Author Topic: Doubting myself after meeting with financial advisor.  (Read 14642 times)

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 833
Re: Doubting myself after meeting with financial advisor.
« Reply #50 on: October 06, 2016, 04:03:57 PM »
Some thoughts about the emergency fund:

First, since you are a single parent, I think the emergency fund ought to cover 6-12 months of expenses, rather than 3-6 months. Since you don't have a second person's income to buffer the fall, and you have children depending on you, this seems wise.

Second, as for using the ROTH IRA as your emergency fund - it depends on what you are invested in.  To my mind, whatever part of the ROTH you are considering your emergency fund, needs to be invested in emergency-fund-type investments - i.e. safe investments, not stocks etc.  The reasoning is this:  sure, many emergencies that might befall you could be market-independent, such as a serious illness in the family that requires you to take prolonged unpaid leave.  Extra disability insurance for yourself might be a very good idea, since your kids depend on your earning capacity. BUT - one of the biggest challenges you might face is what happened to many people in 2008 - a severe market downturn resulting in job loss at exactly the same time as the stock market goes south.  You DON'T want to be forced to sell your market shares at the bottom of the downturn just because that's your emergency fund.

I'd say, figure out what you would need in addition to unemployment to get by on a strict emergency budget (let's say $1,500 a month plus unemployment for the sake of this example), multiply by 12 = $18,000.  Keep $3,000 or whatever you're comfortable with in your ready cash, then keep the remaining $15k in your ROTH in a money market account.  That way it would always be available even in a depression (although, sure, it wouldn't grow as fast, but I think security has to take a higher role in a single income family).  If you lose your job but are getting unemployment, you're covered for a year's expenses; if you have to leave in some way that doesn't get you unemployment or disability payments, you're still covered for about 7 months of expenses.

nyxst

  • Bristles
  • ***
  • Posts: 276
    • AgainstAllOdds
Re: Doubting myself after meeting with financial advisor.
« Reply #51 on: October 06, 2016, 05:56:33 PM »
Keep $3,000 or whatever you're comfortable with in your ready cash, then keep the remaining $15k in your ROTH in a money market account.  That way it would always be available even in a depression (although, sure, it wouldn't grow as fast, but I think security has to take a higher role in a single income family)

This was what I was thinking about for a few days after I met the advisor. I am SOOO close to having my first 100k invested that it pains me to consider holding that much cash out. But in the grand scheme of things, it probably is better to have the cash. I also have tried to keep the cash minimal because I have trouble saying no to my parents, who often have "emergencies" they didn't prepare for.... And the inner battle begins... How can I not give them money I have when they need it and I am just sitting on it like a greedy dragon. If it's invested, I don't get that.
I think I will calculate the absolute minimum I'd need to survive for 6 months, no frills, and work up to that amount in cash savings. I may also get a bonus in the spring that could be a large chunk of that....
« Last Edit: October 06, 2016, 05:58:28 PM by nyxst »

radram

  • Pencil Stache
  • ****
  • Posts: 956
Re: Doubting myself after meeting with financial advisor.
« Reply #52 on: October 06, 2016, 08:58:52 PM »
Some thoughts about the emergency fund:

First, since you are a single parent, I think the emergency fund ought to cover 6-12 months of expenses, rather than 3-6 months. Since you don't have a second person's income to buffer the fall, and you have children depending on you, this seems wise.

Second, as for using the ROTH IRA as your emergency fund - it depends on what you are invested in.  To my mind, whatever part of the ROTH you are considering your emergency fund, needs to be invested in emergency-fund-type investments - i.e. safe investments, not stocks etc.  The reasoning is this:  sure, many emergencies that might befall you could be market-independent, such as a serious illness in the family that requires you to take prolonged unpaid leave.  Extra disability insurance for yourself might be a very good idea, since your kids depend on your earning capacity. BUT - one of the biggest challenges you might face is what happened to many people in 2008 - a severe market downturn resulting in job loss at exactly the same time as the stock market goes south.  You DON'T want to be forced to sell your market shares at the bottom of the downturn just because that's your emergency fund.

I'd say, figure out what you would need in addition to unemployment to get by on a strict emergency budget (let's say $1,500 a month plus unemployment for the sake of this example), multiply by 12 = $18,000.  Keep $3,000 or whatever you're comfortable with in your ready cash, then keep the remaining $15k in your ROTH in a money market account.  That way it would always be available even in a depression (although, sure, it wouldn't grow as fast, but I think security has to take a higher role in a single income family).  If you lose your job but are getting unemployment, you're covered for a year's expenses; if you have to leave in some way that doesn't get you unemployment or disability payments, you're still covered for about 7 months of expenses.

