Author Topic: Too much liquid saving - need advice!  (Read 1569 times)

Megs193

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Too much liquid saving - need advice!
« on: January 12, 2018, 03:42:57 PM »
My husband and I have way too much in a basic savings account because we canít agree on what to do with it.  I want to invest in mutual funds on our own based on advice from bogleheads.  He wants to pay someone to manage our money (1% of our total portfolio each year).  For the last 6 months we have done nothing because we canít agree.  I wasnít planning on putting any towards the mortgage but even that would be better than sitting in a savings account making less than 1%.  What would you do in this situation? 

We currently have $430,000 in savings and are adding $1,000 every 2 weekís.  We would like to keep a 12 month emergency fund which is $150,000 with no cuts to our budget.

We owe 509,000 at 4.125% on our house which is worth around 1 million.  We pay our mortgage biweekly and we pay an extra $500 with each payment.  This is our dream house and we plan on living in it for another 25ish years.

We donít have any other debt. 

We have $685,000 in retirement.  We are 38 and 34.  My husband isnít currently interested in early retirement and really enjoys his job.  I am hoping he will retire in his late 50ís.  I work one day a week because I enjoy it and am not interested in working any more or any less right now.

We have $87,000 saved for college and would like to pay for 4 years of college for our 5 and 8 year old children. We save $700 a month for this.

We have $280,000 to re-allocate.  These are the options:

1.  Get him to agree to invest in mutual funds on our own and dollar cost average into the market.
2.  Let someone else manage the money
3.  Put a large chunk of it towards the mortgage

What would you do?

TempusFugit

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Re: Too much liquid saving - need advice!
« Reply #1 on: January 12, 2018, 04:12:39 PM »
Seems to me that advice won't really help because it comes down to a disagreement between the two of you.  I'm sure the info from Boggleheads is pretty good. 

Paying someone to manage your investment at 1% is wasteful, but not as wasteful as letting it sit in a bank account and lose value each year to inflation.  Of course, a bad money manager can bankrupt you, too, so be careful.  Perhaps your husband would agree to pay a one time fee to a financial adviser rather than pay an ongoing fee to a money manager?  Sort of a compromise? 

You didn't elaborate on your retirement money.  Is that in a 401k and diversified somehow, or is it in pensions?

Basic advice is to set aside in a money market fund or CDs enough cash to sleep at night and invest the remainder of your idle cash in a mix of stock and bond index funds at an allocation that makes sense to your risk tolerance.  Include your 401k money in your asset allocation calculations if that is invested someplace.

The math generally says that investing everything in a lump sum at once rather than dollar cost averaging is a better method on average.  Most people feel better about easing in with a DCA model just because of psychology.

For example, say your expenses are 5K a month. 
 
Set aside 15-30K in a money market fund as your emergency fund / sleep at night cushion.   You don't really need a large emergency fund (or any cash emergency fund) when you have so much money invested. You can always sell shares out of your taxable accounts.  But most of us still feel better with some cash, logic aside.
 
If your risk tolerance is pretty average, then target an AA of 75/25 stocks/bonds with the remainder.  Again, consider any 401k investments in calculating your AA.    Most people on these boards would say that's too conservative, but this is generic advice for someone having trouble investing at all. 

Then divide up the rest of your cash between VTSAX (stock index) and VBTLX (bond index) and call it a day.
 
 If you haven't seen it, J Collins has a wonderful set of posts about investing and the stock market in general. 

http://jlcollinsnh.com/stock-series/
« Last Edit: January 12, 2018, 04:20:40 PM by TempusFugit »

ysette9

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Re: Too much liquid saving - need advice!
« Reply #2 on: January 12, 2018, 04:24:00 PM »
Obviously the best thing to do is get that money into an index fund immediately. However, that isn't what you need to hear because you would have done it already if you could have. You two are clearly extremely risk-averse with SO much cash and the desire for a HUGE emergency fund. What I would advise you do is compromise: pay someone to manage your investments, but do it at Vanguard where they charge you 0.3% instead of the usual highway robbery 1%.

https://investor.vanguard.com/financial-advisor/financial-advice

BudgetSlasher

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Re: Too much liquid saving - need advice!
« Reply #3 on: January 12, 2018, 05:58:07 PM »
I am a little fuzzy on how adding ~2,000 a month (2 x 1,000 biweekly) over six months gets you anywhere near 280,000; unless, you had a larger amount deposited at one point.

I would say ANY way to get invested is better than sitting in cash, even if it means you have to pay a fee.

I would think that you should be able to find better than 1% as a fee; Vanguard has been mentioned as possibly lower fees.

Personally, if I had over a quarter-million dollars sitting in a low yield saving account, I would accept any compromise that allowed it to be invested so long as an honest conversation is held regarding the best way to proceed in the future. You can always decide to go it alone later and have the assets moved to an account that you have setup to manage yourself.

