Author Topic: Best vanguard fund for invested short or medium term savings  (Read 2454 times)

morli

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Best vanguard fund for invested short or medium term savings
« on: December 02, 2015, 08:06:42 PM »
I use a vanguard account to store move money I don't need from checking. The goal of this account is to grow and be used when needed for large things that come up every few years like car buying or repairs, unexpected home repair expenses, etc. I also do have a car loan which I paid fairly little down and the rest is financed at 0.9% so my hope is this account will do better than the 0.9% costs.

What is the best fund to keep buying into over time (random lumps and auto-weekly)? I ask because I was going with a balanced fund but someone pointed out its very tax inefficient to hold bonds in a taxable account. And bond yields are currently very low. So I switched to total stock market but that seems a bit risky for money I may occasionally need. I do see a tax managed balanced fund which is stocks and bonds but tax managed. Would that be good?

Also with all this talk of fed rates, if I do go back to bonds with tax managed fund, would it be better to wait for the hike?
« Last Edit: December 02, 2015, 08:50:24 PM by morli »

Interest Compound

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Re: Best vanguard fund for invested short or medium term savings
« Reply #1 on: December 02, 2015, 10:09:54 PM »
Keep it simple. Pick the appropriate Vangaurd LifeStrategy fund and don't worry about it:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

People say bonds aren't good in taxable accounts, but neither are savings accounts. If you're picking between a savings account and bonds, go for bonds. Unless you make something like $300,000 a year (don't remember the exact number), don't worry about a tax managed fund, and don't worry about municipal bonds. Keep it simple. Don't try to market-time the rate hike. The market has already priced in this possibility. You can't time the market. Keep it simple.

FLBiker

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Re: Best vanguard fund for invested short or medium term savings
« Reply #2 on: December 03, 2015, 08:37:09 AM »
I use a vanguard account to store move money I don't need from checking. The goal of this account is to grow and be used when needed for large things that come up every few years like car buying or repairs, unexpected home repair expenses, etc. I also do have a car loan which I paid fairly little down and the rest is financed at 0.9% so my hope is this account will do better than the 0.9% costs.

I wouldn't put money in the stock market (or even bonds, really) to use "every few years".  My emergency fund (~$10K) is just in a savings account.  Interest rates are low, but owell.

What is the best fund to keep buying into over time (random lumps and auto-weekly)? I ask because I was going with a balanced fund but someone pointed out its very tax inefficient to hold bonds in a taxable account. And bond yields are currently very low. So I switched to total stock market but that seems a bit risky for money I may occasionally need. I do see a tax managed balanced fund which is stocks and bonds but tax managed. Would that be good?

Total stock market is a great fund to buy into over time, but you're right that it isn't good for money you'll need in a few years.  In my opinion, though, neither is a balanced fund.

Also with all this talk of fed rates, if I do go back to bonds with tax managed fund, would it be better to wait for the hike?
You can try to time the market if you want, but I don't bother.

Personally, I don't do a lot of medium term saving (just emergency fund and long term) but maybe CDs would make sense?

morli

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Re: Best vanguard fund for invested short or medium term savings
« Reply #3 on: December 03, 2015, 08:49:21 AM »
I should clarify, I don't intend to sell it all every few years, I just may need to sell a little bit now and then (if i don't have to, great, I wont!).  So it's more like long-term savings with bits and pieces used as needed... it is not intended as a "dump everything in, wait 3 years and then sell /use the money"

I think the moderate growth fund lifestrategy should work well.
« Last Edit: December 03, 2015, 08:52:12 AM by morli »

Axecleaver

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Re: Best vanguard fund for invested short or medium term savings
« Reply #4 on: December 03, 2015, 02:17:15 PM »
An alternative to bonds are TIPS, treasury inflation protected securities. It's hard to find a more stable investment. You won't make much on it, and they're not much better than bonds at the moment, but you avoid the risk of interest rate increases and the negative effect that has on long term bonds.

I made some 529 contributions for my daughter this year, knowing that tuition was due in a few months. We got the state tax deduction for the 529 contribution, then used it to pay tuition in the same year. I invested in TIPS while it was cooling in the account.

CanuckExpat

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Re: Best vanguard fund for invested short or medium term savings
« Reply #5 on: December 03, 2015, 03:03:53 PM »
If you want to be tax efficient but achieve the same end result then hold stocks in your taxable accounts and bonds in your tax advantaged accounts. When you need the money you sell as much stocks as needed in your tax advantage account (if markets are down you sell more), then re-balance in the tax advantage account so you are back to your desired ratio.

To not get in trouble with this strategy, you need to always maintain more then enough of a buffer in taxable accounts to meet your cash needs.

See here for more info: Placing cash needs in a tax-advantaged account

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CanuckExpat

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Re: Best vanguard fund for invested short or medium term savings
« Reply #6 on: December 03, 2015, 03:28:49 PM »
People say bonds aren't good in taxable accounts, but neither are savings accounts. If you're picking between a savings account and bonds, go for bonds.

Could you expand on why you think that is the case?

For possible cash needs in a taxable account, I think a high interest savings account or a CD with a forgiving early redemption penalty can work out better than buying bonds in a lot of cases, especially in today's rate environment.

The argument is that large institutional investors who need the safety of government backing are forced to buy treasury bonds, which drives down yields. The rest of us who can live within FDIC limits can get roughly the same guarantee of safety, assuming we are ok with only investing a quarter million in a single account.