Author Topic: What to do with savings besides index funds?  (Read 2674 times)

ElTopo

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What to do with savings besides index funds?
« on: September 14, 2016, 11:12:27 AM »
Hi guys- I need some advice on what to do with some savings. Currently I have $20k in index funds with Vanguard (which have been absolutely tanking recently), $20k in a Schwab "high interest" (.1%, ha) account, $10k in a Bank of America CD (also .1% which I think I will be closing), and another ≈ $30k sitting in a Bank of America savings account (which is something ridiculous like .3% or something). I'm a single male in my late 30's that doesn't own property (I live in San Francisco, so that's not an option).

I don't feel like I'm being very efficient so I'm wondering what you guys would recommend. Should I put everything that's in those low interest rate savings into index funds? Other recommendations?

Thank you!

nereo

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Re: What to do with savings besides index funds?
« Reply #1 on: September 14, 2016, 12:09:50 PM »
Hi guys- I need some advice on what to do with some savings. Currently I have $20k in index funds with Vanguard (which have been absolutely tanking recently), $20k in a Schwab "high interest" (.1%, ha) account, $10k in a Bank of America CD (also .1% which I think I will be closing), and another ≈ $30k sitting in a Bank of America savings account (which is something ridiculous like .3% or something). I'm a single male in my late 30's that doesn't own property (I live in San Francisco, so that's not an option).

I don't feel like I'm being very efficient so I'm wondering what you guys would recommend. Should I put everything that's in those low interest rate savings into index funds? Other recommendations?

Thank you!

Do you have an investor policy statement?  If so - what does it say you should do?

I'm worried when you say that your Vanguard Index fund has been 'absolutely tanking".  Index investing around here is something that long term... many years to many decades.  I suspect you are looking at a much, much shorter time frame (like months or a year).  If so, chill and let the market do its thing.  Some months/years will be bad, but most will be good.

Also - you didn't mention your tax-advantaged accounts.  Fund those first!  These include your IRA as well as 401(k)/403(b) and HSA accounts.  I'm concerned that you have $50k in savings accounts essentially loosing money to inflation while you have just $20k invested.  Get those dollars working for you instead of just sitting around doing nothing.

ElTopo

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Re: What to do with savings besides index funds?
« Reply #2 on: September 14, 2016, 12:15:21 PM »
Thanks for the response. As for the "investor policy statement?" I sadly do not even know what that is. Is that something I would create or Vanguard provides?

And I am looking at the Index funds on too short of terms, it's a bad habit.

As far as IRA and 401(k)'s- I have not created an IRA yet and am not putting much into my 401k. I am still not sure what to do about this. Not to get too personal, but my family has a history of heart disease- my father nor any of my grandfathers even made it to 60, so I am very reluctant to put a lot of money into accounts I can't really access until I'm 59 or 60.

neo von retorch

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Re: What to do with savings besides index funds?
« Reply #3 on: September 14, 2016, 12:33:57 PM »
It's a personal statement about your investment plan, so you should create it for yourself, and then stick to it.
https://www.bogleheads.org/wiki/Investment_policy_statement

Your 401k may be accessible before 60, depending on your plans between now and then.
http://rootofgood.com/roth-ira-conversion-ladder-early-retirement

slugline

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Re: What to do with savings besides index funds?
« Reply #4 on: September 14, 2016, 12:59:14 PM »
Actually, in the ideal scenario, the time in "the tank" is where you would want to do most of your investing. (But since extremely few people have a crystal ball, we don't truly recognize "the tank" except in hindsight.)

One question you'll need to answer for yourself is, "When do I want to tap this money?" I see you don't want to buy a house, but is it possible you may have other short-term spending you'll be doing in the near future -- like in less than three-to-five years? If so, then playing conservative is just fine.

ElTopo

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Re: What to do with savings besides index funds?
« Reply #5 on: September 14, 2016, 01:09:46 PM »
One question you'll need to answer for yourself is, "When do I want to tap this money?" I see you don't want to buy a house, but is it possible you may have other short-term spending you'll be doing in the near future -- like in less than three-to-five years? If so, then playing conservative is just fine.

