What to do with 230K?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

What to do with 230K?

Postby Daisy2178 » Fri Jul 26, 2013 5:24 pm

Hello,
This is my first post. My spouse and I have around 230K sitting in a Capital One 360 savings account. We would like to invest at least some of this money, as we will not need it for at least the next 4 years, possibly longer.

Here is some information about us:
- We are both in our mid-30's, with two small children.
- Jobs are fairly secure, combined HHI about 170K, child care takes up the majority of our expenditures.
- Currently maxing out my TSP (federal government retirement) and spouse's 401K, about 500K between the two.
- Also contributing the max to Roth IRAs (Vanguard Target Retirement).
- No definite retirement plans, in terms of when/where.
- Own no property, but live overseas in paid housing, so no housing costs for at least the next 4 years. Then we may move back to the US and if so, we may want to buy a house if it seems like the right time.
- Student loan, about 29K (down from 80K), consolidated at 3.5% for the rest of the loan (~20 more years). Job has loan repayment program of a few thousand per year, which is why we keep it around.
- No other debt. Car paid in cash.

What should I do with the 230K? Should I invest all of it, or maybe half and keep the rest for an emergency fund? What should I invest it in? Spouse is very conservative and risk averse - prefers to just keep it in savings - but I think it should be earning more.

Thanks for any help and happy to provide more info if that helps.
Daisy2178
 
Posts: 7
Joined: Fri Jul 26, 2013 5:01 pm

Re: What to do with 230K?

Postby MGBGTV8 » Fri Jul 26, 2013 5:44 pm

Your situation is similar to ours, except that you have a large chunk of cash, whereas I have it in equity in our primary residence.

You have a similar debacle as I have faced, where you have some intermediate term goals, for which a straight savings account isn't appealing, but also stock funds might be a bit volatile for you. I had the luxury of building up my after tax pile gradually, so I started with the less risky stuff, and gradually added more stock funds over the past few years.

I would consider a CD ladder (If you withdraw a 5 year CD after only 4 years, you may come out ahead), savings bonds, or an "income type fund" that seeks preservation of capital with a little bit of income.

I'm anxious to follow this thread.
MGBGTV8
 
Posts: 97
Joined: Fri Jan 11, 2013 1:40 pm

Re: What to do with 230K?

Postby letsgobobby » Fri Jul 26, 2013 5:46 pm

Do you have an investment policy statement (IPS)? That should tell you to do with $230k. It's 1/3 of your liquid net worth, so unless there is a specific short-term goal attached to it (house down payment in 4 years, perhaps), it should be invested along with the rest of your $.
letsgobobby
 
Posts: 7160
Joined: Fri Sep 18, 2009 2:10 am

Re: What to do with 230K?

Postby thomasbayarea » Fri Jul 26, 2013 6:11 pm

Here is what I would do:

1. Pay off 29k student loan debt.

2. Keep $50k (or whatever = 6 months) in cash as emergency fund

3. Decide "family" (mutually agreeable) risk tolerance from 0-10

4. Park remainder 150k in an investment

Investment based on risk tolerance:
0 - cash
2 - 4 year CDs (ladder OK)
4 - short term bond fund
6 - LifeStrategy Income
8 - LifeStrategy Conservative Growth
10 - LifeStrategy Moderate Growth
thomasbayarea
 
Posts: 264
Joined: Wed Feb 29, 2012 5:40 pm

Re: What to do with 230K?

Postby Default User BR » Fri Jul 26, 2013 7:03 pm

If you get to the point of investing a significant portion (and I think you should), look into some of the brokerage bonus offers in effect these days. For instance, 125K moved to Sharebuilder would net you $600.


Brian
Default User BR
 
Posts: 7501
Joined: Mon Dec 17, 2007 8:32 pm

Re: What to do with 230K?

Postby Grt2bOutdoors » Fri Jul 26, 2013 7:54 pm

Hello and welcome to the forum!

