where to put fun money?

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where to put fun money?

Postby vital » Thu Jun 27, 2013 4:28 am

Already have 401k, Roth IRA, emergency fund, and 4k in checking for bills.

Where should I put $20k for purchasing expensive stuff like a car in the future?
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Re: where to put fun money?

Postby bottlecap » Thu Jun 27, 2013 7:29 am

How about a CD?

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Re: where to put fun money?

Postby pochax » Thu Jun 27, 2013 7:39 am

if you need it within short timeframe (<3-5 yrs), then a FDIC insured account (including CDs if the timeframe is well-defined) would suffice. Capital One 360 (formerly ING DIrect) allows you to "name" the account if it is designated (eg. "new car fund"). If the timeframe is longer consider a conservative or moderate taxable mutual fund (or whatever risk you are willing or needing to accept).
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Re: where to put fun money?

Postby Grt2bOutdoors » Thu Jun 27, 2013 8:04 am

I'll send you my account number. When can I expect it? :wink:

A CD or savings account would be an excellent choice until your need for the fun money arises.
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Re: where to put fun money?

Postby mernova » Thu Jun 27, 2013 9:38 am

I have mine in TSM. Yea there is a greater risk but it is "fun money" and i dont NEED that new boat, so i can wait it out.
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Re: where to put fun money?

Postby leonard » Thu Jun 27, 2013 3:25 pm

Money is fungible. It doesn't know if it's "fun" or not. Simply invest in an instrument that matures approximately when you plan to use the money.
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Re: where to put fun money?

Postby Ged » Thu Jun 27, 2013 4:01 pm

How much fun are you looking to have? :sharebeer
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Re: where to put fun money?

Postby The Wizard » Thu Jun 27, 2013 4:10 pm

Vehicle replacement really isn't a "fun money" expense.
It's a predictable expense and if you put $500 a month aside for this, you'll be in good shape in five years.

Fun Money would typically be for Foreign Travel, such as the alumni brochure I got yesterday for two weeks in South Africa, for around $7K a person...
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Re: where to put fun money?

Postby Rant2112 » Thu Jun 27, 2013 7:19 pm

I've always been a bit confused when it is recommended to put money that you are going to need 'soon' in a very safe investment.

Here's my confusion:

I have 60k
I am going to buy a 20k car in the next 3 years.

---

A lot of people would recommend putting 20k in something like a CD and investing the other 40k in the stock market, bonds, etc.

Why not put all 60k in the higher earning allocation? I'll end up with more money on average, right?

I understand there are liquidity issues - I shouldn't put the 60k in my house or in a 401k.

If I have enough sufficiently-liquid investments to cover known expenses even in market downturns then why would I move some of it into something 'safer' like a CD??
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Re: where to put fun money?

Postby pochax » Fri Jun 28, 2013 11:44 am

Rant2112 wrote:I've always been a bit confused when it is recommended to put money that you are going to need 'soon' in a very safe investment.

Here's my confusion:

I have 60k
I am going to buy a 20k car in the next 3 years.

---

A lot of people would recommend putting 20k in something like a CD and investing the other 40k in the stock market, bonds, etc.

Why not put all 60k in the higher earning allocation? I'll end up with more money on average, right?

I understand there are liquidity issues - I shouldn't put the 60k in my house or in a 401k.

If I have enough sufficiently-liquid investments to cover known expenses even in market downturns then why would I move some of it into something 'safer' like a CD??

Because the OP only has 20k and you have 60k. In a down market (ex. down 33%) that 20k could turn into 14k whereas you would still have 40k to buy the car. "designated" money should be put in "safer" bucket because it is designated. if it is NOT designated, you can go as aggressive as your risk profile/needs will let you.
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Re: where to put fun money?

Postby Jay69 » Fri Jun 28, 2013 1:28 pm

I bonds this year and next year. If married it could all go in now.

