Author Topic: Bond Fund for: Baby step 3/Emergency Fund  (Read 695 times)

Joe Schmo

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Bond Fund for: Baby step 3/Emergency Fund
« on: January 20, 2020, 10:42:28 AM »
So I take great motivation from DR and this site...common sense is such a rare and wonderful thing.
So...we're debt free except for the house (30 @3.875)
We have a 10k emergency fund which we plan to add to slowly until we hit 20k and then stop
The money is sitting in the vanguard money market fund VMFXX
I was wondering if it would be a good idea to diversify that and go with BND and BNDX?
What mustachians think about this dilemma??
« Last Edit: January 20, 2020, 02:03:28 PM by Joe Schmo »

Gin1984

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Re: Bond Fund for: Baby step 4/Emergency Fund
« Reply #1 on: January 20, 2020, 11:20:38 AM »
Are you maxing out your 401k?  And I would highly recommend against BND in a taxable account. 

JSMustachian

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Re: Bond Fund for: Baby step 4/Emergency Fund
« Reply #2 on: January 20, 2020, 11:31:50 AM »
I have BND in my taxable account for an emergency. It may not be the most tax efficient but it's made me more than a money market account and is still a safe investment. The gains exceed the amount of tax I have to pay and that money is available whenever you want vs having it in a retirement account.

trollwithamustache

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Re: Bond Fund for: Baby step 4/Emergency Fund
« Reply #3 on: January 20, 2020, 12:33:14 PM »
why not a state specific muni bond fund?

YttriumNitrate

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Re: Bond Fund for: Baby step 4/Emergency Fund
« Reply #4 on: January 20, 2020, 01:11:53 PM »
Dave Ramsey is pretty clear that he expects an emergency fund to cost you money over what you could be earning in stocks. There's nothing wrong with that. If you want to diversify your emergency fund, I would suggest diversifying it in a way that improves its functionality in an emergency rather than trying to lose a few less dollars to inflation per year. For example, you could put half the money in an online bank account so in case Vanguard has computer issues for a day or two you would still have access to part of your emergency fund.

Joe Schmo

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Re: Bond Fund for: Baby step 4/Emergency Fund
« Reply #5 on: January 20, 2020, 02:07:59 PM »
Are you maxing out your 401k?
Yeppers

Thanks for the input all.

Yep, DR says that the emergency fund is making you NOTHIN...aka costing you money...so now I'm wondering why I care about beating the Vanguard money market by 2% or less

freya

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Re: Bond Fund for: Baby step 3/Emergency Fund
« Reply #6 on: January 20, 2020, 03:17:37 PM »
That's a small enough emergency fund that I'd leave it in a savings account somewhere and not sweat the interest.  I would definitely NOT use any kind of a bond fund for an EF.  An EF should be cash.  Don't start taking risks with it to eke out extra gains, that's not what it's for.

Look at the different money market funds & savings accounts available to you and see what works for your tax situation.  Definitely take a look at Series I savings bonds (at Treasury Direct). They pay well (currently > 2.5%) and interest is exempt from state/local tax, and tax is deferred for 30 years.  It's almost like a nondeductible IRA, except you can cash it out anytime.  Read the fine print though...the main issue is that you can't sell a bond until it's 1 year old - actually that's a bit over 11 months if you buy near the end of the month.  People have different opinions about them, but I swear by them - I've been buying them for years.  They're about the only free lunch there is to the small investor.



terran

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Re: Bond Fund for: Baby step 3/Emergency Fund
« Reply #7 on: January 20, 2020, 03:37:39 PM »
$20k isn't that much. What you do with with it will have approximately zero effect on your finances from here on out as you start stashing away large amounts in various investments accounts. Just leave it in a high yield savings account and move on to more important things. Sounds like Dave Ramsey has taken you just about as far as he can, so I would suggest turning your attention to the recommended investment order: https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Joe Schmo

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Re: Bond Fund for: Baby step 3/Emergency Fund
« Reply #8 on: January 20, 2020, 04:17:30 PM »
That's the slap in the face I needed. Thanks folks :)

the_fixer

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Re: Bond Fund for: Baby step 3/Emergency Fund
« Reply #9 on: January 21, 2020, 03:14:55 PM »
I keep 1/2 of mine in CDís with a CD maturing each month that will cover my mortgage, power and gas.

The other half I keep in a savings account and use it to get bank signup bonuses and make more than the CDís


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