Non-retirement medium term savings allocation, cars etc?

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JamesSFO
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Non-retirement medium term savings allocation, cars etc?

Post by JamesSFO » Thu Aug 15, 2013 4:23 pm

So, having just conquered the pay off the mortgage and cleaned up my portfolio I am trying to figure out where to put non-emergency fund and non-retirement assets.

(Background: 3 fund portfolio [<1% deviation of holding 100 shares of CCL for shareholder benefit], have emergency fund w/ 12 months living expenses in MMkt/Bank CDs. Tax rate is top marginal rate Federal + top marginal rate CA.)

Question: There will be large purchases here and there over the years, e.g. new car, roof, whatever. Where do people put money and savings for these? For example, if I want to buy a new car @ $30K again in 5-7 years, where should that money be saved?

I am leaning towards Tax-Exempt Intermediate Municipal Bond Fund. If I just maintain a constant duration portfolio of on the order of 30-50K plus while non-retired can take the chance of paying out of cash/other sources then something that is relatively non-volatile (compared to stocks) and relatively higher return seems like a good choice.

But I am wondering where others save for these expenses?

For example, a more one big bucket/total return type approach would say just invest the money according to the broader investment allocation and take the money out as needed even if it requires selling stocks at a low. I think I am approaching this more as a mental envelope, this is the car, roof, other big purchase fund and it should get its own allocation.

Thoughts?

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Duckie
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Re: Non-retirement medium term savings allocation, cars etc?

Post by Duckie » Thu Aug 15, 2013 7:30 pm

JamesSFO wrote:But I am wondering where others save for these expenses?
I would save the money for short-term (less than 10 years) expected needs in a mix of savings accounts, CDs, money market accounts, 
I Savings Bonds through Treasury Direct, short-term bond funds, and muni bond funds. Some options are safer, some earn a little more. Diversify to get a reasonable mix.

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JamesSFO
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Re: Non-retirement medium term savings allocation, cars etc?

Post by JamesSFO » Thu Aug 15, 2013 9:52 pm

Duckie wrote:
JamesSFO wrote:But I am wondering where others save for these expenses?
I would save the money for short-term (less than 10 years) expected needs in a mix of savings accounts, CDs, money market accounts, 
I Savings Bonds through Treasury Direct, short-term bond funds, and muni bond funds. Some options are safer, some earn a little more. Diversify to get a reasonable mix.
That feels overly conservative. Why not a blend of bonds/bond funds with durations that line up to the expected need. E.g., car in 2017, buy 2017 bonds/bond funds? BTW, I am assuming that the bonds will earn more than the CD/MMkt, which right now might be a toss up.

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Re: Non-retirement medium term savings allocation, cars etc?

Post by scrabbler1 » Fri Aug 16, 2013 7:43 am

James, I use a Limited-Term muni bond fund (national, not single-state) as my second-tier emergency fund, which seems to be what you are planning to do (nat'l or single-state, the latter a little riskier but offers greater tax savings). I don't have nearly as much as you have in a low/non-interest bearing but very safe account. But the purpose is mainly the same. You are in higher tax brackets than I am so you will benefit more than I will (or ever did). I think you have a good plan.

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JamesSFO
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Re: Non-retirement medium term savings allocation, cars etc?

Post by JamesSFO » Fri Aug 16, 2013 9:09 am

scrabbler1 wrote:James, I use a Limited-Term muni bond fund (national, not single-state) as my second-tier emergency fund, which seems to be what you are planning to do (nat'l or single-state, the latter a little riskier but offers greater tax savings). I don't have nearly as much as you have in a low/non-interest bearing but very safe account. But the purpose is mainly the same. You are in higher tax brackets than I am so you will benefit more than I will (or ever did). I think you have a good plan.
Thanks Scrabbler, maybe also thinking of it as a second-tier emergency fund is a helpful way to view it. I think for my tax bracket, the CA fund is the way to go, but I agree it (further) concentrates my CA-centered risk so I am also looking at the national funds.

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Re: Non-retirement medium term savings allocation, cars etc?

Post by Auream » Fri Aug 16, 2013 10:47 am

Reward checking account. Mine is 3.25% APY up to $25,000. You can have multiples if you need a higher limit.

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JamesSFO
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Re: Non-retirement medium term savings allocation, cars etc?

Post by JamesSFO » Fri Aug 16, 2013 10:54 am

Auream wrote:Reward checking account. Mine is 3.25% APY up to $25,000. You can have multiples if you need a higher limit.
My OCD / purchasing behaviors are such that a reward checking account would annoy me too much I think. But, creative idea and risk free access to ltd-to-int muni bond rates. I just would have to completely switch away from using credit cards.

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Re: Non-retirement medium term savings allocation, cars etc?

Post by Auream » Fri Aug 16, 2013 11:08 am

JamesSFO wrote:
Auream wrote:Reward checking account. Mine is 3.25% APY up to $25,000. You can have multiples if you need a higher limit.
My OCD / purchasing behaviors are such that a reward checking account would annoy me too much I think. But, creative idea and risk free access to ltd-to-int muni bond rates. I just would have to completely switch away from using credit cards.
Why? All I do is use my reward checking debit card for small purchases (less than $10), and use my credit cards for everything else. If I don't have enough transactions as I'm nearing the end of the month (mine requires 15 transactions per month), I do a couple bill pays to one of my utility accounts (cable, gas and electric all work well for this).

