Feedback Wanted -- Taxable Account Questions

[WillPen]

Hi Everyone,

My wife and I recently got married this past April. As we have adjusted to married life we've tried to be judicious with our savings and investments until some of the dust settled. Now that everything is finally squared away with our retirement accounts, I'm finding that we have quite a bit of cash socked away.. Definitely too much to be sitting idle. After the holidays, I need to set up our taxable account bucket. With that said, I wanted to ping the group for some ideas.

1) Do you use ETFs or Mutual Funds in your taxable account?
2) How much of your taxable account do you consider "available" in the near term (year or two out) versus off-limits and for retirement? Or do you even look at it this way?
3) Are your assets "efficiently" allocated in your taxable account compared to your tax advantaged accounts?
4) What if you tap your taxable reserves for something like a new home purchase? Do you reallocate all of your accounts after an event like that?
4) Do you keep any in cash outside of your emergency fund?

There will almost certainly be a new home purchase on the horizon within the next few years. Because of that, I'm trying to figure out if I should look at it as part of the bigger picture with our other retirement accounts, or something that's almost separate and to be diversified within itself.

I have some other questions but I think I'll wait and see what kind of feedback I get from everyone.

Thanks!

[Frankies Girl]

1. Mutual funds in all my accounts - tax advantaged or taxable. I don't plan on trading daily or even monthly, and they seem to be the most recommended for a buy and hold strategy.

2. I don't consider any of it technically available for just anything. I figure my taxable account will be the first stage of my early retirement funding, but that's about it.

3. Yes, I based my account allocations on the bogleheads' recommendations. All of my bonds and REIT funds are in tax-advantaged accounts (IRA and 401K) and my main chunk of stock mutual funds are in my taxable (a total stock mutual fund is actually all that I have in my taxable).
http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement 

4. I don't tap the taxable. I have a separate savings account for upcoming expenses not associated with retirement. I would not invest money that I would need in a year or two. Barring a serious emergency, that money is being left to grow as much as possible.

5. (you have two #4s!) Um. Sort of? The husband and I have our own checking accounts (joint) that we use to pay bills and the like. One is my primary, one is his. We have a savings account (earns crap interest) that is used as a short term bucket as a basic emergency fund. So at any given time, there is about 6 months worth of expenses between all three of these accounts. That's the amount my husband feels comfortable with, so that's what we hold. If we were saving up for something big ticket like a house, then we probably would locate a high yield savings account to park that money, but we don't have anything like that on the horizon currently.

If you're definitely planning a home purchase, then I'd say that if you do invest money earmarked for a downpayment, keep in mind that due to the day to day fluctuations, short term (under 2 years) investing is a bit more risky.

[oldtoyota]

What Frankie'sGirl said. I have nearly the same answers. The only difference is that I am still working on my asset allocation. To fix that, I am adding more money to bonds to balance out my portfolio.

Another addition I have to the above is that I use YNAB, which helps me bucket the "emergency cash" inside my checking account. Yes. It earns crap interest, but I want to have cash available. An "emergency" to me would be losing my job and needing that money to live on until I found another job. My emergency fund is not used for anything else, because I have budgeted for things a lot of people consider "emergencies."

I also have a buffer, which means I live off of November's income in December and December's income in January and so on.

[WillPen]

Thanks for the feedback.. That's exactly what I was thinking of doing, FG. I had that article in mind when I was writing that email.

I think I'm going to do this:
1) Open Roth IRAs for both of us after the new year
2) Take everything in excess of our savings goal and put it in a taxable account
3) Sweep excess money into the taxable account each month
4) Rebalance accounts to make them more tax efficient

[wtjbatman]

1) My taxable account is all individual stocks, since I follow a dividend growth strategy.
2) I look at anything in my regular brokerage account as for retirement only.
3) Yes. The least tax efficient holdings are in my tax advantaged account (REITs, MLPs, ETFs in a Roth IRA).
4a) I don't/wouldn't allocate my house saving fund (see 4b)
4b) I actually have a Betterment account that I will use for saving up for a house. Betterment basically just uses index ETFs, so it's mostly tax efficient, and I don't feel at all bad about taking money out of it if I have to. Whereas with my other taxable account (the dividend growth stocks), I really look at as retirement only, and would only touch in case of an extreme emergency.

[Cecil]

1) ETFs everywhere.

2) Everything is for retirement only. If we are planning a house purchase, we'll save separately for that.

3) My asset allocation takes all my accounts into account (heh). I also allocate for optimal tax efficiency - US stocks have a non-recoverable 15% withholding on dividends even in my TFSA, for example, so I'd prefer holding them in my RRSP or untaxed accounts.

4) I wouldn't. I'll know about a home purchase at least a couple years in advance, so I'll be saving outside of the market for that.

5) I don't keep an emergency fund.