Author Topic: Partial investment? Bonds? Also... How? (Help out a newbie)  (Read 4113 times)

homeymomma

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Sorry for the terrible subject line.

So here's our current sitch:

My Roth IRA: 9300
Betterment, 84/16 allocation, 458 (max) each month

Husband Roth IRA: 8000
Vanguard: entirely VFINX, 458 (max) each month

Taxable investment account: 800
Betterment, 90/10 allocation, 100 each month

Taxable investment account for our 2 year old, earmarked "education": 500
Betterment: 80/20 allocation, 40 each month


We keep a 10,000 emergency fund in a capital one 360 savings account. We keep "save to spend" money, rotating around 3000, in another capital one 360 savings account. Currently we have a 1400 monthly surplus. We want to buy a house, someday, eventually, but may need upwards of 60K before we can do that. Where should we put our 1400? Currently I'm planning to put it into yet another capital one 360 savings account. I'm sure you intelligent people can think of something better. Splitting it up? Also, I'm 27 and husband is 30. Do we need to tweak our existing accounts? We have no 401k, so this is the entirety of our retirement plan right now!


Update**. I've thought a lot more about how to keep the 1400/mo. I'm thinking now we might split it up between I-bonds (a new find, never used before...), a 1% smarty pig account, and a taxable investment account set aggressively (maybe 80/20, or even 100%). This is based on our timeframe for buying being more realistically like 3-7 years.

How would you allocate our 1400 between these options?
« Last Edit: June 07, 2014, 06:48:03 AM by homeymomma »

matchewed

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #1 on: May 01, 2014, 04:06:53 PM »
Depends on your goals. Do you want the 1400 a month to go towards a house purchase? Is it for FIRE? Some other goal? Multiple goals?

homeymomma

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #2 on: May 01, 2014, 04:14:36 PM »
We would love to buy a house, but we're currently in the dc area which is out of our price range (gross annual income 66,500, no benefits). It would be at least 3-4 years from now to save up enough. So, yes, I suppose that's our goal. But of course it would be nice to contribute more to our retirement goals. We have no plans to retire early but only because of lack of means, not lack of desire (um, like most people. Lol)

Mostly it would be seen as going toward an eventual home purchase, but I don't know if that means it all has to sit in a cash savings account.

I see buying and paying off a house as part of our retirement plan, in a way, because our retirement numbers work with a paid off house but don't without one.

matchewed

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #3 on: May 01, 2014, 04:53:46 PM »
Well if you really plan on buying a house in a short time frame like 3-4 years then a savings account is the most secure place for your excess cash. There are other things you could do to mitigate inflation or increase your return by small amounts but it is a wash IMO.

Sounds like you guys need to figure out what you want to do with the money first. Be certain of your plan and work one out with your partner.

homeymomma

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #4 on: May 01, 2014, 05:10:35 PM »
It's for a house. The only reason I would put it toward retirement is if we were otherwise in danger of not making our retirement goals at "traditional" retirement age. I find that hard to calculate accurately.

I suppose I guessed the super aggressive investors on MMM would have suggestions on mitigating the loss due to inflation. My husband wants to put 200-400 of it into our "supplemental" taxable retirement investment account- it's set at 90/10 allocation so that would be much more risky!! On the other hand, the majority of it would still be in cash.

Im more tempted to just leave it all in cash and just feel like an idiot if the market does great

Eric

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #5 on: May 01, 2014, 06:11:32 PM »
Why do you want to buy in the DC area, especially at your income level?  Are you sure that makes financial sense?  In general, renting comes out ahead of buying in most expensive areas unless you're planning to stay in the same place for a long time.

Run the numbers here:
http://www.nytimes.com/interactive/business/buy-rent-calculator.html

If your decision is still to buy, and your timeframe is still ~3 years, then I agree with matchewed that a savings account is probably the best place for your money.

homeymomma

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #6 on: May 01, 2014, 06:56:54 PM »
I have great hopes that my husband will find a job elsewhere someday... Even more hopeful that "elsewhere" will have a more reasonable COL. We have only a temporary ability to save 1400 per month. When we move in a couple years that will evaporate entirely to rent payments. Having a down payment saved gives us options if buying makes sense then for whatever reason.

nereo

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #7 on: May 01, 2014, 06:58:40 PM »

I suppose I guessed the super aggressive investors on MMM would have suggestions on mitigating the loss due to inflation.
"super aggressive investors"...?  Are you saying there are super aggressive investors here, or that the typical advice given is for a super-aggressive strategy?  I don't hear much push for leverage or penny-stock or anything like that.
I find as a whole this forum recommends a buy-and-hold-for-decades approach of mostly low-cost diversified index funds, with a strong emphasis on minimizing taxes owed.

