Author Topic: To stash extra money in VTSAX or Mango Money?  (Read 6334 times)

MrStubble

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To stash extra money in VTSAX or Mango Money?
« on: April 29, 2016, 07:55:50 PM »
I'm looking for a sounding board on whether I'm better off keeping an extra 5k at 5% APY in a Mango Money account, or just invest it in VTSAX in my taxable account. My time frame for needing the money is 8+ years and long term VTSAX should outperform 5%, but 5% guaranteed isn't shabby either. Besides, its nice to have extra money on hand for investing when stocks go on sale. (I know, that's just another way of timing the market.)

I currently have 10k in a 3% rewards checking that pays the bills and is my primary emergency fund. Beyond that I have another 20k in savings bonds that I can tap, so I'm not worried about lacking liquidity.

protostache

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Re: To stash extra money in VTSAX or Mango Money?
« Reply #1 on: April 29, 2016, 07:59:00 PM »
Are you fully funding your tax-deferred accounts? If so, and you have a comfortable level of liquidity, then invest it according to your asset allocation / IPS. If that's VTSAX all the way then so be it.

PhysicianOnFIRE

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Re: To stash extra money in VTSAX or Mango Money?
« Reply #2 on: April 29, 2016, 10:31:44 PM »
Are you fully funding your tax-deferred accounts? If so, and you have a comfortable level of liquidity, then invest it according to your asset allocation / IPS. If that's VTSAX all the way then so be it.

Good point, prostache. Where is the rest of your money, MrStubble? Have you maxed out tax deferred retirement savings? HSA? Roth /Backdoor Roth? We have more questions than answers, unfortunately.

If all you've got left is going into a taxable account, then I would opt for the stock investment. And of course, You Need an IPS

Best,
PoF

MrStubble

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Re: To stash extra money in VTSAX or Mango Money?
« Reply #3 on: April 30, 2016, 07:06:38 AM »
401k, IRAs, and HSA all get maxed out annually before any money goes into my taxable account. I continue to refine my IPS, recently on flip flopping on if I should keep international equities, and then where. I think I made up my mind on that one at least.

PhysicianOnFIRE

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Re: To stash extra money in VTSAX or Mango Money?
« Reply #4 on: April 30, 2016, 02:54:27 PM »
401k, IRAs, and HSA all get maxed out annually before any money goes into my taxable account. I continue to refine my IPS, recently on flip flopping on if I should keep international equities, and then where. I think I made up my mind on that one at least.

I think you're in great shape then. Glad to hear you've already got the IPS.

I have international as 20% of the portfolio, 25% of the stock portion. I like developed markets in taxable for the foreign tax credit. Emerging markets could go there as well, but most of mine are in Roth, which makes rebalancing easier without worry of tax implications. I believe they tend to have more ordinary dividends, too, which I don't like in taxable.

MrStubble

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Re: To stash extra money in VTSAX or Mango Money?
« Reply #5 on: May 03, 2016, 04:56:50 PM »
PhysicianOnFIRE, I enjoyed reading your IPS article and decided to borrow a few of your ideas to augment my IPS. Below is my current IPS, with question marks where I'm still ambivalent.

Previously I had put VTIAX in taxable for the foreign tax credits, but eliminated it from taxable via a tax loss harvest due to the amount of ordinary dividends it produced being greater than the tax credit. I didn't think to split VTIAX into its developed and emerging components to reap most of the tax credit and avoid most of the tax on dividends. That is something to look into.



INVESTMENT POLICY STATEMENT

Objective:
Reach financial independence and be able to retire, forecasted at 2024.

Investment Philosophy:
•   Invest in total market low expense Index Funds
•   Minimize current taxes to invest more now
•   Risk tolerance is high. Anticipated withdrawal rate of 4%. I can work to supplement passive income if needed.
•   Buy and hold long term - I buy shares of companies, I am not a speculator

Asset Allocation:
•   6 months living expenses (10-12k cash) in high yield accounts
•   Hold existing savings bonds (~20k) for emergency and possible education funding. A good option due to decent yields, tax-free growth, and potential tax-free interest if used for education.
•   Balance in equities, 75-80% domestic, 20-25% international

Other considerations:
•   Maximize tax deductions via 401(k), my and spouse IRAs, HSA.
•   Use HSA as retirement account, leaving balance to grow
•   Shelter tax-inefficient funds in tax-advantaged accounts to reduce tax drag. (VTIAX more inefficient than VTSAX, so only VTSAX in taxable?)
•   Tax loss-harvesting? Possible with only VTSAX in taxable?
•   Automate future contributions or manually buy when cash balance exceeds limit?
•   Rebalance 401k yearly.
•   Although I don’t time the market, I’ll try to buy more during a market correction with cash on hand.
•   Consider using Donor Advised Funds for charitable giving.
 
Pre-retirement Considerations:
•   Research health insurance options and ACA subsidies
•   Consider part time work as an option to transition to retirement.
•   Move to tax / FI friendly location.
•   Decide whether to buy a house or rent.

Drawdown Plan:
•   Setup ladder. Convert 401(k) / IRA to Roth as income / tax bracket allows. Use more conservative funds in RothIRA
•   For first 5 years until receiving funds from ladder, live off any spouse income, taxable account, savings bonds, previous RothIRA principle contributions, and possible part time income.
•   Receive dividends and capital gains as cash transfers to bank account.
•   When cash is needed, sell taxable assets and minimize / optimize capital gains.
•   Maintain low taxable income to avoid taxes on capital gains and for ACA subsidies.
•   At 59.5, evaluate IRA and estimate RMD’s, which kick in age 70.5.
•   Anticipate delaying Social Security to get the maximum benefit, assuming good health.
•   I plan to contribute some money to children’s college, maximizing tax deductions and using savings bonds as applicable.