With 2 caveats:

1)that making the decision on how to invest today is a decision that can be revisited and changed, if necessary, tomorrow. No matter how it goes (if you invest with management now while continuing the discussion and later elect to manage it on your own, always investing under management, or spending additional time debating and waiting before taking it on yourself) you will have been invested while you decided.

2) That a decision is not already imminent (the next 1-2 month).

Megs193

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Re: Too much liquid saving - need advice!
« Reply #4 on: January 12, 2018, 06:43:36 PM »
Obviously the best thing to do is get that money into an index fund immediately. However, that isn't what you need to hear because you would have done it already if you could have. You two are clearly extremely risk-averse with SO much cash and the desire for a HUGE emergency fund. What I would advise you do is compromise: pay someone to manage your investments, but do it at Vanguard where they charge you 0.3% instead of the usual highway robbery 1%.

Thanks for the info.  This may be the compromise we need.  Still not my number one choice but probably worth it to get the money out of a savings account.

https://investor.vanguard.com/financial-advisor/financial-advice

Megs193

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Re: Too much liquid saving - need advice!
« Reply #5 on: January 12, 2018, 06:48:56 PM »
Seems to me that advice won't really help because it comes down to a disagreement between the two of you.  I'm sure the info from Boggleheads is pretty good. 

Paying someone to manage your investment at 1% is wasteful, but not as wasteful as letting it sit in a bank account and lose value each year to inflation.  Of course, a bad money manager can bankrupt you, too, so be careful.  Perhaps your husband would agree to pay a one time fee to a financial adviser rather than pay an ongoing fee to a money manager?  Sort of a compromise? 

You didn't elaborate on your retirement money.  Is that in a 401k and diversified somehow, or is it in pensions?

Basic advice is to set aside in a money market fund or CDs enough cash to sleep at night and invest the remainder of your idle cash in a mix of stock and bond index funds at an allocation that makes sense to your risk tolerance.  Include your 401k money in your asset allocation calculations if that is invested someplace.

The math generally says that investing everything in a lump sum at once rather than dollar cost averaging is a better method on average.  Most people feel better about easing in with a DCA model just because of psychology.

For example, say your expenses are 5K a month. 
 
Set aside 15-30K in a money market fund as your emergency fund / sleep at night cushion.   You don't really need a large emergency fund (or any cash emergency fund) when you have so much money invested. You can always sell shares out of your taxable accounts.  But most of us still feel better with some cash, logic aside.
 
If your risk tolerance is pretty average, then target an AA of 75/25 stocks/bonds with the remainder.  Again, consider any 401k investments in calculating your AA.    Most people on these boards would say that's too conservative, but this is generic advice for someone having trouble investing at all. 

Then divide up the rest of your cash between VTSAX (stock index) and VBTLX (bond index) and call it a day.
 
 If you haven't seen it, J Collins has a wonderful set of posts about investing and the stock market in general. 

http://jlcollinsnh.com/stock-series/

I read the J Collins series a few months ago and learned a lot.  I have tried to convince my husband to read it as well but so far I havenít had any luck.  All of our retirement is in our 401kís.  We periodically check to see if itís well diversified for our age with the vanguard tool and move things around if it isnít.  My husband also has a pension but I didnít include it because I honestly donít really know much about it.  If he had any interest in early retirement I would look into it but at this point he still wants to work another 20+ years.

Megs193

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Re: Too much liquid saving - need advice!
« Reply #6 on: January 12, 2018, 06:53:41 PM »
I am a little fuzzy on how adding ~2,000 a month (2 x 1,000 biweekly) over six months gets you anywhere near 280,000; unless, you had a larger amount deposited at one point.

I would say ANY way to get invested is better than sitting in cash, even if it means you have to pay a fee.

I would think that you should be able to find better than 1% as a fee; Vanguard has been mentioned as possibly lower fees.

Personally, if I had over a quarter-million dollars sitting in a low yield saving account, I would accept any compromise that allowed it to be invested so long as an honest conversation is held regarding the best way to proceed in the future. You can always decide to go it alone later and have the assets moved to an account that you have setup to manage yourself.

With 2 caveats:

1)that making the decision on how to invest today is a decision that can be revisited and changed, if necessary, tomorrow. No matter how it goes (if you invest with management now while continuing the discussion and later elect to manage it on your own, always investing under management, or spending additional time debating and waiting before taking it on yourself) you will have been invested while you decided.

2) That a decision is not already imminent (the next 1-2 month).