Right, well, I do want to keep some cash as immediately available in the case of losing my job, or deciding to move, etc. Just feels like it is too much in savings right now just sitting there. My mom told me in the 70's their CD's accrued at 18%! Wish that was still an option today...

Sounds like I need to first create an investment policy statement and go from there...keep an emergency fund in a high yield savings account and just invest everything else based on my policy statement.

jjcamembert

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Re: What to do with savings besides index funds?
« Reply #6 on: September 14, 2016, 01:10:37 PM »
Put money in a Roth IRA too. You can withdraw the money you contributed (but not any capital gains) after the money has been in there for 5 years.

I think you have too much cash sitting around and you should invest more. Regarding the market, there is no such thing as risk-free returns. If there was, everyone would do that. So when you invest in the total market, by nature it's going to go up and down. Historically people have seen high positive returns, but past results don't guarantee future results. It sounds like you are not comfortable with that risk, but on the flip-side, if you keep all your money in <1% saving accounts or bonds, you are literally signing up for a guaranteed loss! So ask yourself if you want to make guaranteed -3% a year or a likely +7% per year. Hope that helps put things in perspective.

ElTopo

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Re: What to do with savings besides index funds?
« Reply #7 on: September 14, 2016, 01:51:58 PM »
It does, thanks much for that. I only just signed up for Vanguard and started using index funds a couple of months ago so I am in the bad habit of checking them daily. But, over that time I have just slowly been dropping another 5 or 10k in there because I look at my Schwab savings account and it's like, yay, I made 66 cents on my 10k last month. Pretty pointless.

nereo

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Re: What to do with savings besides index funds?
« Reply #8 on: September 14, 2016, 01:52:42 PM »
One question you'll need to answer for yourself is, "When do I want to tap this money?" I see you don't want to buy a house, but is it possible you may have other short-term spending you'll be doing in the near future -- like in less than three-to-five years? If so, then playing conservative is just fine.

Right, well, I do want to keep some cash as immediately available in the case of losing my job, or deciding to move, etc. Just feels like it is too much in savings right now just sitting there. My mom told me in the 70's their CD's accrued at 18%! Wish that was still an option today...

Sounds like I need to first create an investment policy statement and go from there...keep an emergency fund in a high yield savings account and just invest everything else based on my policy statement.

MDM has a great boilerplate advice for what to put your money towards in what order and why.  Too bad I can't find it right now, but generally speaking you want to have an e-fund/short term expenses funded to your satisfaction, then contribute to tax advantaged accounts (why?  because you will pay less in taxes and wind up with way more money.  If you're worried about accessing that money earlier, see the links neo provided upthread).  Then save in taxable accounts like your vanguard account.

Time in the market is what matters - stop looking at your portfolio balance more than a couple times a year (if you can help it).  Performance should be measured on how you do over many years, not a few months.

As for CDs in the 70s/80s... sure you could get a rate of 10-18%, but you also had inflation which persistently was around 10% and sometimes went higher  Things literally doubled in cost every 4-6 years.  I hope we don;t return to those days... I'd like inflation to go back up to 2.5% and the fed rate to be in the 2-4% range.... ah, that would be nice...

human

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Re: What to do with savings besides index funds?
« Reply #9 on: September 14, 2016, 09:32:25 PM »
I know a link may seem unhelpful but I read the bogleheads wiki several times when I got into investing. This page is just an intro: https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy

You need to figure out what your goals are, time horizon, then read up on diversification and asset allocation.

Index funds keep it real simple, the fewer the better.

CanuckExpat

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Re: What to do with savings besides index funds?
« Reply #10 on: September 15, 2016, 12:26:58 AM »
Hey,

Some people have already pointed you to the Bogleheads Wiki. I agree it is a great place to start, especially here:
https://www.bogleheads.org/wiki/Getting_started