The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: KittyWrestler on May 30, 2012, 02:57:12 PM
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My head hurts these days when trying to figure out where to put my so-called emergency fund...
I do need $50K out of that $130K to give back to my parents in a year or two if they need it... But hate to park it in interest zero account because it could still be a few years before they need that money..
The rest of it has no near term emergency since our savings rate is quite high and we also have $50K HELOC to tab. Worst case, we can stop saving for some months or tab HELOC. So that leaves $80K aiming mid to long term.
So based on the timeline, I am thinking about doing this. But I'd like to welcome any suggestions as how would you manage that money:
$15K - cash
$25K - short term bond fund like VFSTX
$10K - HYG to earn some yield
So above two are liquid funds in case I need to do a big withdraw to give back to my parents
Then:
$40K in JNK or HYG earning high yield
$20K in VTSAX to keep expense at minimum while gaining broad exposure in stock market
$20K - ????? I am thinking about picking some dividend paying stocks, or pick a few stock ETFs.. but it hurts my head to figure out what..
Bottom line, I need $50K - $60K liquidity and the rest can go fairly long term..
What would you do?
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You could always just mail it to me....
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You could always just mail it to me....
alright, give me your social security number and bank account.. LOL! Just kidding..
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*grin*
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Fun question - as a Mustachian the only thing more fun than not spending my own money is not spending someone else's.
I would invest 50% cash and 50% in a short term bond fund like you mentioned. I wouldn't invest in HYG as I wouldn't want to reach that hard for yield in my short term cash fund with the risks that entails.
With the 80k I would expand my existing asset allocation. So roughly 40k in VTSAX for us stock exposure, 25k in VEU for international stock exposure, and 15k in a intermediate bond index ETF like BIV. Maybe 4 or 5k from the closest category into JNK, a REIT index fund, and/or a developing market index fund if I was so inclined.
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Fun question - as a Mustachian the only thing more fun than not spending my own money is not spending someone else's.
I would invest 50% cash and 50% in a short term bond fund like you mentioned. I wouldn't invest in HYG as I wouldn't want to reach that hard for yield in my short term cash fund with the risks that entails.
With the 80k I would expand my existing asset allocation. So roughly 40k in VTSAX for us stock exposure, 25k in VEU for international stock exposure, and 15k in a intermediate bond index ETF like BIV. Maybe 4 or 5k from the closest category into JNK, a REIT index fund, and/or a developing market index fund if I was so inclined.
I really like the suggestions! Thank you!
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What's your savings rate ($/month) and HELOC rate? If the first is high, and the second low, it might make sense to keep less than 50k liquid. Run the numbers if you have 25k liquid, and had to take the other 25k out of the HELOC.
25k invested long term could average 7%, which would net you 1750 in return after a year (before tax...assume your income falls in the 25% bracket, you'd pay 15% on the LTCG, or 262.50, netting 1487.50.)
If your savings rate was 5k/month (roughly 50% of the high end of the 25% tax bracket), you could pay of the HELOC in about 5 months. If your interest is 3.5% on the HELOC (which I've seen around here lately), you'd pay roughly $72/month in interest (25k * 3.5%/12), and over 5 months pay about $365 total. If you have enough deductions that the HELOC is tax deductible, your interest rate would fall to 2.6%, and the final bill would be $273.
The break-even rate of return of $365 on 25k is 1.4%, and $273 on 25k is 1.1%. If you think your investment could beat 1.4% or 1.1%, it would likely be worth it to invest 25k more than you had originally planned.
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Just curious... if the $50k is owed to your parents and you're not doing much with it besides parking it to pay them back, why not go ahead and pay them back so that it's no longer an issue?
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Just curious... if the $50k is owed to your parents and you're not doing much with it besides parking it to pay them back, why not go ahead and pay them back so that it's no longer an issue?
Cuz they live in China and visit US once a year. They want me to hold on to it in case they need some US dollars