Author Topic: What should we invest in for medium term?  (Read 1546 times)

MayDay

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What should we invest in for medium term?
« on: February 19, 2015, 05:19:12 PM »
We have all our 401k's and IRA's in the usual recommendations of total market indexes, with a bit in international, REIT's and small cap. 

We also have a brokerage account that is used for H's ESPP.  Every 6 months he gets about 7k of company stock, sells it, and we buy something else with it (index fund).  The purpose is medium term savings- house down payment or repair, car repair or purchase, etc.  Possibly emergency fund, although we have 3-4 months of cash in a bank account as well.  Still, if we had long term unemployment we would need that money.  Ideally we'd like to not use the money and let it grow until retirement, but realistically we may use some of it. 

My preference is to continue to buy VTSAX with the brokerage account.  H feels the stock market is very high right now and hat a correction is imminent.  I've tried to convince him, but I do see his POV that this is not a long term retirement account, we may need to access the money.  Right now about 10k is sitting in cash.  Obviously we'd be better off with *something* other than cash. 

What options are there?  I know I've seen more conservative Vanguard funds recommended (although the account is actually with Fidelity).

I have paid very little attention to what you should or shouldn't use a taxed account for as the bulk of our savings thus far have gone into tax advantaged retirement accounts. 

GGNoob

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Re: What should we invest in for medium term?
« Reply #1 on: February 20, 2015, 07:00:29 AM »
Personally, I'd pick a balanced fund that is equal to your risk tolerance for this money. Remember you can always open a new brokerage at Vanguard if you want easier/cheaper access to their funds.

With the amount of money my wife and I put into tax-advantaged accounts, whatever money we put into a taxable account does not need to be saved for retirement. So I decided to do a 60% stock and 40% bond portfolio at Betterment for our "savings" account. I'd like to let this grow for a while and eventually tap it as we want for vacations or larger purchases. This account is small right now, so when Schwab launches their new free robo-advisor, I'll probably end up moving the money there.

If I had to choose a fund, it would be Vanguard's Wellesley Income Fund. It's not ideal for a taxable account since it's actively managed, but it lost less in 2008 than comparable Lifestrategy funds and outperformed them after by quite a bit.

Here's some quick comparisons...

In 2008:
Wellesley Income Fund (1/3 stock) lost 9.84%
Lifestrategy Income Fund (20% stock) lost 10.53%
Lifestrategy Conservative Growth Fund (40% stock) lost 19.52%

The returns:


I know historic returns are supposed to mean nothing, but the fund has averaged 10.09% since 1970! It's hard to beat that with such a conservative fund.

I may decide to switch our savings account to a fund. But at this time I like that with Betterment (and I assume Schwab when it launches), I can withdraw money to pay for a vacation and immediately start putting money back in as I have it. With a mutual fund, if I sell or transfer funds, I cannot purchase new shares of the fund for 60 days (except my mail). Honestly, that may not be so bad as the money could sit in cash or go into another fund during that time. I think I just want to wait and see what Schwab's new service is about before I make a final decision on where this money will go.

forummm

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Re: What should we invest in for medium term?
« Reply #2 on: February 20, 2015, 10:13:03 AM »
I know historic returns are supposed to mean nothing, but the fund has averaged 10.09% since 1970! It's hard to beat that with such a conservative fund.

Inflation was really high back then--even over 10% several years. Even Treasuries yielded close to double digits some years during the 70's-80's. The historical inflation adjusted yield on that fund will be much lower.