Author Topic: 5 year timeframe investing  (Read 2133 times)

ACyclist

  • Bristles
  • ***
  • Posts: 303
5 year timeframe investing
« on: June 01, 2018, 09:44:32 AM »
Where would you put cash that you want to access in 5 years?  2023 we are planning quitting and moving to working only part time.  We will need the funds starting 5 years from now.

We were considering like half in total stock market index funds like VTSAX, and the other half in safer vehicles like bonds and CDs that have low cost fees. 

My dilemma is that we can't access the bulk of our nest egg until we are 59 1/2.  We are currently putting away a year's worth of living expenses in a taxable trading account each year for the next 5 years.  I am concerned of where to place that, as we will need to spend chunks of it every year for about 5 years. Putting it all in stocks seems risky as hell.  My fear is the market tanking, as we get ready to go.

What say you?

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2400
  • Location: Sacramento, CA
Re: 5 year timeframe investing
« Reply #1 on: June 01, 2018, 10:25:09 AM »
Where would you put cash that you want to access in 5 years?  2023 we are planning quitting and moving to working only part time.  We will need the funds starting 5 years from now.

We were considering like half in total stock market index funds like VTSAX, and the other half in safer vehicles like bonds and CDs that have low cost fees. 

My dilemma is that we can't access the bulk of our nest egg until we are 59 1/2.  We are currently putting away a year's worth of living expenses in a taxable trading account each year for the next 5 years.  I am concerned of where to place that, as we will need to spend chunks of it every year for about 5 years. Putting it all in stocks seems risky as hell.  My fear is the market tanking, as we get ready to go.

What say you?
What percentage of your expenses do you expect part-time work to cover? What is your target withdraw rate from your investments overall?

I agree that 100% with a 5 year timeline is a bit too risky (although you could compensate for the risk by saving more than you think you'll need and/or be flexible about the exact timeline). There are other options in addition to saving 5 years expenses in a taxable account. You might be served just as well rolling some of your nest egg into a traditional IRA to take SEPP withdraws from until 59 1/2. You could also balance your taxable stocks with bonds in a Roth IRA to avoid paying taxes on bond interest during your accumulation years. Of course you can also simply choose an allocation of stocks and tax-free bonds in your taxable account.

RWD

  • Magnum Stache
  • ******
  • Posts: 3407
  • Location: Mississippi
Re: 5 year timeframe investing
« Reply #2 on: June 01, 2018, 10:31:49 AM »

ACyclist

  • Bristles
  • ***
  • Posts: 303
Re: 5 year timeframe investing
« Reply #3 on: June 01, 2018, 11:29:40 AM »
Where would you put cash that you want to access in 5 years?  2023 we are planning quitting and moving to working only part time.  We will need the funds starting 5 years from now.

We were considering like half in total stock market index funds like VTSAX, and the other half in safer vehicles like bonds and CDs that have low cost fees. 

My dilemma is that we can't access the bulk of our nest egg until we are 59 1/2.  We are currently putting away a year's worth of living expenses in a taxable trading account each year for the next 5 years.  I am concerned of where to place that, as we will need to spend chunks of it every year for about 5 years. Putting it all in stocks seems risky as hell.  My fear is the market tanking, as we get ready to go.

What say you?
What percentage of your expenses do you expect part-time work to cover? What is your target withdraw rate from your investments overall?

I agree that 100% with a 5 year timeline is a bit too risky (although you could compensate for the risk by saving more than you think you'll need and/or be flexible about the exact timeline). There are other options in addition to saving 5 years expenses in a taxable account. You might be served just as well rolling some of your nest egg into a traditional IRA to take SEPP withdraws from until 59 1/2. You could also balance your taxable stocks with bonds in a Roth IRA to avoid paying taxes on bond interest during your accumulation years. Of course you can also simply choose an allocation of stocks and tax-free bonds in your taxable account.

Part time work will be enough to just pay medical insurance premiums and luxury things.  I am using the 4% withdrawal rate from the total (total = roth+403b+taxable trading account+other shiny things) to cover our living expenses.  Our living expenses are quite low.  Zero debt and modest lifestyle.

OurTown

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 49
  • Location: Tennessee
Re: 5 year timeframe investing
« Reply #4 on: June 01, 2018, 11:48:33 AM »
Vanguard has a tax-managed balanced fund:  VTMFX.  I believe it is 50% large and mid cap stock index, and 50% muni bond fund. 

doggyfizzle

  • Bristles
  • ***
  • Posts: 359
Re: 5 year timeframe investing
« Reply #5 on: June 01, 2018, 01:45:48 PM »
Just to chime in with an “alternate” investment idea: check out the Uhaul investing club.  There are multiple opportunities to invest in Uhaul businesses with timeframes of 3–12 years right now at varying rates of return.  I invested the other day in the current 6.07%/12 year Uhaul at Texas A&M.  Your investment is secured against the equipment so there is some downside protection if the franchise or equipment doesn’t pan out.  The shorter term investments pay a bit better than CDs with some (hard to tell how much from reading the prospectus) small risk in loss of some capital.

DFundsRLow

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: 5 year timeframe investing
« Reply #6 on: June 01, 2018, 02:00:55 PM »
6.07% a year or over the 12 years?

doggyfizzle

  • Bristles
  • ***
  • Posts: 359
Re: 5 year timeframe investing
« Reply #7 on: June 01, 2018, 03:58:21 PM »
6.07% a year or over the 12 years?

