I'm curious about the best strategy for "short term" funds. I am able to save about 15k a year into a taxable account, and 5k of that becomes my "be young and stupid and travel the world" fund every year. Some years I spend all 5k, other years I spend less than half. Similarly, I pay myself a car payment each month so that, when necessary, I can buy a car or fix my current in cash without financing. I also have a safety net of 130% of 4 months expenses.
As far as the safety net is concerned, I intend to invest this as part of my portfolio. 130% is an insurance against "oh god I need money now but the markets are down 20%"... I will still have the required capital. Where should this go as part of my allocation? I have heard two strategies: 1) Put it into intl. stock so I can sell, take an international-tax credit, then rebalance. 2) Put it into tax-exempt bonds in a taxable account so I can sell, pay very little in capital gains, then rebalance.
I'm not sure where to put the other short-term money. I want to give this money a chance to grow, but it also needs to be fairly liquid (both in terms of accessibility and not getting hit with a huge tax bill). Are tax-exempt bonds a good idea for funds like this? Can you have your cake and eat it, too, or am I being silly trying to grow such short-term funds?
