 3) we have lots of insurance plans (health, job-loss, life, propoerty) that are likely to minimize the number of unexpected large expenses.

This is just us - the only person who can decide what is best for you is.... you!
Ask yourself - how could I handle a sudden emergency like a job loss or a $10k bill?  Then ask yourself "what if that wasn't available?" - then ask yourself "what if your next step isn't possible?"  continue this line of self-questioning until you are confident those circumstances will not all happen all at the same time.

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1354
Re: How put money in my savings account to good use
« Reply #7 on: May 07, 2017, 12:23:16 PM »
I would zero out the 'taxes and insurance' line from your plan, and make a plan to use income to pay those annually.  Keep one year spending in cash and invest the rest.

Think about your risk tolerance bonds/stocks ratio carefully, then implement.

minimalistgamer

  • Bristles
  • ***
  • Posts: 264
  • Location: United States of America
  • Gamer and minimalist.
    • Minimalist Gamer
Re: How put money in my savings account to good use
« Reply #8 on: May 08, 2017, 05:54:08 AM »
My main opinion here is that your "job loss fund" (aka E-fund) should NOT be what you earn but rather what you spend after IRA/401 contributions.  If you lose your job you won't be contributing to your retirement accounts. Your taxes will also go down due if you suddenly have no income.

 What you should do is determine how many months-worth of savings you need to bridge a job loss, knowing that you could also sell some of your investments if absolutely necessary.

That said, personally I would be in favor your "aggressive plan".  We actually keep just 1-2 months of expenses in cash as an e-fund.  We feel comfortable doing this because 1) we both work and can survive on a single income, 2) we have lots of other sources we could draw on in an emergency (investments, HELOCs, and family members as a last resort) and 3) we have lots of insurance plans (health, job-loss, life, propoerty) that are likely to minimize the number of unexpected large expenses.

This is just us - the only person who can decide what is best for you is.... you!
Ask yourself - how could I handle a sudden emergency like a job loss or a $10k bill?  Then ask yourself "what if that wasn't available?" - then ask yourself "what if your next step isn't possible?"  continue this line of self-questioning until you are confident those circumstances will not all happen all at the same time.

Thank you very much for your insights. I am still debating about how to handle a $10k expense at a short notice. At the moment, I think its going to come out of my savings account. If I go with the aggressive plan, I will have less than $10k in my account, therefore I would have to withdraw from the brokerage account. I don't know how I feel about that just yet.

While I am thinking about, I also want to figure out the asset allocation.

Here is my current asset allocation, including investment accounts -

FUSVX   Large Blend (Stock) - $23,286.44 - 33.23% [401k]
VISVX   Small Value (Stock) - $9,069.05 - 12.94% [401k]
FGOVX   Intermediate Government (Bond) - $3,241.92 - 4.63% [401k]
FSTVX   Large Blend (Stock) - $798.49 - 1.14% [401k]
FSIVX   Foreign Large Blend (Stock) - $306.10 - 0.44% [401k]
VMVIX   Mid-Cap Value (Stock) - $146.02 - 0.21% [401k]
VTSAX   Large Blend (Stock) - $12,137.72 - 17.32% [Brokerage]
VFFVX   Target Date Fund - $4,971.60 - 7.09% [Roth IRA]
VBMFX   Intermediate-Term Bond - $3,045.94 - 4.35% [Roth IRA]
VTSAX   Large Blend (Stock) - $13,079.03 - 18.66% [Roth IRA]
Total -  $70,082.30

How exactly do I go about figuring out what the right asset allocation for me is? Any advice is appreciated.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: How put money in my savings account to good use
« Reply #9 on: May 08, 2017, 06:17:09 AM »
My main opinion here is that your "job loss fund" (aka E-fund) should NOT be what you earn but rather what you spend after IRA/401 contributions.  If you lose your job you won't be contributing to your retirement accounts. Your taxes will also go down due if you suddenly have no income.

 What you should do is determine how many months-worth of savings you need to bridge a job loss, knowing that you could also sell some of your investments if absolutely necessary.

That said, personally I would be in favor your "aggressive plan".  We actually keep just 1-2 months of expenses in cash as an e-fund.  We feel comfortable doing this because 1) we both work and can survive on a single income, 2) we have lots of other sources we could draw on in an emergency (investments, HELOCs, and family members as a last resort) and 3) we have lots of insurance plans (health, job-loss, life, propoerty) that are likely to minimize the number of unexpected large expenses.

This is just us - the only person who can decide what is best for you is.... you!
Ask yourself - how could I handle a sudden emergency like a job loss or a $10k bill?  Then ask yourself "what if that wasn't available?" - then ask yourself "what if your next step isn't possible?"  continue this line of self-questioning until you are confident those circumstances will not all happen all at the same time.

Thank you very much for your insights. I am still debating about how to handle a $10k expense at a short notice. At the moment, I think its going to come out of my savings account. If I go with the aggressive plan, I will have less than $10k in my account, therefore I would have to withdraw from the brokerage account. I don't know how I feel about that just yet.

While I am thinking about, I also want to figure out the asset allocation.