Money to be used for a home down payment should not be placed at risk.
A CD ladder is a good suggestion, an intermediate term bond fund or income fund whose duration is greater than your investment horizon is not a wise choice if interest rates move up.
"Luck is not a strategy" Asking Portfolio Questions
Grt2bOutdoors
 
Posts: 10434
Joined: Thu Apr 05, 2007 9:20 pm
Location: New York

Re: What to do with 230K?

Postby Toons » Fri Jul 26, 2013 8:06 pm

Daisy2178 wrote:Hello,
This is my first post. My spouse and I have around 230K sitting in a Capital One 360 savings account. We would like to invest at least some of this money, as we will not need it for at least the next 4 years, possibly longer.

Here is some information about us:
- We are both in our mid-30's, with two small children.
- Jobs are fairly secure, combined HHI about 170K, child care takes up the majority of our expenditures.
- Currently maxing out my TSP (federal government retirement) and spouse's 401K, about 500K between the two.
- Also contributing the max to Roth IRAs (Vanguard Target Retirement).
- No definite retirement plans, in terms of when/where.
- Own no property, but live overseas in paid housing, so no housing costs for at least the next 4 years. Then we may move back to the US and if so, we may want to buy a house if it seems like the right time.
- Student loan, about 29K (down from 80K), consolidated at 3.5% for the rest of the loan (~20 more years). Job has loan repayment program of a few thousand per year, which is why we keep it around.
- No other debt. Car paid in cash.

What should I do with the 230K? Should I invest all of it, or maybe half and keep the rest for an emergency fund? What should I invest it in? Spouse is very conservative and risk averse - prefers to just keep it in savings - but I think it should be earning more.

Thanks for any help and happy to provide more info if that helps.



Similar situation here a few years back,about the same amount of cash,invested steadily (and still investing) in Lifestrategy Conservative Growth,short term,and intermediate term bond funds,reinvesting in all.Working out just fine.
Pay Off the Student Loan :happy :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
User avatar
Toons
 
Posts: 4508
Joined: Fri Nov 21, 2008 11:20 am
Location: Hills of Tennessee

Re: What to do with 230K?

Postby Daisy2178 » Sat Jul 27, 2013 10:21 am

Thanks, everyone! Seems like the consensus is to pay off the student loan. Then maybe we'll look into a CD ladder. Anyone have specific suggestions?
What is an Investment Policy Statement? Do I need one?
Daisy2178
 
Posts: 7
Joined: Fri Jul 26, 2013 5:01 pm

Re: What to do with 230K?

Postby JW Nearly Retired » Sat Jul 27, 2013 10:54 am

Daisy2178 wrote:Student loan, about 29K (down from 80K), consolidated at 3.5% for the rest of the loan (~20 more years). Job has loan repayment program of a few thousand per year, which is why we keep it around.

Thanks, everyone! Seems like the consensus is to pay off the student loan. Then maybe we'll look into a CD ladder. Anyone have specific suggestions?

Before you pay the loan off, what is the "job loan repayment program"? Does your employer pay for you?
JW
Retired Summer 2013
JW Nearly Retired
 
Posts: 4068
Joined: Sun Dec 16, 2007 1:25 pm

Re: What to do with 230K?

Postby sometimesinvestor » Sat Jul 27, 2013 11:04 am

The reason there is a suggestion of paying off the student loan is that given your stated risk tolerance its not so easy to earn a safe 3.5%. I am not sure that advice is correct in your case(though it might be ) as I am uncertain how the job reimbursement of the loan works. Can you clarify? Depending on where you plan to live it seems unlikely you will use more than $150k as down payment on the house. Therefore I would put that amount into a cd ladder and also look at 529 plans for your children as time is on your side.Since you don't know where you are going to live I would look at the low cost Utah plan.
quoting from the web site
529 plans are tax-advantaged savings vehicles designed to encourage individuals to begin to save for the future costs of higher education. The Utah Educational Savings Plan (UESP), a nonprofit trust fund, is the official and only 529 plan established and sponsored by the State of Utah. You do not have to be a Utah resident to participate in UESP. UESP is a direct-sold 529 plan, which means you can set up an account and make contributions by dealing directly with UESP.