One potential criticism with this plan:  You are using what is the best tax advantage you have to get some of the worst returns you can(negative, in fact).  Your Roth money can grow tax free until you die.  No required minimum distribution (RMD) ever. Your beneficiaries can 1035 exchange what is left and RMD it throughout THEIR lifetime. Depending on your age and the age of your beneficiaries, that could be upwards of 100 years of tax free growth.  Do you really want that money to lose to inflation and not grow?  If you can, find taxable sources for your e-fund.

NoStacheOhio

  • Handlebar Stache
  • *****
  • Posts: 2137
  • Location: Cleveland
Re: Doubting myself after meeting with financial advisor.
« Reply #53 on: October 07, 2016, 06:00:29 AM »
Keep $3,000 or whatever you're comfortable with in your ready cash, then keep the remaining $15k in your ROTH in a money market account.  That way it would always be available even in a depression (although, sure, it wouldn't grow as fast, but I think security has to take a higher role in a single income family)

This was what I was thinking about for a few days after I met the advisor. I am SOOO close to having my first 100k invested that it pains me to consider holding that much cash out. But in the grand scheme of things, it probably is better to have the cash. I also have tried to keep the cash minimal because I have trouble saying no to my parents, who often have "emergencies" they didn't prepare for.... And the inner battle begins... How can I not give them money I have when they need it and I am just sitting on it like a greedy dragon. If it's invested, I don't get that.
I think I will calculate the absolute minimum I'd need to survive for 6 months, no frills, and work up to that amount in cash savings. I may also get a bonus in the spring that could be a large chunk of that....

Your savings account is simply invested in cash.

Think of it this way: if your parents are constantly borrowing money for "emergencies," they aren't going to be able to do anything for you if you have a true emergency. It's the old airplane safety thing: put your own mask on before assisting others.

chesebert

  • Pencil Stache
  • ****
  • Posts: 794
Re: Doubting myself after meeting with financial advisor.
« Reply #54 on: October 07, 2016, 06:04:59 AM »
Some thoughts about the emergency fund:

First, since you are a single parent, I think the emergency fund ought to cover 6-12 months of expenses, rather than 3-6 months. Since you don't have a second person's income to buffer the fall, and you have children depending on you, this seems wise.

Second, as for using the ROTH IRA as your emergency fund - it depends on what you are invested in.  To my mind, whatever part of the ROTH you are considering your emergency fund, needs to be invested in emergency-fund-type investments - i.e. safe investments, not stocks etc.  The reasoning is this:  sure, many emergencies that might befall you could be market-independent, such as a serious illness in the family that requires you to take prolonged unpaid leave.  Extra disability insurance for yourself might be a very good idea, since your kids depend on your earning capacity. BUT - one of the biggest challenges you might face is what happened to many people in 2008 - a severe market downturn resulting in job loss at exactly the same time as the stock market goes south.  You DON'T want to be forced to sell your market shares at the bottom of the downturn just because that's your emergency fund.

I'd say, figure out what you would need in addition to unemployment to get by on a strict emergency budget (let's say $1,500 a month plus unemployment for the sake of this example), multiply by 12 = $18,000.  Keep $3,000 or whatever you're comfortable with in your ready cash, then keep the remaining $15k in your ROTH in a money market account.  That way it would always be available even in a depression (although, sure, it wouldn't grow as fast, but I think security has to take a higher role in a single income family).  If you lose your job but are getting unemployment, you're covered for a year's expenses; if you have to leave in some way that doesn't get you unemployment or disability payments, you're still covered for about 7 months of expenses.

One potential criticism with this plan:  You are using what is the best tax advantage you have to get some of the worst returns you can(negative, in fact).  Your Roth money can grow tax free until you die.  No required minimum distribution (RMD) ever. Your beneficiaries can 1035 exchange what is left and RMD it throughout THEIR lifetime. Depending on your age and the age of your beneficiaries, that could be upwards of 100 years of tax free growth.  Do you really want that money to lose to inflation and not grow?  If you can, find taxable sources for your e-fund.
My thought as well. I have the most risky assets in the Roth, which I plan to pass to my kid. I use a springing debt as EF.

Gin1984

  • Magnum Stache
  • ******
  • Posts: 4851
Re: Doubting myself after meeting with financial advisor.
« Reply #55 on: October 07, 2016, 07:10:36 AM »
Also keep in mind you can use dividends or bonds as part of your EF.  2% is about what I get overall so I'll use that.  If you have $100,000, you'd get $2000.  Assume you keep $3000 as cash, you are already a fourth of the way to a full year EF even if the market drops. 