6.07%/year over the 12 years.

Stachless

  • Stubble
  • **
  • Posts: 109
Re: 5 year timeframe investing
« Reply #8 on: June 01, 2018, 10:56:03 PM »
For yield vs. risk comparison's sake, I'd like to point out that AT&T stock is currently sporting a 6.16% dividend yield and may be less likely to fail than a U-haul franchise.

BobTheBuilder

  • Stubble
  • **
  • Posts: 157
Re: 5 year timeframe investing
« Reply #9 on: June 02, 2018, 03:00:08 PM »
I'd split between short term government/CDs and "conservative" stock ETFs with high dividends. Those are the firms that don't go belly up first if the market comes down a bit. But 50% stocks could be fine, if the market is not good in time you start accessing your funds, you would start with the cash part first, right?


ACyclist

  • Bristles
  • ***
  • Posts: 303
Re: 5 year timeframe investing
« Reply #10 on: June 03, 2018, 09:56:24 AM »
Like, PFF, is that a conservative ETF? Then, the rest in safer investments, like CDs and bonds.  This is a tight timeframe.  market losses would hurt, if I need to access that cash.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1538
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: 5 year timeframe investing
« Reply #11 on: June 03, 2018, 10:10:25 AM »
Like, PFF, is that a conservative ETF? Then, the rest in safer investments, like CDs and bonds.  This is a tight timeframe.  market losses would hurt, if I need to access that cash.
For whatever reason PFF comes up a lot. I would search this forum and check it out on morningstar and portfoliovisualizer before putting money in it.

Antonn Park

  • 5 O'Clock Shadow
  • *
  • Posts: 25
  • Location: Cambridge, MA
    • Blue Flower Editing
Re: 5 year timeframe investing
« Reply #12 on: June 03, 2018, 01:12:21 PM »
Bonds and CDs seem safe. With the political climate we have now, you don't want to take on too much risk (my opinion). Maybe add is some foreign ETFs (small amount)?

Stachless

  • Stubble
  • **
  • Posts: 109
Re: 5 year timeframe investing
« Reply #13 on: June 03, 2018, 07:34:45 PM »
Bonds may be less safe than they appear, depending on what inflation looks like over your 5 year holding period.  It is pretty likely it will look quite different than the last 5+ years though...

Best of luck whatever you choose to do!

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2400
  • Location: Sacramento, CA
Re: 5 year timeframe investing
« Reply #14 on: June 04, 2018, 09:06:17 AM »
Part time work will be enough to just pay medical insurance premiums and luxury things.  I am using the 4% withdrawal rate from the total (total = roth+403b+taxable trading account+other shiny things) to cover our living expenses.  Our living expenses are quite low.  Zero debt and modest lifestyle.
So the part-time is just to cover medical insurance until medicare kicks in.

Not sure what "other shiny things" means in investment terms (bullion?).

I might balance the risk of the stocks in taxable with bonds in Roth. To avoid depleting the Roth if stocks are down, I'd sell stocks in taxable but purchase equivalent in Roth by selling bonds held there. Not sure if the reduced growth potential holding more bonds in the Roth is worth the potential tax savings by not holding the bonds in taxable though.

caffeine

  • Stubble
  • **
  • Posts: 122
Re: 5 year timeframe investing
« Reply #15 on: June 04, 2018, 10:56:18 AM »
Vanguard has a tax-managed balanced fund:  VTMFX.  I believe it is 50% large and mid cap stock index, and 50% muni bond fund.

Similar to VTMFX, Pete recommended VBINX (60/40 stock/bond).

http://www.mrmoneymustache.com/2011/06/07/where-should-i-invest-my-short-term-stash/


svosavvy

  • 5 O'Clock Shadow
  • *
  • Posts: 33
  • Age: 42
  • Location: Western NY
Re: 5 year timeframe investing
« Reply #16 on: June 06, 2018, 07:38:54 AM »
Hi,

I would echo the others sentiment and be careful about bonds.  Bonds carry a couple risks 1.default risk which is pretty neglible right now because everyone is swimming in liquidity.  2. rate/duration risk this is the risk rates will move against you and you will be underwater on your bond/bond fund.  I'm not a professional and can't give advice, but, I did not see where your desired return was listed.  Goes without saying 5 year time horizon is really trying to thread the needle imo.  If you don't have return expectations and value return of capital above all I would consider 12 month CD's from online banking sites.  I just saw one for like 2.3% yield.  You could roll these over yearly and most likely each consecutive year the yield would be greater.  Investment grade bonds with <5 year duration are yielding only a little over 12 mo CD and if rates go against you you will have to sit on them until maturity or take the loss.  Jmo stocks are off the table if your timeline is <5yrs.  Good luck with all your plans.

YttriumNitrate

  • Pencil Stache
  • ****
  • Posts: 593
  • Location: Northwest Indiana
Re: 5 year timeframe investing
« Reply #17 on: June 06, 2018, 08:12:37 AM »
Where would you put cash that you want to access in 5 years?  2023 we are planning quitting and moving to working only part time.  We will need the funds starting 5 years from now... Putting it all in stocks seems risky as hell.  My fear is the market tanking, as we get ready to go. What say you?

Unlike some things, early retirement is optional and can be delayed a bit if needed. The more willing you are to push back retirement a year or two if another 2008/2009 occurs, the more risky you can be with your investments. For example, if my retirement date had been set for Jan. 1, 2009 I'd probably have just kept working another year.