After this and perhap sbefore depending on the nature of the loan reimbursement you might pay off the loan.
User avatar
sometimesinvestor
 
Posts: 897
Joined: Wed May 13, 2009 7:54 am

Re: What to do with 230K?

Postby Daisy2178 » Sat Jul 27, 2013 1:51 pm

Thanks, again. To clarify regarding the loan reimbursement program, my federal agency pays about $5000 per year, but only when doing certain jobs (in "dangerous" overseas locations, or hard-to-fill positions at headquarters in DC), therefore it is not guaranteed indefinitely, as I have to change positions every couple of years and the next one may or may not qualify. I agree it makes sense to just pay it off.

Regarding the 529 plans, I'm sorry I forgot to add in my original post that we already have them for our two kids and are funding a reasonable amount considering that we are hoping to get tuition remission through my spouse's university job.

For the house, if we do return to the U.S. in 4 years, we would be in the Washington, DC area, which is quite expensive, so 150K for a downpayment would not be out of the realm of possibility.
Daisy2178
 
Posts: 7
Joined: Fri Jul 26, 2013 5:01 pm

Re: What to do with 230K?

Postby Userdc » Sat Jul 27, 2013 2:30 pm

Unless I'm misunderstanding something...do NOT pay off that student loan if there's a reasonable chance you will continue to get that loan repayment perk. You are paying $1000 in interest per year right now, so if you expect to get that amount repaid or more, definitely keep the loan.

You can always repay the loan late, and right now your effective interest rate is about NEGATIVE 10%.

Not all debt is bad debt.
Userdc
 
Posts: 191
Joined: Tue Jun 21, 2011 10:30 am

Re: What to do with 230K?

Postby Novine » Sat Jul 27, 2013 9:55 pm

What kind of student loans?
Novine
 
Posts: 803
Joined: Mon Nov 17, 2008 10:07 pm

Re: What to do with 230K?

Postby Daisy2178 » Sat Jul 27, 2013 11:51 pm

It's a consolidated loan (made up of subsidized and unsubsidized federal loans), 30 yrs at 3.5%. I'm 10 years in and ready to pay the rest off, just for the piece of mind of having zero debt, since the loan repayment is not guaranteed year to year.

So say that leaves me 200K, and out of that I want to leave 50K in the savings account as an emergency fund, leaving 150K to invest. Do I invest it all at once, especially since the market is pretty high right now? Or is it better to wait a while, or buy shares a little at a time? I am thinking of going with the Life Strategy Income Fund. But as one of the previous posters said, if interest rates go up, will that be a losing strategy? Any more info on this? Thanks!
Daisy2178
 
Posts: 7
Joined: Fri Jul 26, 2013 5:01 pm

Re: What to do with 230K?

Postby Novine » Sun Jul 28, 2013 11:49 am

Some federal loans are eligible for forgiveness if you have a government job. Are you eligilble for that?

http://www.finaid.org/loans/publicservice.phtml
Novine
 
Posts: 803
Joined: Mon Nov 17, 2008 10:07 pm

Re: What to do with 230K?

Postby FoolStreet » Sun Jul 28, 2013 12:04 pm

Daisy2178 wrote:Hello,
This is my first post. My spouse and I have around 230K sitting in a Capital One 360 savings account. We would like to invest at least some of this money, as we will not need it for at least the next 4 years, possibly longer.

Here is some information about us:
- We are both in our mid-30's, with two small children.
- Jobs are fairly secure, combined HHI about 170K, child care takes up the majority of our expenditures.
- Currently maxing out my TSP (federal government retirement) and spouse's 401K, about 500K between the two.
- Also contributing the max to Roth IRAs (Vanguard Target Retirement).
- No definite retirement plans, in terms of when/where.
- Own no property, but live overseas in paid housing, so no housing costs for at least the next 4 years. Then we may move back to the US and if so, we may want to buy a house if it seems like the right time.
- Student loan, about 29K (down from 80K), consolidated at 3.5% for the rest of the loan (~20 more years). Job has loan repayment program of a few thousand per year, which is why we keep it around.
- No other debt. Car paid in cash.