Just to Clarify- that is the money we currently have in savings.  Prior to our move 6 months ago we were saving a lot more a month and we usually put the majority of my husbandís bonus in savings.  I think I will bring up Vangaurd and see if he is willing to compromise and invest half on our own and let Vangaurd manage half.  The person he wants to use is his parents guy who they rave about but Iím pretty sure the market has been doing so well that they would be getting the same return mananging it in their own.

chrisgermany

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Re: Too much liquid saving - need advice!
« Reply #7 on: January 13, 2018, 03:32:35 AM »
It must not be one or the other.
Split into portions and let the portions run against each other.

2Birds1Stone

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Re: Too much liquid saving - need advice!
« Reply #8 on: January 13, 2018, 04:21:53 AM »
If you are worried about managing your own money, you have the option of Vanguard's Personal Advisory service at a cost of .3% assets under management.

Or you could pay a fee based advisor ~$500-1000 once a year to go over and adjust your plan.

I would recommend figuring out your desired asset allocation and doing it yourself, whether you lump sum or dollar cost average (say $35k a month over the next ~12 months.....get that money working for you.


Zamboni

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Re: Too much liquid saving - need advice!
« Reply #9 on: January 13, 2018, 06:10:35 AM »
It must not be one or the other.
Split into portions and let the portions run against each other.

I think this is a good compromise. I don't try to manage my other half's money . . . we are both frugal but we just have different styles, different risk tolerance, and different ideas about what is the best strategy. It sounds like his parents are hectoring him, and it might be useful for him to invest some scratch there just to appease them (unless it is Edward Jones . . . in which case, run away from the front load fees!) But, it doesn't have to be all of it in any case, or even a lot of it, just some to tell his parents you followed their advice.

Also, even if you divide it in half and each invest in your own way, remember down the road that isn't a contest! No "I told you so!" if your half does way better.

freya

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Re: Too much liquid saving - need advice!
« Reply #10 on: January 13, 2018, 06:33:12 AM »
Is all this money sitting in one bank?  If so, you're over the FDIC limit and you need to do something about that ASAP.

A fee based advisor sounds like the perfect solution for you, because all you would need is to set up a portfolio with auto rebalancing, and there would be no need to pay ongoing fees.   The advisor can also help with designating part of your nest egg for paying down the mortgage, to get the 4.1% guaranteed return.  The advice you would get from an ongoing service couldn't possibly be worth $10,000 a year. It's worth looking up the data on passive vs. active investing, showing that active investing underperforms passive over time.  It sounds like your husband may be thinking that the 1% would guarantee greater returns, which is simply not the case.

Ocinfo

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Re: Too much liquid saving - need advice!
« Reply #11 on: January 13, 2018, 07:18:13 AM »
Just do something! You’re basically set financially given your NW, age, and that your husband is going to likely work for another 15 years. Even in a crappy, high fee fund, you’ll have a bunch of money and a paid off home.


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Zamboni

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Re: Too much liquid saving - need advice!
« Reply #12 on: January 13, 2018, 08:26:05 AM »
Is all this money sitting in one bank?  If so, you're over the FDIC limit and you need to do something about that ASAP.

Freya has a good point . . . if the bank fails, you are out any amount over $250K.

Kl285528

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Re: Too much liquid saving - need advice!
« Reply #13 on: January 13, 2018, 09:08:25 AM »
You may want to help your husband rethink the "I love my job, I'll work forever" mentality.
Being financially independent means being able to walk out the door of an employer with no fear of what will happen next.
This is important when his company gets sold, or his boss changes and becomes someone he cannot work with or please under any circumstances, or his position gets eliminated, etc.
Or, health issues necessitate a change or downshift.
Financial independence is about choices, and about you having control, instead of being subject to outside forces that are often unpredictable.
Retire early isn't the driver here.

Finances_With_Purpose

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Re: Too much liquid saving - need advice!
« Reply #14 on: January 13, 2018, 09:15:31 AM »
Is all this money sitting in one bank?  If so, you're over the FDIC limit and you need to do something about that ASAP.

Freya has a good point . . . if the bank fails, you are out any amount over $250K.

This.  Spread across banks and/or diversify. 

You could use Fidelity or another platform to put a ton into CDs.  That way, at least you're making some interest without losing as much value.  As it stands, inflation is eating away at the value of your money (3% x 400k = $12k in loss per year).  It's about as risky as what you're doing now, plus you can sell those on a secondary market for $1 per $1k CD (without having to pay the fees you normally would). 

Read the parable of the talents.  The guy who buried his in the ground didn't do too well.  You're on the right track.

Would be wary of ANY advisors, period.  They'll see what you're doing and think one thing: cash cow.  (They'll know you don't know what you're doing and they can sell you all kinds of things that create high commissions for themselves.)  Personally, I would stick with a fee-only financial planner/advisor.  None who sell you anything or are able to sell you anything on commission (or hidden/back-door commissions) period.  And if anyone says the word "annuity," then run.