I like Vanguards VCSH for my EM fund, could see using that as well. As others have said CD's or an online savings account.

It's all so hum drum these days, I would be willing to look at even tossing $5,000 of the $20,000 into the TSM and take my chances, what's the worse that can happen, you end up with a $15,000 vacation if the $5k tanks and you have to wait for it to come back. Who knows maybe the stock market will pick up another 4% this year, I'm sure you know the flip side to that as well :wink:
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Re: where to put fun money?

Postby ourbrooks » Fri Jun 28, 2013 1:56 pm

The problem with "on average" is that it implies some kind of long term average. The following two statements are not contradictory:

1. On average, the stock market loses money in 40% of five year periods.
2. On average, the real return of stocks is 8%

If you really need a new car at a specific year in the future, you'll probably avoid having statement 1 apply to you by putting the funds in something less volatile, even if it has lower returns.

If you can afford to delay a purchase by three years, well,it's a whole different situation. The average length of bear markets is 18 months. If you're sure that you can keep that old clunker running for three years beyond your target date (or delay that new kitchen), then if your target date occurs during a bear market, you could wait until the market goes back up before spending. (N.B. there has been at least one five year bear market.) Under those circumstances, putting the money into stocks might make sense.
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Re: where to put fun money?

Postby Rant2112 » Fri Jun 28, 2013 3:12 pm

If I have 60k of stock that's now worth 40k what is wrong will selling 20k and buying the car?

I see advice talking about this being a bad time to sell, being forced to liquidate stocks at a bad time, etc. All as reasons to put the money in CDs or other safe assets.

But, we can't time the market, right? We don't know which way it is going from there so there's no reason to delay the purchase. Am I missing something?

---

I'm going to have dozens of these expenses over my lifetime - new tires, medical bills, new cars, etc, etc

Should I be planning ahead and moving money preemptively into 'safe' assets? When?

Should I keep my rainy day fund in something like CDs instead of stocks?

Again, assuming that I have sufficient liquid assets to cover these expenses, even in a down market.
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Re: where to put fun money?

Postby roymeo » Fri Jun 28, 2013 3:38 pm

Into supplies to build a new teardrop trailer.
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Re: where to put fun money?

Postby ThatGuy » Fri Jun 28, 2013 4:06 pm

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Re: where to put fun money?

Postby John3754 » Fri Jun 28, 2013 4:21 pm

Rant2112 wrote:If I have 60k of stock that's now worth 40k what is wrong will selling 20k and buying the car?...But, we can't time the market, right? We don't know which way it is going from there so there's no reason to delay the purchase. Am I missing something?


What you're missing is the difference between market timing and mitigating risk. If you put 60k into the stock market, it drops to 40k, and you sell half your shares to buy a car then the 20k car basically just cost you 30k, does that seem like a good thing to you? Keeping money that you need in the short term out of the market isn't market timing, it's understanding market risk and avoiding it when necessary. The fact that nobody knows which way the market will go tomorrow is exactly why you SHOULDN'T do this.
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Re: where to put fun money?

Postby Rant2112 » Sun Jun 30, 2013 3:26 pm

John3754 wrote:
Rant2112 wrote:If I have 60k of stock that's now worth 40k what is wrong will selling 20k and buying the car?...But, we can't time the market, right? We don't know which way it is going from there so there's no reason to delay the purchase. Am I missing something?


What you're missing is the difference between market timing and mitigating risk. If you put 60k into the stock market, it drops to 40k, and you sell half your shares to buy a car then the 20k car basically just cost you 30k, does that seem like a good thing to you? Keeping money that you need in the short term out of the market isn't market timing, it's understanding market risk and avoiding it when necessary. The fact that nobody knows which way the market will go tomorrow is exactly why you SHOULDN'T do this.
By this logic if my 60k in the market goes to 80k then the car 'cost' 15k.

The market goes up more than down, correct?

I understand that there might be emotional considerations but it seems to me that I'll have more wealth in the long run if I keep all of my money invested with the same allocation.

