Author Topic: Where to stash our travel fund?  (Read 564 times)

Annie101

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Where to stash our travel fund?
« on: November 05, 2018, 02:40:40 PM »
Hi,

I recently found this site after reading YMOYL, so I have not been thinking about early retirement for long.  My big money goal has been to save for a one year trip around the world with my family.
 My husband and I have been saving for the past four years.  We plan to leave in 3-1/2 years, so it is approaching.  We have our savings in Fidelity 4-in-1, which I am starting to worry is too aggressive (since it has started going down).  What should we do with our cash?  Are we being to aggressive?  How do we switch to another fund?  Just move it all at once?  Move it gradually?  Leave what we have where it is, but start putting our new contributions in something less risky so that we gradually have a nice mix.

Thanks!

leavesofgrass

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Re: Where to stash our travel fund?
« Reply #1 on: November 05, 2018, 05:42:49 PM »
This money should be in a high yield savings or a money market account. Maybe a CD if you feel OK about locking in interest rates.

Keeping this money in the stock market when you need it within a few years is incredibly risky, unless you are fine with possibly pushing back your travel plans by (many) years. It looks like the 4 in 1 is about 85% equities. What if the market crashes?

Also, not sure how much money you're talking about or what your income is, but there are a lot of factors to consider when contemplating changing your asset allocation. If this money is in a taxable account, you'll need to consider your capital gains/losses.

Annie101

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Re: Where to stash our travel fund?
« Reply #2 on: November 05, 2018, 06:28:01 PM »
It's about $66k right now.  It is in a taxable account.  Our joint income is somewhere between $150-200k.  I guess I just pull it out and pay the capital gains?  Maybe half this year and half next year?

Radagast

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Re: Where to stash our travel fund?
« Reply #3 on: November 06, 2018, 03:33:42 AM »
I think the bigger picture is that you should increase your savings rate. Look to save a minimum of 50% of joint income. You should find 75% doable with those incomes. The wife and I will be making in that range next year and it is hard to say but I think we will save 80% of gross income and subtract 5% for each hypothetical child.

That is also fairly expensive to travel the world. I would have estimated half those values for a family of 4. Perhaps brush up on your travel hacking. Start saving airline miles and hotel stays. Then in combination with long term Airbnb you should be able to travel at low cost. Particularly if you do have high spending, it should be easy to rack up dozens of free flights in 3.5 years.

Put those together and it does not really matter what funds you save in, you will have far more than enough money. I do somewhat agree that FFNOX is not ideal, ideally you would want separate stock and bond funds to give yourself more control. Personally I am not a fan of ultra low risk options as a general life strategy, while you need to save and protect what you need you also will need long term growth. Ultimately one yearís world travel is an extreme hyperluxury unobtainable to essentially every human who has ever lived and I do not see it as a goal that must be realized on a precise schedule at all costs. As the worst case is living as a normal human being I would gladly trade a small variance in start time for the likelihood of greater returns. If it was very important to me Iíd keep 25% in safer assets and increase my saving rate until I knew 25% would cover my year off.
« Last Edit: November 06, 2018, 03:39:12 AM by Radagast »

Goldy

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Re: Where to stash our travel fund?
« Reply #4 on: November 06, 2018, 06:06:05 AM »
never mind, I misread your post
« Last Edit: November 07, 2018, 05:01:52 AM by Goldy »

leavesofgrass

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Re: Where to stash our travel fund?
« Reply #5 on: November 06, 2018, 09:24:57 AM »
It's about $66k right now.  It is in a taxable account.  Our joint income is somewhere between $150-200k.  I guess I just pull it out and pay the capital gains?  Maybe half this year and half next year?

Before you move anything and incur tax consequences, I would HIGHLY recommend making a post over at the Bogleheads forum, asking them for advice on your portfolio. Have them evaluate your full financial situation with your travel goal in mind. It sounds like you're bringing in a solid income, but there are so many other factors to consider - retirement savings? emergency fund? tax rate? house? debt? kids? etc. Like another has said, your savings rate could probably increase. But without knowing your full financial picture, it's hard to provide good advice.