Here is my current asset allocation, including investment accounts -

FUSVX   Large Blend (Stock) - $23,286.44 - 33.23% [401k]
VISVX   Small Value (Stock) - $9,069.05 - 12.94% [401k]
FGOVX   Intermediate Government (Bond) - $3,241.92 - 4.63% [401k]
FSTVX   Large Blend (Stock) - $798.49 - 1.14% [401k]
FSIVX   Foreign Large Blend (Stock) - $306.10 - 0.44% [401k]
VMVIX   Mid-Cap Value (Stock) - $146.02 - 0.21% [401k]
VTSAX   Large Blend (Stock) - $12,137.72 - 17.32% [Brokerage]
VFFVX   Target Date Fund - $4,971.60 - 7.09% [Roth IRA]
VBMFX   Intermediate-Term Bond - $3,045.94 - 4.35% [Roth IRA]
VTSAX   Large Blend (Stock) - $13,079.03 - 18.66% [Roth IRA]
Total -  $70,082.30

How exactly do I go about figuring out what the right asset allocation for me is? Any advice is appreciated.

you should greatly simplify that AA there is so much overlap that its overly complicated for i'm not sure what reason.

how to handle a 10k expense.

1. have credit cards this will get you a month+ buffer.
2. lessen your taxable contributions during the month of the unexpected expense
3. lessen your retirement contributions during the month of the unexpected expense.
4. that should have easily gotten you there b/c you've got 9k in cash too. 

i live ultra aggressive and we keep almost 0 to negative cash on hand when you compare what's owed on CCs to whats in our checking account. I realize this isnt for everyone but your aggressive plan is very conservative.  if you're maxing a 401k and an IRA thats almost an extra 2k per month that can be freed up when needed.  plus you have taxable on top of that.  and if you live by the keep it invested always approach in the long run you will come out ahead.  in the short term would you possibly have to sell an investment for a loss in an absolute worst case scenario.. MAYBE... but the risk of that is much smaller than the risk of not investing the money and losing out on the gains.

nereo

  • Senior Mustachian
  • ********
  • Posts: 12945
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: How put money in my savings account to good use
« Reply #10 on: May 08, 2017, 06:20:43 AM »
You have lots of overlap there... five different large-cap funds for example.

Quote

How exactly do I go about figuring out what the right asset allocation for me is? Any advice is appreciated.

Others may have a more wonky approach, but here's what I would do.
~~What~~
Step 1: Decide how much of your money you want in stock, how much in bonds, how much in real-estate*. Example: 80% stocks, 20% bonds.
Step 2: Decide how much of your stocks you want to be US and how much international (Example: 60% US, 40% international)
Step 3: Decide if you want more small-cap exposure, the default US total market or just large caps (example: all VTSMX)
Step 4: Decide how much of your internaitonal you want in developed vs established countries (example 50/50)

Resulting portfolio:
20% bond fund (e.g. VBLTX)
48% US Total Market Index (e.g. VTSMX)
16% International Developed Index (e.g. VTMGX)
16% International Emerging Index(e.g. VEMEX)

That hypothetical portfolio would have you split 80/20 in stocks and bonds, and have your equities divided up with 60% US and 40% international.
Yours can be more complex or even simpler - we hold just three funds: 5% bonds, 80% US Index and 15% International. 

Ultimately how do you decide? There's no magic formula and different financial experts will all disagree. How successful do you think the US companies will be going forward?  Will developed nations rise up or continue to suffer from corruption and disruption? Will Europe find a way out of its chronically-high unemployment? In the end you just have to decide what you believe in.

*If you want real-estate holdings, consider an REIT.  Again, there are good reasons for holding this (they've done really well in teh past) and really good reasons for not holding them (are we in a bubble??). Vanguard has an REIT index - VGSLX.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: How put money in my savings account to good use
« Reply #11 on: May 08, 2017, 06:27:18 AM »
You have lots of overlap there... five different large-cap funds for example.

Quote

How exactly do I go about figuring out what the right asset allocation for me is? Any advice is appreciated.

Others may have a more wonky approach, but here's what I would do.
~~What~~
Step 1: Decide how much of your money you want in stock, how much in bonds, how much in real-estate*. Example: 80% stocks, 20% bonds.
Step 2: Decide how much of your stocks you want to be US and how much international (Example: 60% US, 40% international)
Step 3: Decide if you want more small-cap exposure, the default US total market or just large caps (example: all VTSMX)
Step 4: Decide how much of your internaitonal you want in developed vs established countries (example 50/50)

Resulting portfolio:
20% bond fund (e.g. VBLTX)
48% US Total Market Index (e.g. VTSMX)
16% International Developed Index (e.g. VTMGX)
16% International Emerging Index(e.g. VEMEX)

That hypothetical portfolio would have you split 80/20 in stocks and bonds, and have your equities divided up with 60% US and 40% international.
Yours can be more complex or even simpler - we hold just three funds: 5% bonds, 80% US Index and 15% International. 

Ultimately how do you decide? There's no magic formula and different financial experts will all disagree. How successful do you think the US companies will be going forward?  Will developed nations rise up or continue to suffer from corruption and disruption? Will Europe find a way out of its chronically-high unemployment? In the end you just have to decide what you believe in.

*If you want real-estate holdings, consider an REIT.  Again, there are good reasons for holding this (they've done really well in teh past) and really good reasons for not holding them (are we in a bubble??). Vanguard has an REIT index - VGSLX.

also when looking at REITs they are best kept in tax advantaged accounts not taxable accounts.