Specific index funds for delayed spending

[BOP Mustache]

We currently just have one index fund (S&P500) that we invest into other than paying down debt on our mortgage.

We were wondering whether we split them up into specific funds such as car replacement fund, medical self insurance fund, children’s university/first home fund, etc.

These expenses range from 10-30 years away so wondering whether it’s more logical to split them or just bunch them all together in one fund and auto payment each month as opposed to four or more.

[MDM]

In this case, logic is probably in the eye of the beholder.

The growth of four little balances invested in the same fund will be the same as the growth of one big balance.

[Gremlin]

But transaction costs may make this unpalatable.  Set yourself up a spreadsheet and track this in a nominal way

[Telecaster]

I used to like to compartmentalize stuff into separate accounts and my wife still sort of does.  But when you boil it down it is all just one pot of money.  I started off with separate accounts for self-insuring.  If you raise the deductible in order to save money,  then you actually have to set aside the extra money (as opposed to just spending it) otherwise you are worse off, not better off.  So I did that.  Then my self-insurance account got really big, and I realized that it doesn't matter what pot of money I was using to pay bills, the change to my net worth was the same.  So I kind of folded everything in together. 







 

[Arbitrage]

Money is fungible. 

However, one place you might consider splitting off your investments (assuming this is a taxable brokerage account you're talking about) is for the college fund; you might receive some tax benefits by investing in a 529.

[frugaliknowit]

I take this approach with a "possible car purchase fund" as I figure I could be forced to own an auto if my work/living circumstances change.  In other words, I might need to purchase a car tomorrow or never and prefer to have a designated account for that.

I use Vanguard Tax Managed Balanced Fund for that.

[patchyfacialhair]

Just ask yourself whether your risk tolerance within each sinking fund is worth keeping things separate or whether it would just be easier and more streamlined to lump it all in one.

Say you have a car expense coming up any day now because you drive a hoopdie? Maybe pull some of those funds out of the s&p500 fund into something more conservative, that way you're not buying a car if the stock market tanks next year.

But since you said 10-30 years...that's a pretty long time horizon on both ends that maybe just keep it all lumped together.

Ultimately it's up to you. My advice is free and worth nothing :)