Author Topic: 10-year "maybe spend" investing  (Read 1498 times)

Jacobi

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10-year "maybe spend" investing
« on: August 13, 2019, 02:38:15 PM »
I'm fortunate to be in a position where I have met the following steps by age 30:

- No Debt
- 6 month emergency fund in cash
- Maxing 401k and Roth IRA annually

These are a no-brainer to me. Investing in stocks for the 30-40 year time horizon makes total sense. But on top of this, I have somewhere around $1500 per month extra that I can be saving. The question is what to do with it, if I might want to have it available for spending in the next 10 years. It could possibly be for a house down payment (I'm a renter -- I live in a HCOL area). Or, maybe I won't need to spend it. I might be a renter for life. I'm just not sure.

I suppose the short version of my question is: Is doing VTSAX for a 10-year savings horizon better than socking it away in a savings account, given that it's not a total mandate that I spend the money, and the timeline will be flexible? Should I be considering a middle-ground of risk like VBIAX or other? Or is Savings a better bet, given that I'm not especially interested in retiring early, and I'm already putting away a lot in my long-term retirement stock funds? I know we're not supposed to time the market, but there is the added sense that we may be due for a downturn sometime soon, and the next 10 years don't seem that optimistic for the market.

Thanks for the help!

Rob_bob

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Re: 10-year "maybe spend" investing
« Reply #1 on: August 13, 2019, 03:24:34 PM »
I would probably have a larger emergency fund.  Could you fund a Health Savings Account?

Since you don't have a truly fixed need or time frame where you would need the cash I would put it in the market at whatever AA fits your risk profile.

MustacheAndaHalf

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Re: 10-year "maybe spend" investing
« Reply #2 on: August 14, 2019, 08:50:20 PM »
If you buy bonds in a taxable account, you'll owe ordinary income tax on the bond income.  That's true even if the bonds are inside a fund, like VBIAX .  Given your HCOL area, max 401(k), and an extra $18k/year I'm going to assume your tax rate is high enough to consider tax-exempt bonds.  Vanguard has state-specific tax-exempt bond funds for CA and NY, for example.

VBIAX only holds U.S. equities - no international.  While there's an argument that U.S. companies do half their business overseas, sometimes international beats U.S. performance.  You might want to diversify, even if it's just 20%.

How about something like this?
60% Vanguard Total Stock Market ("VTI", expense raito 0.03%/year)
20% Vanguard Total International ("VXUS", expense ratio 0.09%/year)
20% Vanguard Tax-Exempt Bond ("VTEB", expense ratio 0.08%/year)

I like ETFs, but you could do the same with mutual funds if you prefer.  The key thing is to have an aggressive allocation to equities when you have an indefinite time frame, and as the goal of that money becomes clear, shift towards bonds/cash.  If you know you're buying a house 2 years from now, you should shift almost all of it out of equities.
(In theory, 10% stocks and 90% bonds is actually less volatile than 100% bonds because of how stocks and bonds tend to perform differently).

You could also look at target date funds to see how as retirement approaches, the funds go more into bonds.

Jacobi

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Re: 10-year "maybe spend" investing
« Reply #3 on: August 21, 2019, 09:54:14 AM »
Thanks M 1/2. I live in CA so maybe I'll create my own 60/40 allocation in taxable using VTSAX and CA tax-exempt bonds.

FLBiker

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Re: 10-year "maybe spend" investing
« Reply #4 on: August 21, 2019, 02:44:32 PM »
How about something like this?
60% Vanguard Total Stock Market ("VTI", expense raito 0.03%/year)
20% Vanguard Total International ("VXUS", expense ratio 0.09%/year)
20% Vanguard Tax-Exempt Bond ("VTEB", expense ratio 0.08%/year)

+1

10 years is long enough I wouldn't hesitate to invest it.