Author Topic: Should I break a 5-yr CD and go into Total Market Index Fund in taxable account?  (Read 1943 times)

MrMetalMoney

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Mustachians - need a confidence boost.

I put a rather large sum of money into a 5-yr high yield CD at Ally Bank. 2% yield. I thought it was a decent place to stash an emergency fund.

I now feel like I made a terrible mistake.

Ally's penalty for the 5-yr CD is 150 days of interest. I've had it in there for almost 180 days. This means that the penalty would not touch the principal, but would pretty much erase any earned interest.

I'm ready to start the clock on more aggressive gains. I have some other, smaller sum of cash in an Ally savings account, so this is not my sole source of cash.

Any reasons not to do this? I hate losing the interest earned, but I hate not making the gains that an index fund would even more.

Ricky

  • Pencil Stache
  • ****
  • Posts: 842
Wrong section, plus we don't have enough info.

Time horizon, cash value, net worth and age will all play a part in this. Also, any large expenses coming up anytime soon?

If you have ~$100k+ then maybe consider real estate. Of course this is going to take time and research, but much better returns if you do your homework. The only reason I mention this is the market is at an all time high. It's stupid to try to call the high, or low, but do your research and decide for yourself. Plus, I wouldn't personally put a large amount of my net worth in the market just yet. If not, then if you're looking at 10+ years, stocks are probably the better bet.

If you left it in the CD, you're losing an average of 1% on your money due to inflation, so what do you think we're going to say?

Frankies Girl

  • Magnum Stache
  • ******
  • Posts: 2779
  • Age: 81
  • Location: The laboratory
  • Typical Ghoul Next Door
Mustachians - need a confidence boost.

I put a rather large sum of money into a 5-yr high yield CD at Ally Bank. 2% yield. I thought it was a decent place to stash an emergency fund.


Bolded the part that is important. I personally would not break that CD unless you're talking every last penny you have to invest is trapped inside. You're fine with a CD earning 2% for an emergency fund. Do not put emergency funds into regular stocks/mutual funds. While long-term the market (and your investments) should go up, it would be worrisome to count on the market having an "up" day exactly when you needed it for an actual emergency.





MrMetalMoney

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Ricky - Woops. Sorry for the newb mistake of posting in an inappropriate section. Oh well... here we are anyway. :)

Thanks for the response, it has provoked some thinking.

The sum in question is $75k. In the last couple of months I've finally gotten educated on Mustachianism and portfolio balancing, read the Four Pillars, Intelligent Investor, Random Walk, and all of Bogleheads. I have allocated my retirement accounts into the classic 80/20 (stocks/bonds) with a "core 4" allocation, with 8% of that in REITs.

I'm still green though, and I don't quite know how to respond to the time horizon question, so thanks for the nudge to figure that out. All I can say is, this $75 was a windfall of cash, so I want to put it to work effectively. My organic cash-flow savings already flows into a Roth 401k (just recently started allocating to the Roth option - already have sizable amount in traditional 401k and IRA) and after the IRS max, I spill over into a taxable account. The 80/20 allocation stretches across all of that, with the bonds and REITs exclusively in the tax-advantaged IRA and 401ks.

When you speak of "market at all time high", are you referring specifically to the stock market? I'm not sure the real estate market is any different, but I've not spent the time researching. In either case, isn't this market-timing stuff frowned upon? Not to be dogmatic about that, but the "efficient market" hypothesis rings quite true to me - especially after having JUST read the books mentioned above.

When you talk about investing in real estate, are you suggesting REITs or actual real estate? I'd lean more to REITs at the moment, but I could be convinced otherwise.
« Last Edit: April 05, 2015, 07:49:25 PM by bironology »

MrMetalMoney

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Frankies Girl -

My problem (actually my mistake made 6 months ago) is that this is too much for an emergency fund. Combined with other savings sums I have well over $100k in cash. I realistically need barely half of that to "survive" a sustained emergency of more than a year. So this is no longer (was not ever, in point of fact) a critical emergency fund. I view it as cash that is not doing as well as it could - although you must admit a 2% CD is pretty sweet.