Author Topic: Vanguard Taxable Account Advice - Contributions after Emergency Fund, IRAs, 401k  (Read 352 times)

bjclifto

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Hi all,

I'm hoping for some advice around where to contribute additional savings into a taxable Vanguard account after securing emergency fund, IRAs, and 401k.  Here's some info:

- 34 years old, married, two young kids, no debt, still rent
- $250k in 401k, wife does not have this option through employer
- $60k in wife's traditional IRA (VTSAX)
- $30k in my roth IRA (VTIVX - Vanguard target retirement)
- $60k Ally savings - emergency fund

So with the $60k in savings we're looking to invest some of that into a taxable Vanguard account and potentially use the remainder for rental property or keep liquid if we decide to buy a home in next 2-3 years.

Does it make sense to just contribute additional savings into VTSAX even though my wife's IRA is in the total stock market?  VTSAX is obviously fairly diverse or does it make sense to allocate some savings into REITs, ETFs, small % in bonds?  Any insight or thoughts would be appreciated.  Thanks!

Junco

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I found this MMM video to be helpful in this regard: https://www.youtube.com/watch?v=tFpJrqp0l_4

Basically he suggests keeping around $2000 in cash in a checking account which your recurring income is deposited into. At the end of the month when your bills are paid, transfer any extra about $2000 into a taxable vanguard account. MMM says its unwise to keep over ~$2000 in cash because you could be earning much more investing it versus a savings account. Shares can be sold to transfer money from the investment account to a checkings account in an emergency. I started doing this a few months ago and like the system. Obviously this only works if you are comfortable exposing your "emergency fund" to the risk of the market, but at 60k, even if the market crashed by 50%, you'd still have $30,000.

As for investment advice, I follow JLCollin's advice and am 100% in VTSAX (except for my 401k which, I believe is VTFIAX, since they don't offer VTSAX) since I'm still working towards FIRE.
« Last Edit: July 10, 2019, 09:24:12 AM by Junco »

bjclifto

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Thanks, this video was helpful.

What are thoughts on putting large amount ($50k) into taxable account (85% VTSAX and 15% VBTLX - total bond market) at once versus chunking $2k-$5k over upcoming months?  I know there's no way of timing market, but does it make more sense to go dollar-cost averaging or lump sum?

Fuzz

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What kind of down payment would you need for a home or rental property? If you're looking to park the money for only 2 years, it makes sense to me to go with something more conservative than 100% stocks.

You're in kind of an interesting spot where you only have retirement investments and zero taxable investments. It looks like 85% of your NW is in retirement and 15% in cash. You might also think about dialing back retirement contributions and increasing taxable contributions going forward. You've saved a ton, but you can't access most of that money until you're 59 without a penalty, which is another 15 years. Congrats on doing the most tax efficient thing possible, but it also has limited what you can do. So there is that to think about.

secondcor521

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What kind of down payment would you need for a home or rental property? If you're looking to park the money for only 2 years, it makes sense to me to go with something more conservative than 100% stocks.

You're in kind of an interesting spot where you only have retirement investments and zero taxable investments. It looks like 85% of your NW is in retirement and 15% in cash. You might also think about dialing back retirement contributions and increasing taxable contributions going forward. You've saved a ton, but you can't access most of that money until you're 59 without a penalty, which is another 15 years. Congrats on doing the most tax efficient thing possible, but it also has limited what you can do. So there is that to think about.

The bolded part is inaccurate.  At the very least, there are Roth conversion ladders, SEPP / 72(t), and the 401(k) rule of 55, which are three methods to access one's retirement money before 59.5 without penalty.  This thread probably has lots of information:

https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

Yanisimo

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In response to your question about dollar cost averaging - Neither Mr. Money Mustache or JL Collins are fans of dollar cost averaging. I believe MMM spoke about it in one of his recent YouTube videos, and I'm sure he talks about it in his blog (old article). They recommend depositing your money into the stock market all at once. I suggest you read their material so you can understand their reasoning.

https://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/

aetheldrea

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Thanks, this video was helpful.

What are thoughts on putting large amount ($50k) into taxable account (85% VTSAX and 15% VBTLX - total bond market) at once versus chunking $2k-$5k over upcoming months?  I know there's no way of timing market, but does it make more sense to go dollar-cost averaging or lump sum?
Dollar cost averaging has been proven to be a losing strategy.

If you think it makes sense, then you should also take out a 401k loan and reinvest it in the upcoming months, because you are timing the market.

Timing the market is not a good plan.

Jeepers you have a shit-ton of money doing nothing as an emergency fund.