Author Topic: Taxable VTSAX - took the plunge  (Read 2408 times)

doneby35

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Taxable VTSAX - took the plunge
« on: April 20, 2017, 06:04:15 PM »
So i've been holding off on this for a few months now because of the market being high and all, but since my 401K, HSA, tIRA is all being maxed out, I said F it and bought 10k of VTSAX.

I have 20k more that I would like to transfer from my bank account and buy more VTSAX, that would leave me with 6 months of emergency stash in my savings account but at this point, I feel like I need someone to tell me that I won't be making the wrong decision by doing that, considering that I plan to retire in 10 years. Anyone??

Abe

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Re: Taxable VTSAX - took the plunge
« Reply #1 on: April 20, 2017, 07:07:12 PM »
If you're worried about taxes - the capital gains will be long-term in 1 year so you can potentially pay 0% if you play your cards right.

If you're worried about principal loss from a stock market plunge - 10 years is a reasonable recovery horizon. I'm not sure how this would be different from any of your other accounts, though. If this makes you nervous, look at buying bonds to get a more balanced asset allocation.

Proud Foot

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Re: Taxable VTSAX - took the plunge
« Reply #2 on: April 21, 2017, 09:38:35 AM »
If you invest and the market then tanks, that's ok because over the long run the market always goes up and it has a very high chance of outpacing inflation. On the other hand by keeping it all in cash or a CD you are guaranteeing yourself to lose to inflation every year. Yes you could invest and then the market tank and you feel bad about not being able to buy in at the lower prices.  But now your trying to time the market and what happens if the market prices never drop?

doneby35

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Re: Taxable VTSAX - took the plunge
« Reply #3 on: April 21, 2017, 05:05:09 PM »
Of course you are right, I'm just overthinking and i'm trying to convince myself to invest the remaining 20k in VTSAX next week.

WildJager

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Re: Taxable VTSAX - took the plunge
« Reply #4 on: April 24, 2017, 01:21:45 PM »
Make an investment plan, and stick to it with any cash you don't need to keep around for emergencies (whatever you're comfortable with).  Consistently invest regardless of the current market climate.  Check your emotions at the door.

That's the basic strategy for buy and hold.  10 years is a long (relatively) horizon.  Even if the cash value of your investments go down, you'll still be accumulating a larger number of shares.  Do not pull out when the market drops out of thoughts that you're saving money. 

Granted, this is all just one strategy of many, but it's a considered a solid one for index investors.

Highbeam

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Re: Taxable VTSAX - took the plunge
« Reply #5 on: April 24, 2017, 01:28:00 PM »
Put it all in today and consider eliminating your "emergency fund" as well. You want enough cash just to prevent bouncing checks. Your credit cards will buy you time to cash in shares if a large cost pops up.

You can access your tax deferred pots of money in an actual emergency.

MustacheAndaHalf

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Re: Taxable VTSAX - took the plunge
« Reply #6 on: April 24, 2017, 07:18:50 PM »
Most financial advisers I've read don't recommend "eliminating your emergency fund".  I think before giving advice like that, it's incumbent on you to explain why so many people are wrong about having an emergency fund.

MrsWolfeRN

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Re: Taxable VTSAX - took the plunge
« Reply #7 on: April 25, 2017, 06:13:18 AM »
Most financial advisers I've read don't recommend "eliminating your emergency fund".  I think before giving advice like that, it's incumbent on you to explain why so many people are wrong about having an emergency fund.

It is not right or wrong, just a personal choice. I keep my "emergency fund" invested and only between 3-5 k in cash at any time. If I need to make a large purchase, I withdraw the amount I need. So far I haven't lost money doing this, but I understand that there is some risk. I have also never run into any large emergency that couldn't wait a week or two. 

Highbeam

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Re: Taxable VTSAX - took the plunge
« Reply #8 on: April 25, 2017, 09:41:53 AM »
Most financial advisers I've read don't recommend "eliminating your emergency fund".  I think before giving advice like that, it's incumbent on you to explain why so many people are wrong about having an emergency fund.

It is not right or wrong, just a personal choice. I keep my "emergency fund" invested and only between 3-5 k in cash at any time. If I need to make a large purchase, I withdraw the amount I need. So far I haven't lost money doing this, but I understand that there is some risk. I have also never run into any large emergency that couldn't wait a week or two.

Exactly. I said to consider it because we are not normal investors and most financial advisors are not equipped to deal with clients that keep their "emergency fund" in a smarter location. It is quite different to recommend having no easily accessible money.

lizzzi

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Re: Taxable VTSAX - took the plunge
« Reply #9 on: April 25, 2017, 10:14:45 AM »
Most financial advisers I've read don't recommend "eliminating your emergency fund".  I think before giving advice like that, it's incumbent on you to explain why so many people are wrong about having an emergency fund.

