Author Topic: Help me allocate my assets...  (Read 1060 times)

thin_stache

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Help me allocate my assets...
« on: October 30, 2016, 06:59:21 PM »
Hello, long time lurker, first post.

I have been working for 4.5 years now and a stash of roughly 40K cash collecting a 1% interest rate and 80K stocks (SP 500 index fund) in 401K/IRA. 

I know I have a lot of cash, and considering I am only 27 I should be allocated into much higher yielding investments.  I was saving for a wedding/house down payment, but I am now single so realistically I will not need this money for 2+ years.  Problem is, I would really like to keep that money in a relatively safe source in case 2+ years down the road I do settle down.  I was thinking of placing the money into an intermediate corporate bond fund from vanguard to have a return greater than inflation and whose value wouldn't vary significantly so 2+ years in the future I have more than my initial amount. 

I do not feel like I understand the risk adequately enough to commit to this though.  Interest rates should increase here over the next few years and I would expect the price of corporate bonds to decrease because of this, but in a bond fund wouldn't new bonds at the higher interest rates be cycled in as older bonds mature so this effect wouldn't be noticeable?  Any advice on how to save for large purchases 2+ in the future? 

Thanks

schneider

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Re: Help me allocate my assets...
« Reply #1 on: October 30, 2016, 07:20:01 PM »
My rule of thumb, which I think you'll find repeated a lot on this board is: any money that I plan to spend in the next five years gets kept in an FDIC-insured account, period. Everything else goes into the market. My reasoning echoes your concerns: I don't really trust myself to understand the risk of anything else. Also, they don't pay that much better. Is the few hundred bucks difference (max, I think) between keeping that money in a savings account and keeping it in some bond fund really worth the mental strain?

The harder question, for me, is deciding how much money I need to keep liquid since I don't really know what I'll be doing in five years. :)


Radagast

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Re: Help me allocate my assets...
« Reply #3 on: October 30, 2016, 10:07:33 PM »
2-10 years is the hardest time frame to allocate for. I suggest the following rules of thumb, which are not precise. Neither of these are without risk.

If you will continue to add money to this stash, you can be up to 100% stocks (or your risk tolerance) 12 years out. Subtract 10% stocks per year, meaning at 2 years remaining you will have no stocks. Within 2 years you should be all FDIC-insured, or your own personal target date bond.

If you will not continue to add money to this stash, you can be up to 100% stocks (or your risk tolerance) 15 years out. Subtract 10% stocks per year, meaning at 5 years remaining you will have no stocks. Within 5 years you should be all FDIC-insured, or your own personal target date bond.

A couple handy calculators which show how various allocations played out in the past, but keep your head on when you use them because neither is exactly what you are looking for.
https://portfoliocharts.com/portfolio/drawdowns/
https://portfoliocharts.com/portfolio/portfolio-finder/