Anyhow having lived in DC I agree that you're only likely to come out ahead if you know you'll be staying there for >7 years.  If you really are set on purchasing, I agree with putting your savings into a savings account or short-term bond fund.  Neither is going to earn much interest these days.

homeymomma

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #8 on: May 01, 2014, 08:17:45 PM »
Ok I'm hearing the consensus on keeping it in cash.

As for "super aggressive investors", that was poorly phrased. I meant people who are very supportive of the long-term benefits of investing. And I notice many here generally discourage hanging on to large amount in cash.

iamlindoro

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #9 on: May 01, 2014, 08:39:06 PM »
Ok I'm hearing the consensus on keeping it in cash.

A consensus of three hours isn't much of a data set :)

If you're looking at the money earmarked for house savings laying in wait for up to several years, why would you not use a ladder of CDs to capitalize on rates which are virtually certain to be higher than your savings account?

http://www.bankrate.com/cd.aspx

warfreak2

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #10 on: May 02, 2014, 04:24:31 AM »

I suppose I guessed the super aggressive investors on MMM would have suggestions on mitigating the loss due to inflation.
"super aggressive investors"...?
There's a lot of people on this forum who use 80%/20% or even 90%/10% stock/bond ratios. Also, you'll often see maxims like "half your age in bonds" and "your age - 20 in bonds". These allocations are "very aggressive", by most standards.

nereo

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #11 on: May 02, 2014, 05:32:11 AM »

There's a lot of people on this forum who use 80%/20% or even 90%/10% stock/bond ratios. Also, you'll often see maxims like "half your age in bonds" and "your age - 20 in bonds". These allocations are "very aggressive", by most standards.
Mostly I was asking for clarification about what the OP meant by that statement.  I can see how that strategy can be considered "aggressive" in some contexts, but "super aggressive"?  When most everyone seems to be advocating for DCA of low-cost broadly diversified index funds and thien holding them for time periods that go from several years to decades?  I guess I just see that as more responsible and measured than what a lot of other people can do - like day-trading, holding only a handful of stocks, buying on margin, etc.
I understand it's all relative, and it may seem aggressive to someone who's idea of investing is to only hold government secured CDs, but on the spectrum of things I just can't label it as "super aggressive".  Maybe a 3 or 3.5 our of 5.
Didn't mean to offend anyone.  Thought maybe OP had been referring to a few threads, like where one newbie was being urged by his broker to buy all options.

warfreak2

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #12 on: May 02, 2014, 06:00:43 AM »
I can see how that strategy can be considered "aggressive" in some contexts, but "super aggressive"?  When most everyone seems to be advocating for DCA of low-cost broadly diversified index funds and thien holding them for time periods that go from several years to decades?  I guess I just see that as more responsible and measured than what a lot of other people can do - like day-trading, holding only a handful of stocks, buying on margin, etc.
I think we should distinguish between "aggressive investing" - accepting a higher risk* for a higher expected return - and just plain gambling, which most day-trading and stock-picking is, really (and there's enough evidence that these people are not getting higher returns in exchange for their higher risk). They aren't really measured on the same axis - Chess, for example, can be played aggressively or conservatively, and either style can be played skillfully or clumsily.

Diversification provides lower risk at the same expected return; still, broad-market stock index funds are "high risk, high return" compared to most of the alternatives. Yes, some people invest on margin, but there are also a lot of people who will pay off a loan at 3% because that's better than the interest on their savings account, and consider any investment in the stock market to be gambling. As you say, it's relative, but my impression is that people here invest a lot more aggressively than the average.

*In this context, risk traditionally refers to volatility, rather than the chance of a retirement portfolio failing.

NewStachian

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #13 on: May 02, 2014, 06:22:25 AM »
I just purchased a place in the DC area. I would not have even entertained the idea if I was going to be here less than 5 years.

However, I found myself in a similar situation to you regarding a planned home remodel I want to do in about 5 years. At first, I had a monthly allotment of $500 going into my savings account. But, I decided I didn't like that and started funneling the money into my investments instead. I do maintain a tracker in a spreadsheet that takes the date I started the allotments, the monthly rate, and gives me the "earmarked" amount of money available for the remodel. For example, after a year of the $500 a month, my spreadsheet will tell me I have $6k for renovation in my brokerage account. If the market goes down, that's fine, it's a risk I took, but missing out on an average 7% on that money would piss me off even more.

I just offer this as a data point for you. I realize our situations aren't exactly the same. It is much easier to delay a remodel than delay purchasing a house when you are where you want to be and are ready for it.

homeymomma

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Re: Partial investment? Bonds? Also... How? (Help out a newbie)
« Reply #14 on: June 07, 2014, 06:51:05 AM »
Re: update of original pits- has anyone used I-bonds successfully? Do they seem like a good use of some of our $1400? I just rediscovered them and it seems like a good plan for cash for a slightly longer timeframe... At least it would keep up with inflation.