I understand the risk of stocks when I near retirement - I don't have time to make up the losses.

I don't understand putting my emergency fund or money that I plan to spend soon into a less risky allocation than the rest of my savings.
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Re: where to put fun money?

Postby inbox788 » Mon Jul 01, 2013 11:41 pm

pochax wrote:if you need it within short timeframe (<3-5 yrs), then a FDIC insured account (including CDs if the timeframe is well-defined) would suffice. Capital One 360 (formerly ING DIrect) allows you to "name" the account if it is designated (eg. "new car fund"). If the timeframe is longer consider a conservative or moderate taxable mutual fund (or whatever risk you are willing or needing to accept).


Don't forget inflation. The cost of the car is likely going up as well as the investments over time, especially over longer timeframes. Maybe putting some in GM might be a way to hedge this risk.
I'd put it all in TSM and if it went up substantially, I'd be upgrading to a nicer car! If it tanked, well, I'd postpone the purchase or get a used car.
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Re: where to put fun money?

Postby ryuns » Tue Jul 02, 2013 7:03 pm

Rant2112 wrote:
John3754 wrote:
Rant2112 wrote:If I have 60k of stock that's now worth 40k what is wrong will selling 20k and buying the car?...But, we can't time the market, right? We don't know which way it is going from there so there's no reason to delay the purchase. Am I missing something?


What you're missing is the difference between market timing and mitigating risk. If you put 60k into the stock market, it drops to 40k, and you sell half your shares to buy a car then the 20k car basically just cost you 30k, does that seem like a good thing to you? Keeping money that you need in the short term out of the market isn't market timing, it's understanding market risk and avoiding it when necessary. The fact that nobody knows which way the market will go tomorrow is exactly why you SHOULDN'T do this.
By this logic if my 60k in the market goes to 80k then the car 'cost' 15k.

The market goes up more than down, correct?

I understand that there might be emotional considerations but it seems to me that I'll have more wealth in the long run if I keep all of my money invested with the same allocation.

I understand the risk of stocks when I near retirement - I don't have time to make up the losses.

I don't understand putting my emergency fund or money that I plan to spend soon into a less risky allocation than the rest of my savings.


I think you bring up a good point. But I think you should just allocate your money to the things you plan to spend them on specifically. It's not as if you have $60k, 20 of which is for a car and $40k, eh, who cares? I'd personally allocate $20k to a moderately safe investment (I don't think it has to be 100% safe if you have other money to cover a small difference), maybe short term muni bonds, or short term corp bonds. The other $40k--is that an emergency fund? Is it money you want to put towards retirement? I think that dictates how you invest the rest.
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Re: where to put fun money?

Postby Rant2112 » Wed Jul 03, 2013 11:54 am

ryuns wrote:I think you bring up a good point. But I think you should just allocate your money to the things you plan to spend them on specifically. It's not as if you have $60k, 20 of which is for a car and $40k, eh, who cares? I'd personally allocate $20k to a moderately safe investment (I don't think it has to be 100% safe if you have other money to cover a small difference), maybe short term muni bonds, or short term corp bonds. The other $40k--is that an emergency fund? Is it money you want to put towards retirement? I think that dictates how you invest the rest.
Anything that isn't spent is allocated to retirement savings.

Basically, I'm lumping together emergency funds, known larger expenses like cars, and retirement savings (after maximizing tax reducing retirement savings options).

Once the pile is big enough, 60k in this example, to cover swings in investment values I stop putting things in safer investments and just keep everything allocated in a way that makes sense for my retirement savings.

I think I'll have more at retirement than if I plan ahead for known expenses and, for example, set aside money to buy a car in a safer asset.

I usually see people recommending safe assets for emergency funds and for planned larger purchases so I'm nervous that I'm missing something. 8)

Maybe the assumption is that you don't have enough to 'cover swings in investment values'??
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