What should I do with the 230K? Should I invest all of it, or maybe half and keep the rest for an emergency fund? What should I invest it in? Spouse is very conservative and risk averse - prefers to just keep it in savings - but I think it should be earning more.

Thanks for any help and happy to provide more info if that helps.



I haven't seen anyone suggest buying $20k/year or series I savings bonds. 10k per name. Plus up to 5k using the tax refund trick. It also has some college savings benefits.
FoolStreet
 
Posts: 147
Joined: Fri Sep 07, 2012 1:18 am

Re: What to do with 230K?

Postby inbox788 » Sun Jul 28, 2013 3:02 pm

thomasbayarea wrote:Here is what I would do:

1. Pay off 29k student loan debt.

2. Keep $50k (or whatever = 6 months) in cash as emergency fund

3. Decide "family" (mutually agreeable) risk tolerance from 0-10

4. Park remainder 150k in an investment

Investment based on risk tolerance:
0 - cash
2 - 4 year CDs (ladder OK)
4 - short term bond fund
6 - LifeStrategy Income
8 - LifeStrategy Conservative Growth
10 - LifeStrategy Moderate Growth


I respectfully disagree in some cases. Some of these suggestions are great in general, but for OP, certain items are unrecommended.

1) DO NOT pay off student loan. It's cheap interest and potential reimbursement benefit make it a keeper.

2,3) ok, $50k sounds about right.

4) More like $180k! That much cash is just going to be devalued by inflation. CDs are no risk, but seriously overly conservative. Short term bond fund is overly conservative. LifeStrategy are ok. Given timeframe, LifeStrategy Income is very conservative, but pretty much minimum level of risk as far as I can tell without knowing more about the 500k retirement funds. IMO, all should be lumped together into LifeStrategy Conservative Growth/Moderte Growth or even higher risk/return AA level given OP age and financial situation.
inbox788
 
Posts: 1028
Joined: Thu Mar 15, 2012 6:24 pm

Re: What to do with 230K?

Postby inbox788 » Sun Jul 28, 2013 3:06 pm

Daisy2178 wrote:- Currently maxing out my TSP (federal government retirement) and spouse's 401K, about 500K between the two.
- Also contributing the max to Roth IRAs (Vanguard Target Retirement).

How are these being invested? AA?
inbox788
 
Posts: 1028
Joined: Thu Mar 15, 2012 6:24 pm

Re: What to do with 230K?

Postby chrischris » Sun Jul 28, 2013 3:13 pm

Hi,

How much is child care costing you each year?
chrischris
 
Posts: 69
Joined: Fri Apr 16, 2010 2:25 pm

Re: What to do with 230K?

Postby Daisy2178 » Sun Jul 28, 2013 7:13 pm

Hi and thanks again. To answer some questions, our retirement fund contributions are now allocated 100% to Lifecycle 2040 funds in both the TSP and spouse's account. Because we started funding those accounts before the Lifecycle funds were created, they also contain a certain percentage (13% in mine, 50% in spouse's) that is divided up among mostly stocks, some international, some bonds. Our Roths are fully invested in Target Retirement 2045. I should mention I am also expecting a federal pension, eligible at age 50 (will have 26 yrs of service by then).

Regarding student loan forgiveness, I remember looking into this when the program was created and recall that unfortunately, my loans did not qualify. Maybe because it applies only to those who are on an income-based repayment program? My consolidated loan is an extended (30-yr) but regular repayment (only $200/month).

Child care costs us about 25-30K per year, including preschool and a nanny.