A few comments:
  • I would avoid a blended fund (equity & bond) in your taxable account since you can't manipulate your asset allocation as well as you could with separate asset class funds. It also creates a tax drag.
  • It's best to avoid holding bonds in a taxable account since it's not tax-efficient. If you don't have enough room for bonds in your non-taxable space, then consider a tax-exempt bond fund, like a Muni.
  • I think you should save as much as you feel comfortable with spending for your trip. Some may balk at a large travel budget, but I can see how you may need a lot.
  • Definitely start reading up on travel hacking. Signing up for credit cards with great rewards/bonuses over these next few years could save you thousands of dollars when you start traveling. It's also nice to get perks like free Global Entry, car rental insurance, and lounge access.


Annie101

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Re: Where to stash our travel fund?
« Reply #6 on: November 06, 2018, 06:25:07 PM »
I think the bigger picture is that you should increase your savings rate. Look to save a minimum of 50% of joint income. You should find 75% doable with those incomes. The wife and I will be making in that range next year and it is hard to say but I think we will save 80% of gross income and subtract 5% for each hypothetical child.

Ultimately one yearís world travel is an extreme hyperluxury unobtainable to essentially every human who has ever lived and I do not see it as a goal that must be realized on a precise schedule at all costs. As the worst case is living as a normal human being I would gladly trade a small variance in start time for the likelihood of greater returns.

I realize that this goal is unobtainable to most, but so is retiring at 30!  I thought this forum was geared towards those with lofty but totally obtainable goals.  We are sacrificing a lot to achieve our goal, but it is doable.

I laughed at the comment about reducing your saving rate by 5% for each hypothetical child.  Kids require a bedroom (housing is expensive), daycare, a car to get them to and from said daycare, food, college, etc..  They are expensive!  Daycare costs when they were young were way more than our mortgage (in HCOL city).

Annie101

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Re: Where to stash our travel fund?
« Reply #7 on: November 06, 2018, 06:52:26 PM »
It's about $66k right now.  It is in a taxable account.  Our joint income is somewhere between $150-200k.  I guess I just pull it out and pay the capital gains?  Maybe half this year and half next year?

Before you move anything and incur tax consequences, I would HIGHLY recommend making a post over at the Bogleheads forum, asking them for advice on your portfolio. Have them evaluate your full financial situation with your travel goal in mind. It sounds like you're bringing in a solid income, but there are so many other factors to consider - retirement savings? emergency fund? tax rate? house? debt? kids? etc. Like another has said, your savings rate could probably increase. But without knowing your full financial picture, it's hard to provide good advice.

A few comments:
  • I would avoid a blended fund (equity & bond) in your taxable account since you can't manipulate your asset allocation as well as you could with separate asset class funds. It also creates a tax drag.
  • It's best to avoid holding bonds in a taxable account since it's not tax-efficient. If you don't have enough room for bonds in your non-taxable space, then consider a tax-exempt bond fund, like a Muni.
  • I think you should save as much as you feel comfortable with spending for your trip. Some may balk at a large travel budget, but I can see how you may need a lot.
  • Definitely start reading up on travel hacking. Signing up for credit cards with great rewards/bonuses over these next few years could save you thousands of dollars when you start traveling. It's also nice to get perks like free Global Entry, car rental insurance, and lounge access.

Thanks for all the great comments.  This is over my head, so I need to do some research.  Maybe I will post a detailed case study.

I'm not sure how to be tax efficient with our savings.  I guess our original thought was that earning a good return on our savings would be a benefit.  If we have to pay taxes on our earnings, that's fine.  Better than not having any earnings. 

I like blended funds because we don't have to worry about rebalancing.  But I see that the downside is that when we want to change our allocation, it isn't possible without selling.

