Hello, all -
I originally attempted to post this as a comment reply in the "The Betterment Experiment - Results" blog post, but it didn't stick. Hopefully it is more appropriate here.
'The Betterment Experiment - Results' post:
http://www.mrmoneymustache.com/betterment-vs-vanguard/The post had an excellent discussions, and I learned quite a bit just by reading though this post and the corresponding comments. It’s exciting, though also a lot to take in. Hopefully I’ll build up enough understanding at some point to really invest well (and live more frugally).
Initial Question: What is the best place for funds that could be called upon at an unknown time (ex: potential future down payment on a house, an emergency, etc)?
Background:
As a US government worker at 29 years old, I have been contributing 6% to my TSP and work will match 4% (plus a mandatory 0.8% from me and 1% from work). My TSP is mostly in their 2040 and 2050 target date funds, which seem to be doing alright. I also max out my Roth IRA, most of which is invested in Vanguard’s 2045 and 2050 target date funds. Happily, I am currently debt-free.
At this point, I have 35k to 45k that I want to move out of my savings account and into index funds (leaving leave me with 10k to 20k in the savings account). In addition, I plan to contribute my monthly target savings amount to the index funds going forward. However, what I want to transfer includes part of my emergency fund and money that could be used for a large purchase. Since I live in the DC area, I do not have a car and I rent (which is high, but building up a good down payment for even a small condo here is tough, and I do not know how long I will be in the area). This money could go toward buying a home or ‘ideally’ paying cash for a decent used car at some point in the near or distant future, depending. I currently do not have plans for a car or to buy a home, but that could change within the next few years if circumstances shift.
In the blog comments, Dodge’s suggested allocation for Vanguard funds sounds right (56% US stock, 24% international, 20% bond), and it looks like 42k or more would let me get into a few of the Admiral Share levels. However, I know that changes in the market or a withdrawal could bump me back down to the Investor Share level (though Vanguard will automatically move you to Admiral each quarter if you qualify).
SPECIFIC KEY QUESTIONS:
Should I put the money into Vanguard using something like Dodge’s asset allocation and just not worry about getting bumped between Admiral and Investor Share levels (due to market changes or withdrawals, etc)?
Or should I consider using WiseBanyan or Betterment instead until I have built up enough funds to put in something like VTSAX, VTIAX, and/or VBTLX more permanently?
Sorry that this was a bit long! I wanted to make sure that I was communicating my currently financial position and concerns accurately.
Thank you!