What is AA? I think up until now, we have been very lazy in regards to investing and learning about all of our investment options (hence putting all of our money in lifecycle funds). I am very grateful for all your advice, but it still seems like there are so many choices! What about a plan like this:

- Keep student loan for now
- 50K in cash emergency fund
- 50K in CD ladder
- 50K in Life Strategy Income
- 50K in Life Strategy Conservative Growth
- 30K in Life Strategy Moderate Growth

Would this cover all our bases? And again, should I purchase all the shares at once, or spread out the purchases over a few months?

Thanks for the great advice!
Daisy2178
 
Posts: 7
Joined: Fri Jul 26, 2013 5:01 pm

Re: What to do with 230K?

Postby Novine » Sun Jul 28, 2013 7:18 pm

"Regarding student loan forgiveness, I remember looking into this when the program was created and recall that unfortunately, my loans did not qualify. Maybe because it applies only to those who are on an income-based repayment program? My consolidated loan is an extended (30-yr) but regular repayment (only $200/month)."

I would check that again. I don't believe it is limited to income based repayment and it would be worth the time to review again if those loans can be forgiven.
Novine
 
Posts: 803
Joined: Mon Nov 17, 2008 10:07 pm

Re: What to do with 230K?

Postby chrischris » Sun Jul 28, 2013 11:43 pm

With child care cost so expensive, I would consider exploring the possibility of one of you staying home. It sounds like you are able to afford it and after income taxes and work expenses (transportation to work, new clothes, dry cleaning bills, eating out at work, coffee with co workers etc) it is often times amazing what it actually costs you to have a career. All this comes at the cost of spending less time with one's children.

Just something to consider as I am seeing more and more couples today who are actually worse off and unhappy because both go to work.
chrischris
 
Posts: 69
Joined: Fri Apr 16, 2010 2:25 pm

Re: What to do with 230K?

Postby Userdc » Mon Jul 29, 2013 7:48 am

All this comes at the cost of spending less time with one's children.


This is a very personal decision, and not something that the OP asked for advice on, so I'm not sure why this topic came up, but there are many potential benefits to both spouses working including: more money if both spouses earn enough, an enriching career, better career prospects after the kids are old enough to attend school, access to twice as much tax-sheltered accounts, non-cash benefits (social security credits, pensions, twice the health plans to
choose from), and if you can quality child care - energetic adult supervision for the children with more opportunity to expose them to diverse personalities and cultures.

There is more than one way to skin the cat.
Userdc
 
Posts: 191
Joined: Tue Jun 21, 2011 10:30 am

Re: What to do with 230K?

Postby ieee488 » Mon Jul 29, 2013 8:42 am

Userdc wrote:
All this comes at the cost of spending less time with one's children.


This is a very personal decision, and not something that the OP asked for advice on, so I'm not sure why this topic came up, but there are many potential benefits to both spouses working including: more money if both spouses earn enough, an enriching career, better career prospects after the kids are old enough to attend school, access to twice as much tax-sheltered accounts, non-cash benefits (social security credits, pensions, twice the health plans to
choose from), and if you can quality child care - energetic adult supervision for the children with more opportunity to expose them to diverse personalities and cultures.

There is more than one way to skin the cat.


That was not the entire sentence. chrischris' response was in relation to the COST of day care being so expensive such that having one parent stay home maybe an option.

There are potential benefits to both parents working and one parent working.
Dell Precision M6300 (Ubuntu Linux 12.04 + Windows 7), Dell Precision M6300 (Windows 7), Dell Latitude D530 (Windows Vista), Dell Latitude D531 (Windows Vista)
ieee488
 
Posts: 1517
Joined: Thu Dec 10, 2009 9:57 am

Re: What to do with 230K?

Postby Daisy2178 » Mon Jul 29, 2013 9:44 am

Thanks for the input. Quitting my job is not an option. I do enjoy my career and feel that the monetary benefits (living rent-free overseas, free tuition at international schools, option to retire at 50 with a pension) as well as the non-monetary benefits to my kids of growing up all over the world, learning various languages/cultures, will outweigh the cost of the few expensive preschool years. My spouse's job is mobile and comes with college tuition benefits, so neither of us want to quit.