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JamesSFO
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Re: Non-retirement medium term savings allocation, cars etc?

Post by JamesSFO » Fri Aug 16, 2013 3:14 pm

Auream wrote:Why? All I do is use my reward checking debit card for small purchases (less than $10), and use my credit cards for everything else. If I don't have enough transactions as I'm nearing the end of the month (mine requires 15 transactions per month), I do a couple bill pays to one of my utility accounts (cable, gas and electric all work well for this).
I will have to investigate, but my sense is I barely use my Debit/ATM card 1x/month. So this would be a big shift. Also I do NOT have direct deposit.

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Re: Non-retirement medium term savings allocation, cars etc?

Post by Auream » Fri Aug 16, 2013 3:42 pm

JamesSFO wrote:
Auream wrote:Why? All I do is use my reward checking debit card for small purchases (less than $10), and use my credit cards for everything else. If I don't have enough transactions as I'm nearing the end of the month (mine requires 15 transactions per month), I do a couple bill pays to one of my utility accounts (cable, gas and electric all work well for this).
I will have to investigate, but my sense is I barely use my Debit/ATM card 1x/month. So this would be a big shift. Also I do NOT have direct deposit.
Not all reward checking accounts require DD, but most do. However, most will count any ACH transfer as direct deposit. For example, an ACH transfer from another bank, brokerage, Vanguard, etc.

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Meaty
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Re: Non-retirement medium term savings allocation, cars etc?

Post by Meaty » Fri Aug 16, 2013 4:40 pm

Why not put it into a taxable VG total stock index? If you have a serious down turn in the market than just a wait a year or 2 before buying the car, etc
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livesoft
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Re: Non-retirement medium term savings allocation, cars etc?

Post by livesoft » Fri Aug 16, 2013 4:47 pm

I have been served well by just rolling that kind of stuff into my overall asset allocation. If the market is up, I have more money, but don't spend it. If the market is down, I have less money, but don't spend it. Somehow it all works out in the end.
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JamesSFO
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Re: Non-retirement medium term savings allocation, cars etc?

Post by JamesSFO » Fri Aug 16, 2013 11:39 pm

Meaty wrote:Why not put it into a taxable VG total stock index? If you have a serious down turn in the market than just a wait a year or 2 before buying the car, etc
livesoft wrote:I have been served well by just rolling that kind of stuff into my overall asset allocation. If the market is up, I have more money, but don't spend it. If the market is down, I have less money, but don't spend it. Somehow it all works out in the end.
@livesoft/@Meaty - I think there is a good argument for that and part of why I asked. Maybe some of this comes down to the (perhaps false) comfort of the dividend stock group vs. the total return group. In this context instead it is the "specific account group" vs. the "total allocation" group. I think I am falling into the "trap" of sorts that I want to feel like there is something resembling a car fund I can point to...

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Re: Non-retirement medium term savings allocation, cars etc?

Post by nightpharmer09 » Sat Aug 17, 2013 12:35 am

scrabbler1 wrote:James, I use a Limited-Term muni bond fund (national, not single-state) as my second-tier emergency fund, which seems to be what you are planning to do (nat'l or single-state, the latter a little riskier but offers greater tax savings). I don't have nearly as much as you have in a low/non-interest bearing but very safe account. But the purpose is mainly the same. You are in higher tax brackets than I am so you will benefit more than I will (or ever did). I think you have a good plan.
I also use Vanguard Limited-Term Tax-Exempt for a short-term savings fund and am in a lower tax bracket than the OP. I designate this as a future car fund or other major expenses, as well. You are permitted to write checks from this account, which I did at a car dealership within the past year without issue. However, your balance can fluctuate. I first purchased shares in May 2012 and since that time have received ~$650 in federal tax-exempt income and am currently down $~600 in market depreciation. A balance of ~30k lost $300+ in value in the month of June alone. With that said, I am OK with the fluctuations and plan to continue to use the fund. SEC yield is 0.85% and current dividend yield is 1.63%.

-nightpharmer

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JamesSFO
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Re: Non-retirement medium term savings allocation, cars etc?

Post by JamesSFO » Sat Aug 17, 2013 8:21 am

nightpharmer09 wrote:.... You are permitted to write checks from this account, which I did at a car dealership within the past year without issue. ....
Ah, interesting thought re checks. (And yes I am aware balance can fluctuate.)

My rationale for using intermediate rather than limited term is that while I am nonretired I figure I can pay out of current income to a degree thus am willing to take greater risk.

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AustenNut
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Re: Non-retirement medium term savings allocation, cars etc?

Post by AustenNut » Tue Oct 01, 2013 5:07 pm

I see that VG has rated the Limited-Term Tax-Exempt fund as a 1 (low risk, low reward). But with the base in municipal funds and some of the uncertainty of municipalities' financial strength, is this likely to become more volatile? I've been using this as my own car fund and have been debating about whether to pull the money out and put it in something safer (my bank offers between 0.75% and 1% on a regular account...not a cd). I don't know if there would be a better bond fund to get into that would work for my purposes, so if anyone else had any thoughts or recommendations on that, it would be appreciated.

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