It is not right or wrong, just a personal choice. I keep my "emergency fund" invested and only between 3-5 k in cash at any time. If I need to make a large purchase, I withdraw the amount I need. So far I haven't lost money doing this, but I understand that there is some risk. I have also never run into any large emergency that couldn't wait a week or two.

Exactly. I said to consider it because we are not normal investors and most financial advisors are not equipped to deal with clients that keep their "emergency fund" in a smarter location. It is quite different to recommend having no easily accessible money.

+1

fattest_foot

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Re: Taxable VTSAX - took the plunge
« Reply #10 on: April 25, 2017, 10:48:39 AM »
Most financial advisers I've read don't recommend "eliminating your emergency fund".  I think before giving advice like that, it's incumbent on you to explain why so many people are wrong about having an emergency fund.

Most financial advisors are giving advice to people who are terrible with money.

I'm guessing that advice was given for a typical Mustachian. There's no use having your "emergency fund" sitting in cash equivalent when you're not living on the edge of paycheck to paycheck like most people.

smallstache

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Re: Taxable VTSAX - took the plunge
« Reply #11 on: April 25, 2017, 08:27:46 PM »
I don't like the suggestions for taxable bonds or CDs.  Ordinary income rates on these assets can kill the profit.  Go with qualified dividend paying stocks/stock fund or tax-exempt bond.

Khanjar

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Re: Taxable VTSAX - took the plunge
« Reply #12 on: April 25, 2017, 11:08:39 PM »
Welcome to the taxable/margin/springy debt emergency fund crowd. I think I'm going to slowly modify the following until I am posting it in every topic like this...

See the following posts about not maintaining an emergency fund/springy debt/taxable account as emergency fund:
http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/
https://forum.mrmoneymustache.com/welcome-to-the-forum/understanding-springy-debt/
https://forum.mrmoneymustache.com/investor-alley/betterment-$50k-%27safety-net%27/
https://forum.mrmoneymustache.com/welcome-to-the-forum/am-i-stupid-for-not-having-an-emergency-fund/
https://forum.mrmoneymustache.com/ask-a-mustachian/should-invested-money-count-as-'emergency-fund'/

IMO if your emergency fund is actually for emergencies, and thus infrequently used(say <1 time in 10 year span), then having outsized ROTH account or taxable accounts(or combined) meets the needs of having accessible funds. Of course, your own temperament and plans for layoffs and such might change the dynamics for you personally. My plan for not having a job is to use my total net worth to fund whatever's needed, and/or go get a job wherever necessary, and anything that's worse than that blows any planning or 6 month fund out of the water anyways. In the meantime, I reap the market returns of having not held 20k in cash for the last 10+ years, which means an impossibly large crash at this point would be required to wipe out the gains I've had.

Or, here's a post from Boarder42 along the same lines:
I keep as close to 0/ negative as possible between my checking and credit card due. Everything else is invested.  Have a big ticket purchase coming up that I will double my money on so my cash is slightly growing for that. But that's really an investment. No market returns will do 100% ROI in 2 months.

Why - BC the downside risk plus having to withdraw is much smaller than the upside potential. 

What - do I do if big unexpected expenses come up.
1. Pay with a credit card
2. Halt taxable contribution
3. Halt Roth contribution
4. Halt 401k contribution.
5. Sell equities if necessary.

Never made it past halt taxable. Which is 2k per month.

Dave Ramsey often suggests a 6 month E fund.  That is 6 months of income.  He also suggests keeping it in money markets or checking.

So let's see,  if a person keeps 40K at essentially zero interest, in 30 years they will have an inflation adjusted 13K.

Now take that same 40K and invest at an average 9-10% and in 30 years you'll have an inflation adjusted 425K.   
« Last Edit: April 25, 2017, 11:22:15 PM by Khanjar »

MrsWolfeRN

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Re: Taxable VTSAX - took the plunge
« Reply #13 on: April 26, 2017, 05:02:19 AM »
Thanks for tracking down the information Khanjar. In addition to boarder42's list, most of us could also:

6.work more
7. decrease or postpone other spending
8.open HELOC or other low interest loan

Now, during FIRE, how many months of expenses do most of us keep in cash? Do you withdraw one month at a time, or one year at a time? And do you keep more cash cushion than you did during the working years?

AdrianC

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Re: Taxable VTSAX - took the plunge
« Reply #14 on: April 27, 2017, 06:04:21 AM »
In the meantime, I reap the market returns of having not held 20k in cash for the last 10+ years, which means an impossibly large crash at this point would be required to wipe out the gains I've had.

$20K in VTSAX Jan 2007. Now worth $42.5K
$20K in CASH Jan 2007. Now worth $21.4K

A huge win.

However, 2 years into this plan:
$20K in VTSAX Jan 2007. Feb 2009 worth $10.9K
$20K in CASH Jan 2007. Feb 2009 worth $21.2K

And in Feb 2009 no-one knew if that was the bottom.