Did anyone have any comments on my proposed investment plan? Thanks!
Daisy2178
 
Posts: 7
Joined: Fri Jul 26, 2013 5:01 pm

Re: What to do with 230K?

Postby Daisy2178 » Mon Jul 29, 2013 9:56 am

Also, I reviewed the student loan forgiveness program and I don't think I qualify because I'm not on the income-based repayment plan, and my monthly payments are lower than they would be on the 10-yr standard plan:

What is a qualifying repayment plan?
To maximize forgiveness under the PSLF Program, you should repay your loans on the Income-Based Repayment (IBR) Plan, Pay As You Earn Repayment Plan, or the Income-Contingent Repayment (ICR) Plan, which are three of the repayment plans that qualify for PSLF.

Other PSLF-qualifying repayment plans are the 10-Year Standard Repayment Plan or any other repayment plan where your monthly payment amount equals or exceeds what you would pay under a 10-Year Standard Repayment Plan.

Before selecting a repayment plan, it is important to understand the implications and costs of that decision. The longer you make PSLF-qualifying payments under a 10-Year Standard Repayment Plan, the lower the remaining balance on your loans will be when you meet all of the PSLF Program's eligibility requirements. In fact, if you make all of the required 120 qualifying payments under the 10-Year Standard Repayment Plan, there will be no remaining balance on your loans to be forgiven.

Under the IBR, Pay As You Earn, and ICR plans, your monthly payment amount will likely be lower than under any of the other PSLF-qualifying repayment plans and your repayment period will likely be longer. Because of the longer repayment period, additional interest that will accrue on your loan, and the smaller monthly payment amount, you will be left with a higher loan balance that could be forgiven. However, if you ultimately do not meet the eligibility requirements for PSLF, you will be responsible for repaying the entire balance of your loan, including all accrued interest, unless you qualify for forgiveness under the terms of the IBR, Pay As You Earn, or ICR plan.
Daisy2178
 
Posts: 7
Joined: Fri Jul 26, 2013 5:01 pm

Re: What to do with 230K?

Postby Luke Duke » Mon Jul 29, 2013 11:27 am

Definitely keep the student loan for now. If you next assignment doesn't qualify for the $5K/yr reimbursement then you can pay the loan(s) off at that time.
Luke Duke
 
Posts: 278
Joined: Tue Jun 18, 2013 12:44 pm
Location: Texas

Re: What to do with 230K?

Postby inbox788 » Fri Aug 02, 2013 10:29 am

Daisy2178 wrote:What is AA? I think up until now, we have been very lazy in regards to investing and learning about all of our investment options (hence putting all of our money in lifecycle funds). I am very grateful for all your advice, but it still seems like there are so many choices!

http://www.bogleheads.org/wiki/Asset_Allocation
It's not that complicated. Don't sweat it. As long as you're in the ballpark, you're just tweaking optimization. Low fee lifestrategy funds are fine. I see vanguard ER is 0.17%. Don't recall if they add the individual fund fees to that or waive it, but at worst it's another 0.08% or so. Some fund of funds tack on around 1% wrapped around funds that each charge around 1%, so total ER is very high.

Daisy2178 wrote:What about a plan like this:

- Keep student loan for now
- 50K in cash emergency fund
- 50K in CD ladder

This is probably higher than needed, but ok. Why the CD ladder? What time steps? 50k emergency cash in a CD ladder may be adequate.
- 50K in Life Strategy Income
- 50K in Life Strategy Conservative Growth
- 30K in Life Strategy Moderate Growth

Too complicated! The Income and Moderate Growth will pretty much average out to Conservative Growth, so you might as well put it ALL in Conservative Growth. If I were in your shoes, I'd probably choose to put it all in Modetate Growth (or even step up to Growth https://personal.vanguard.com/us/funds/ ... rategyList) , but you need to decide your risk level. If you want to choose something in between, then you might as well use a three fund portfolio and shave a bit on expenses as well as pick your perfect AA. http://www.bogleheads.org/wiki/3-fund_portfolio
Would this cover all our bases? And again, should I purchase all the shares at once, or spread out the purchases over a few months?

