Author Topic: how to manage "bridge" money?  (Read 1122 times)

bortman

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how to manage "bridge" money?
« on: December 18, 2017, 07:18:55 PM »
I'm considering the following scenario ...

Between my wife and I, our combined investment portfolio (403b x 2 + 457b x 2 + Roth IRA x 2 + Vanguard non-qualified + cash), is pretty darn close to allowing us to FIRE.

We have some cash set aside to bridge the gap between drawing down pre-tax accounts and accessing the money via a Roth IRA ladder.

I'm 46 and ready to leave my job any day/week/month now. My wife is 5 years younger than me, really likes her job, and gets paid well. So, it looks like I will RE and my wife will keep working for a few more years.

I have $65k in my 457b, invested 100% in VIIIX. Rate of return is ~20% since I opened the account in Dec 2016.

After our cash reserves, I consider my 457b to be the 2nd tier of money that we may need to tap into after I leave my job. It will really suck if we need this money soon after the market (inevitably) tanks.

It crossed my mind that it might make sense to move to bonds in my 457b .. maybe a fraction, but maybe 100%.

VWETX is the only Vanguard bond fund available in my plan. The other two options are "BlackRock US Debt Index Fd W" (no ticker) and FIGTX.

expense ratios:

VWETX 0.11%
BlackRock 0.05%
FIGTX 0.59%

What do you think? Feel free to deliver multiple face punches .. or shower me with kudos for my brilliant idea (!⸮!)

Radagast

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Re: how to manage "bridge" money?
« Reply #1 on: December 18, 2017, 10:32:13 PM »
Using bonds for short or medium term expenses just after FIRE makes a lot of sense. Both small permanent increased allocation to bonds (by about 10%, assuming your current bond allocation is 0 or very small) and a temporarily larger increase for just the 5-10 years after FIRE are backed-up by backtesting.

VWETX is a risky fund, as it has a lot of interest rate and credit risk. It will tend to do poorly when either stocks or bonds do poorly. It could be useful as a part of longer term portfolio, but for use in the next 5 years it is pretty risky.

I recommend "BlackRock US Debt Index Fd W" for this use. It looks like a typical intermediate/total bond index and should be more stable.

bortman

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Re: how to manage "bridge" money?
« Reply #2 on: December 20, 2017, 04:35:54 PM »
Thanks Radagast, that's what I was looking for.

Why doesn't the Blackrock fund have a ticker symbol? It would be nice to see its past performance to get a feel for variability.

Radagast

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Re: how to manage "bridge" money?
« Reply #3 on: December 20, 2017, 08:12:54 PM »
Thanks Radagast, that's what I was looking for.

Why doesn't the Blackrock fund have a ticker symbol? It would be nice to see its past performance to get a feel for variability.
It has something to do with the legal/regulatory aspect of how it is set up. It is a pension rather than a mutual fund or exchange traded product. I don't know much about this, but it shouldn't matter.

Typing "BlackRock US Debt Index Fd W" into google, I find a prospectus saying it is an index fund that attempts to track the Bloomberg Barclays US Aggregate Bond Index. Putting the index name into google, I see from wikipedia: "Many index funds and exchange-traded funds attempt to replicate (before fees and expenses) the performance of the Bloomberg Barclays US Aggregate Bond Index. Some examples of such funds include iShares Core US Aggregate Bond Index (AGG), Thrift Savings Plan (F Fund) Fixed Income Index fund, Vanguard Total Bond Market Index Fund (VBMFX), and Fidelity U.S. Bond Index Fund (FBIDX)."

So you can backtest it very closely using VBMFX/VBTLX, or the other tickers mentioned.