Author Topic: Diversifying with high savings amount this year  (Read 589 times)

use2betrix

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Diversifying with high savings amount this year
« on: March 09, 2019, 06:54:05 PM »
So this post feels like a slight amount of market timing, but looking for some feedback on my thought process.

Iím 30 years old with currently about $310,000 in the market. I have $185,000 in VTSAX, $100,000 in some Target 50 retirement funds, and the rest is between some Mid Cap and Developed Market Index Funds.

Iím thinking in the next 5 years I would like to majorly cut back on work to maybe working 3-4 months a year (which would be enough to cover living expenses) while my investments grow.

This year, itís looking like Iíll have approximately $180,000 to invest in the market. The $30,000 from my 401k and match are currently set to all go in VTSAX. The $7,000 from my HSA I maxed out in January also went towards VTSAX.

With how much my savings/investing will add this year, part of me is feeling like I would feel more comfortable with even a 0% return on that money as opposed to the possible gains (or very likely losses.) At my savings rate and amount saved (around 70%) I do not feel like the possible returns in this short period are going to make a sizeable impact to the growth compared to my actual savings itself.

Thoughts on my situation? I know Iíll get a million of the ďyouíre timing the market, dump it all in VTSAX, yadda yaddaĒ as Iíve been around here long enough and read all the MMM blog posts.

Aside from the 401k contributions and HSA amount, I am considering keeping half of the remaining as cash and investing the other half in some sort of international market like VTWSX, or possibly all the remaining in VTWSX as I typically keep a pretty large emergency fund due to my work as a contractor.

Thoughts?

Telecaster

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Re: Diversifying with high savings amount this year
« Reply #1 on: March 09, 2019, 07:46:42 PM »
With how much my savings/investing will add this year, part of me is feeling like I would feel more comfortable with even a 0% return on that money as opposed to the possible gains (or very likely losses.) At my savings rate and amount saved (around 70%) I do not feel like the possible returns in this short period are going to make a sizeable impact to the growth compared to my actual savings itself.

What does "short period" mean?   Aren't you going to be invested for the rest of your life?  By the way, inflation is running about 2%.  So your 0% gain will be more like a 2% loss, which is essentially guaranteed. 

Quote
Thoughts on my situation? I know Iíll get a million of the ďyouíre timing the market, dump it all in VTSAX, yadda yaddaĒ as Iíve been around here long enough and read all the MMM blog posts.

Correct.  There is a reason for that. 

use2betrix

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Re: Diversifying with high savings amount this year
« Reply #2 on: March 09, 2019, 08:22:48 PM »
With how much my savings/investing will add this year, part of me is feeling like I would feel more comfortable with even a 0% return on that money as opposed to the possible gains (or very likely losses.) At my savings rate and amount saved (around 70%) I do not feel like the possible returns in this short period are going to make a sizeable impact to the growth compared to my actual savings itself.

What does "short period" mean?   Aren't you going to be invested for the rest of your life?  By the way, inflation is running about 2%.  So your 0% gain will be more like a 2% loss, which is essentially guaranteed. 

Quote
Thoughts on my situation? I know Iíll get a million of the ďyouíre timing the market, dump it all in VTSAX, yadda yaddaĒ as Iíve been around here long enough and read all the MMM blog posts.

Correct.  There is a reason for that.

That is true - I do plan to be invested the rest of my life. My point is mainly that I plan to save/invest a lot in a very short period of time.

In getting from A-Z in a short period, my biggest gains by far are my savings as opposed to compound interest. 6% at 5 years doesnít add as much value as someone who earns 6% accumulating over 20 years..

MustacheAndaHalf

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Re: Diversifying with high savings amount this year
« Reply #3 on: March 09, 2019, 10:50:38 PM »
You have $310k in the market, and will have $180k to invest this year, or over 50%.  If you contribute another $180k next year, that will increase your nest egg by over +35%.

If your job stress level is okay, why not wait until your annual contributions are a smaller fraction of your retirement savings?

Freedomin5

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Re: Diversifying with high savings amount this year
« Reply #4 on: March 09, 2019, 11:19:34 PM »
I donít understand your question. Even after five years has passed you still plan to work 3-4 months per year to cover your living expenses. So that means you donít plan to touch the $180k/year youíre investing in the next few years. That means you should still keep it in VTSAX and let it ride the market. Itís not like you need to withdraw the money within the next five years.

use2betrix

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Re: Diversifying with high savings amount this year
« Reply #5 on: March 10, 2019, 06:03:54 AM »
You have $310k in the market, and will have $180k to invest this year, or over 50%.  If you contribute another $180k next year, that will increase your nest egg by over +35%.

If your job stress level is okay, why not wait until your annual contributions are a smaller fraction of your retirement savings?

That is a big part of my question.. My work is typically 60+ hr weeks where Iím swamped non-stop and stress levels are very high. Switching to a non-contract permanent job would likely cut my income nearly in half, and although Iíd likely have better hours, I donít know that my stress levels would be much better.


I donít understand your question. Even after five years has passed you still plan to work 3-4 months per year to cover your living expenses. So that means you donít plan to touch the $180k/year youíre investing in the next few years. That means you should still keep it in VTSAX and let it ride the market. Itís not like you need to withdraw the money within the next five years.

I should clarify more. That 5 years is dependent on several factors. My concern is that Iím going to be investing such a large amount starting nearly 10-11 years after the stock markets last hard drop. Should it drop hard again in the next few years, itís going to extend that time working, as my time continued working full time is ďideallyĒ 5 years or less, but should I get a few years in and it drops hard, Iím going to be stuck working full time longer until my NW number climbs again. I guess what I am getting at is - With my current savings amount/rate, Iím not sure that I find the risks of the current market worth the rewards. Even at a 0% return (or as someone else pointed out, -2%, technically) I could still hit the FIRE/part time amount soon.




So another question, which maybe I didnít ask directly enough as it hasnít been mentioned here: Would it be a bad idea right now to start investing more heavily in foreign markets since Iím so heavily invested in the U.S. markets?
« Last Edit: March 10, 2019, 06:06:19 AM by use2betrix »

Freedomin5

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Re: Diversifying with high savings amount this year
« Reply #6 on: March 10, 2019, 06:21:33 AM »
Ah, got it. So then maybe just follow what most people do and start changing the allocation  between equity index funds and bond index funds? As people get closer to FIRE-ing, many people start to reduce the percentage in equity and increase the percentage in bonds.

The other way of mitigating this sequence of returns risk is to keep a cash buffer / yield shield which would provide you with money to live while you wait for the markets to recover. Iíve heard of people keeping anywhere between one and three years worth of expenses in cash in a high interest savings account.

bacchi

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Re: Diversifying with high savings amount this year
« Reply #7 on: March 10, 2019, 11:27:28 AM »
Ah, got it. So then maybe just follow what most people do and start changing the allocation  between equity index funds and bond index funds? As people get closer to FIRE-ing, many people start to reduce the percentage in equity and increase the percentage in bonds.

The other way of mitigating this sequence of returns risk is to keep a cash buffer / yield shield which would provide you with money to live while you wait for the markets to recover. Iíve heard of people keeping anywhere between one and three years worth of expenses in cash in a high interest savings account.

+1

This is less to do with market timing and more to do with avoiding SOR. Your life is changing soonish and with that comes asset allocation changes.