Simplify whenever you can, or else you'll have scores of stocks, funds and accounts to deal with. Since the funds are coming from existing equities, you're just transferring containers, all at once is fine. New cash brings up perennial debate, so search for past discussion and wiki.
inbox788
 
Posts: 1028
Joined: Thu Mar 15, 2012 6:24 pm

Re: What to do with 230K?

Postby sometimesinvestor » Fri Aug 02, 2013 10:45 am

Re your investment plan it seems fine except that I think you ought to check out the large positions in each lifestyle fund. I am a little concerned that there is lots of overlap in investments and that what looks like diversification isn't.
User avatar
sometimesinvestor
 
Posts: 897
Joined: Wed May 13, 2009 7:54 am

Re: What to do with 230K?

Postby M_to_the_G » Fri Aug 02, 2013 1:22 pm

I assume Foreign Service due to retirement eligibility at 50? First, congrats on maxing out your TSP and Roth. I think keeping your money in a Lifecycle fund in TSP and a LifeStrategy fund in Roth is fine, but don't mix-and-match! Pick one target date for each (and don't add other funds) and plow the entire amount in it. Then you essentially have a simple, diversified two-fund portfolio. Nothing could be simpler or easier.

A propos, you've misinterpreted Thomas' advice:

thomasbayarea wrote:Investment based on risk tolerance:
0 - cash
2 - 4 year CDs (ladder OK)
4 - short term bond fund
6 - LifeStrategy Income
8 - LifeStrategy Conservative Growth
10 - LifeStrategy Moderate Growth


Bolding is mine. He is saying that, based on your risk tolerance on a scale of 1-10 (the bolded numbers), these are possible (exclusive) options, assuming you want the simplicity of holding all of your money in one place/fund. He wasn't advising that you hold all of these in equal weight. As others have intimated above, holding multiple target retirement funds with different dates is counterproductive.

Second, for the 200k+ in cash you've got, keep no more than 30k for your emergency fund. People advising you to do more are making assumptions, mainly that you'll need six months of expenses if you lose your job. Assuming you are tenured and not at risk of getting booted, you'll continue to have cash-flow surpluses throughout your career and will have plenty of cash on hand. I assume you also have either the BC/BS or FSBP health insurance, both of which are top-notch. Being crushed by an "emergency" is not going to happen to you. So you don't need to put half of that 200k+ into an emergency fund, at all. Instead, I would open a taxable account at a low-cost place like Vanguard or Fidelity and invest the vast majority of that lump of cash there.

As for what funds to put that cash into, I think definitely a low-cost international index stock fund (benchmark MSCI ACWI ex-US IMI) should be added to your portfolio because the "I fund" in TSP is extremely limited as an international fund (benchmark MSCI EAFE: only large cap, no Canada, no emerging/frontier markets). And more total U.S. stock market. But with that big of a sudden taxable purchase (which should be stock-based for tax efficiency), you will skew your overall AA heavily toward stocks. In which case, you may want to study up and create your own AA, which would mean ditching the L fund and LifeStrategy funds. If you don't want to do that, you can avoid having the stock-heavy portfolio by putting a portion of your TSP in F and G, separate from the L fund, to balance out the large taxable stock portfolio... or by purchasing things like TIPS, i-Bonds, etc. as fixed income to reskew your portfolio to be in line with the AA in your chosen Target Date funds.

Regarding the loans, don't pay them off if you are getting the SLRP (yes, depending on where you are posted). I paid the minimum and took SLRP until my outstanding student loans were too small to get the match, after which I paid them off in full.

One last thing: get Bogle's book "Common Sense" and read it. It's a good read and will answer many of your questions about AA, indexing, retirement goals, etc., and will help you understand the mindset of Bogleheads.

Cheers,

MG
M_to_the_G
 
Posts: 225
Joined: Mon Jan 21, 2013 10:57 am


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: bertilak, celia, kmedina8, N52570, RetireGood and 79 guests