Our actual goal for the travel fund is $150k, so that must really sound crazy to some.  We want to move around and see many different places.  If we have money left over, then that's great.  I would rather not run out of money.

We do need to increase our savings rate.  Now that I have found this site, I am going to work on that.    However, I am more interested in valuing my time than early retirement.  For example, I work 80% because I want to spend time with my kids while they are young.  I don't want to max out my earnings now and then retire as soon as they head off to college.  We are more frugal than many people I know, but we do pay for a housecleaner which is totally worth it.  We have only one car, a small house that we are paying off, no cable or Netflix, etc.  We only keep 10K in our emergency fund, but have been contributing between 12-15% of our salaries toward retirement, save monthly for kids college fund, and not taking on much debt (used car will be paid off next summer).  It's exciting to read about the FIRE movement.  I have already learned a lot and I hope to learn more!

Radagast

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Re: Where to stash our travel fund?
« Reply #8 on: November 06, 2018, 08:31:06 PM »
I think the bigger picture is that you should increase your savings rate. Look to save a minimum of 50% of joint income. You should find 75% doable with those incomes. The wife and I will be making in that range next year and it is hard to say but I think we will save 80% of gross income and subtract 5% for each hypothetical child.

Ultimately one yearís world travel is an extreme hyperluxury unobtainable to essentially every human who has ever lived and I do not see it as a goal that must be realized on a precise schedule at all costs. As the worst case is living as a normal human being I would gladly trade a small variance in start time for the likelihood of greater returns.

I realize that this goal is unobtainable to most, but so is retiring at 30!  I thought this forum was geared towards those with lofty but totally obtainable goals.  We are sacrificing a lot to achieve our goal, but it is doable.

I laughed at the comment about reducing your saving rate by 5% for each hypothetical child.  Kids require a bedroom (housing is expensive), daycare, a car to get them to and from said daycare, food, college, etc..  They are expensive!  Daycare costs when they were young were way more than our mortgage (in HCOL city).
I mean, lets say you live in San Francisco, the stereotypical HCOL city. The median household earns $78,400, and the median family earns     $93,391. Assuming the median saves at least some money, it spends less than that. If you can condescend to be average, you should be able to sock away $80-100k annually. With lessons learned here you should be able to live a 40th percentile lifestyle on 60th percentile spending, or better.

Child expenses are my best guess for our situation as we already include an appropriate house and car in our spending and have personal reasons to expect low child care expenses. But I should realize that child care at least will be very different for many people.

Edit to add
https://www.mrmoneymustache.com/2011/05/26/what-is-the-real-cost-of-raising-children/
« Last Edit: November 06, 2018, 08:33:30 PM by Radagast »

Goldy

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Re: Where to stash our travel fund?
« Reply #9 on: November 07, 2018, 05:10:52 AM »
Sorry, I somehow didnít read the part where you said it was a full year trip.  That makes a lot more sense now.

If it were me I would keep everything in a taxable account and withdraw the money in the year you will be traveling.  You only pay capital gains on your earnings and since you wonít have a job at that time you get taxed at the 0% rate.  If you split the withdrawals between two years then at your income you will pay cap gains if you take it out when you are still working.

Iíd also probably stop investing in the last year or so and just focus on stashing cash for the trip in something safe like a CD.

Sounds like a fantastic opportunity to me

Linda_Norway

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Re: Where to stash our travel fund?
« Reply #10 on: November 07, 2018, 06:13:18 AM »

Our actual goal for the travel fund is $150k, so that must really sound crazy to some.  We want to move around and see many different places.  If we have money left over, then that's great.  I would rather not run out of money.


That is 4,75 times our household spending in 2017. Are you really willing to spend that much money in just 1 year?

There must be cheaper ways to see a bit of the world, just finding cheap flights on cheap days and choosing cheap accommodation.
Maybe this is the wrong forum for you?