Bettis

  • Stubble
  • **
  • Posts: 196
  • Location: MA
Re: Doubting myself after meeting with financial advisor.
« Reply #56 on: October 07, 2016, 07:45:20 AM »
Oh, one more thing. I was in American Funds too a couple years ago.

I switched over my entire account to Vanguard without telling my advisor at the time. He didn't even bother calling me (had already taken his 5.75% front load fees). Goes to show you that he was only in it for the money.

I did the same thing.  Never told the ELP and I still get a generic Xmas card each year.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 3438
  • Location: WDC
Re: Doubting myself after meeting with financial advisor.
« Reply #57 on: October 20, 2016, 11:41:45 AM »
I also have tried to keep the cash minimal because I have trouble saying no to my parents, who often have "emergencies" they didn't prepare for.... And the inner battle begins... How can I not give them money I have when they need it and I am just sitting on it like a greedy dragon. If it's invested, I don't get that.
You might put your EF in CDs and ladder them.  This way, if you need the money, you can take it out and you only lose out on the potential interest (you don't lose your initial investment), and it is easier to say your money is tied up in long-term investments. 

nyxst

  • Bristles
  • ***
  • Posts: 276
    • AgainstAllOdds
Re: Doubting myself after meeting with financial advisor.
« Reply #58 on: December 15, 2018, 11:47:21 PM »
I also have tried to keep the cash minimal because I have trouble saying no to my parents, who often have "emergencies" they didn't prepare for.... And the inner battle begins... How can I not give them money I have when they need it and I am just sitting on it like a greedy dragon. If it's invested, I don't get that.
You might put your EF in CDs and ladder them.  This way, if you need the money, you can take it out and you only lose out on the potential interest (you don't lose your initial investment), and it is easier to say your money is tied up in long-term investments.

I ended up doing this CD ladder after more thought. I bought the first "rung" in 2016, followed by another each year. This year I found that the first CD interest rate was really low compared to what is now available. After doing the math, it was more cost effective to sell the CD and buy a new one because the interest rate was "significantly" better.  I feel pretty good about having the CD's there, since it is invested and I can't grab it for other people's emergencies, but I can quickly cash it out and transfer the funds if need be. 


frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 833
Re: Doubting myself after meeting with financial advisor.
« Reply #59 on: December 16, 2018, 12:42:13 PM »
Quote
Even then, I doubt I would ever be out of work for very long unless I was injured or sick

So - as a single parent, should you consider disability insurance? If you were in an accident and were permanently disabled  do you have enough money to pay for your living expenses and raising your children? If not, I'd invest in disability insurance until you ARE in that position.

I dropped my disability insurance a few years ago but I'm close enough to retirement to manage if something bad happened. I would just retire a little early with slightly less money.  My friend who was diagnosed with stage 4 ovarian cancer last year in her 50's was very grateful for the disability insurance she had kept for 30 years as she had to close her practice and her husband, who ran her office, was also out of a job. She did NOT have savings sufficient to just retire.

Tester

  • Bristles
  • ***
  • Posts: 252
Re: Doubting myself after meeting with financial advisor.
« Reply #60 on: December 16, 2018, 05:07:30 PM »
Not advertising, but I am on the waiting list to a 3% checking account.
It is offered by a company which I also use for free trading.
Each month I put 80 usd to buy individual stock and this company provides trading with no fees.
If you can find something like this you could hold your cash there

nyxst

  • Bristles
  • ***
  • Posts: 276
    • AgainstAllOdds
Re: Doubting myself after meeting with financial advisor.
« Reply #61 on: December 16, 2018, 07:44:30 PM »
Quote
Even then, I doubt I would ever be out of work for very long unless I was injured or sick

So - as a single parent, should you consider disability insurance? If you were in an accident and were permanently disabled  do you have enough money to pay for your living expenses and raising your children? If not, I'd invest in disability insurance until you ARE in that position.

I dropped my disability insurance a few years ago but I'm close enough to retirement to manage if something bad happened. I would just retire a little early with slightly less money.  My friend who was diagnosed with stage 4 ovarian cancer last year in her 50's was very grateful for the disability insurance she had kept for 30 years as she had to close her practice and her husband, who ran her office, was also out of a job. She did NOT have savings sufficient to just retire.

I have ST and LT disability through my work... I used the ST once many years ago when I went on extended maternity leave. I believe it replace 65% of my income or somewhere in that neighborhood - but I will check on these details tomorrow! Thank you for the suggestion! I have increased my income a good bit since that time, and it will be good to refresh how much they would cover if something happened.  I hope your friend came through ok, that is a tough diagnosis...