Where do you save for large purchases?

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RDHlooking4FIRE
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Where do you save for large purchases?

Post by RDHlooking4FIRE » Wed Mar 15, 2017 9:32 am

I have my emergency fund in an online high yield savings account. I also have a little extra savings in another high yield savings both at 1.05%.

I am not happy with the low interest rate of the high yield savings account so i have been putting the rest in a taxable account. Invested in short term bond ETF (SHYG) but from what i have read bonds are not good for taxable accounts but they are safer.

The amount in the taxable account is still small but i plan on growing it. Planning to use the money for a house or car but not sure when. Maybe 2 years maybe more.

I have looked into cds but they do not pay much more then the high yields savings account and your money is not accessable like it is with an etf.

Any better options out there?

barnaclebob
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Re: Where do you save for large purchases?

Post by barnaclebob » Wed Mar 15, 2017 9:34 am

The main reason reason that bonds are "not good" for taxable accounts is because interest rates used to be much higher than stock dividends.

For medium term savings the now slightly less tax efficient bond funds wont make much of a difference and if you end up with more money in the long run relative to a savings account then what does it matter how much you paid in taxes?

I personally keep future car funds and expected large expense funds (new roof) in Total Bond Market. If the bond market "tanks" by 5% like it did a few months ago I might just have to wait an extra paycheck to buy a new car or dip into some other taxable funds. Big deal...
Last edited by barnaclebob on Wed Mar 15, 2017 9:38 am, edited 1 time in total.

orca91
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Re: Where do you save for large purchases?

Post by orca91 » Wed Mar 15, 2017 9:38 am

I save in..... an online savings account. :happy

No need to reinvent the wheel here. You're not talking a huge amount of money here and it's for a short timeframe. It will be minimal difference between any of the safe options you're looking for. Your savings rate is what will make the account grow. Not tenths of a percentage difference in return.

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Tyrobi
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Re: Where do you save for large purchases?

Post by Tyrobi » Wed Mar 15, 2017 9:43 am

I save mine in Ally Bank online saving with 1% APY.

Simple, safe and easy access.
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AnonJohn
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Re: Where do you save for large purchases?

Post by AnonJohn » Wed Mar 15, 2017 9:43 am

Short answer: not really.

Long answer: You can find marginal improvements, but they take work, are situational, often seek to optimize after-tax return, and can involve taking on some additional risks. One thing to definitely look at: I-Bonds. A ladder of CDs can provide liquidity and somewhat higher yields. I use muni bonds for some similar purposes, but it's a close call for me; depends on state, tax rates, etc. You could also read the wiki article on placing cash needs in a retirement account:

https://www.bogleheads.org/wiki/Placing ... ed_account

I might do some math before spending much time on this: How much money are we talking? Doubling the return on $20k for a car, over two years, might mean $400 before taxes, which could be $300 after taxes. Probably worth it to me, but at what cost of time, complexity, etc? Maybe just drop $10k in Ibonds or a 1 or 2 -year CD and call it a day, grabbing half of that $300 ...

RDHlooking4FIRE
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Re: Where do you save for large purchases?

Post by RDHlooking4FIRE » Wed Mar 15, 2017 9:49 am

orca91 wrote:I save in..... an online savings account. :happy

No need to reinvent the wheel here. You're not talking a huge amount of money here and it's for a short timeframe. It will be minimal difference between any of the safe options you're looking for. Your savings rate is what will make the account grow. Not tenths of a percentage difference in return.
Well the hys is 1% and i think SHYG etf pays dividends of like 5%.... How much of that goes to taxes, i don't know.

Part of why i am doing the taxable account is for the learning process. Id rather learn when the amounts are very small.

AnonJohn
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Re: Where do you save for large purchases?

Post by AnonJohn » Wed Mar 15, 2017 9:52 am

Learning is a good reason IMHO. Especially if you view it as planning for the future when you might have more to save outside of tax-advantaged accounts. I'd spent some time with the wiki. The link I posted + tax efficient placement of funds should give you some ideas. Also read up on tax loss harvesting.

But: I'd make sure you're maxing (at least) your Roth IRA before playing with taxable accounts.

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CAsage
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Re: Where do you save for large purchases?

Post by CAsage » Wed Mar 15, 2017 10:01 am

Quote (who?): "Worry more about the return OF your capital than the return ON your capital." SHYG returned about zero at two periods during the first two years, and went to negative 5% around the 3rd year - you can easily see this (rough) on their performance chart. So, if that was your house fund and you picked the wrong period.... You might have been happy to get 1% safely. I generally choose the duration to match up with my time need, and also realize that going for more yield in a High Yield (aka junk) fund might be risky.
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Re: Where do you save for large purchases?

Post by AlohaJoe » Wed Mar 15, 2017 10:18 am

I don't think anyone here is going to tell you that putting your house deposit in junk bonds was a good idea....

orca91
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Re: Where do you save for large purchases?

Post by orca91 » Wed Mar 15, 2017 10:21 am

RDHlooking4FIRE wrote:
orca91 wrote:I save in..... an online savings account. :happy

No need to reinvent the wheel here. You're not talking a huge amount of money here and it's for a short timeframe. It will be minimal difference between any of the safe options you're looking for. Your savings rate is what will make the account grow. Not tenths of a percentage difference in return.
Well the hys is 1% and i think SHYG etf pays dividends of like 5%.... How much of that goes to taxes, i don't know.

Part of why i am doing the taxable account is for the learning process. Id rather learn when the amounts are very small.
These are things you should probably know first. Don't invest in things you don't understand and all...

https://www.ishares.com/us/products/258 ... e-bond-etf

The one year returns look real good, as do the distributions. The rest of the numbers... Meh.

orca91
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Re: Where do you save for large purchases?

Post by orca91 » Wed Mar 15, 2017 10:27 am

What's the saying about more money has been lost chasing yield than at the end of a gun? :happy

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flamesabers
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Re: Where do you save for large purchases?

Post by flamesabers » Wed Mar 15, 2017 10:30 am

For large purchases I save money in Vanguard's Municipal Money Market Fund.

BanditKing
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Re: Where do you save for large purchases?

Post by BanditKing » Wed Mar 15, 2017 10:32 am

My $20,000 Planned Large Purchases fund is kept 50% at Ally Bank earning 1%, and 50% in my Vanguard Taxable in VWIUX (Intermediate Term Municipal Fund). I use this to dip into for vacations, computers, remodels and maintenance, etc. It is not considered in calculating my overall asset allocation, and is separate from my emergency fund.

RDHlooking4FIRE
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Re: Where do you save for large purchases?

Post by RDHlooking4FIRE » Wed Mar 15, 2017 10:50 am

Thank you everyone for all of your responses. It's really amazing the wealth of knowledge. I have only been on this for a couple of days, and have already gotten better information than when meeting with a financial advisor during their free consultations. AKA sales pitch.

This is such a great resource. And I am so impressed by the responses. And the maturity level of this group.

PandaBear
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Re: Where do you save for large purchases?

Post by PandaBear » Wed Mar 15, 2017 11:00 am

I'm not wealthy enough to break the FDIC limit with my savings so I put it all in an online savings account. I keep a little notebook that divies up my balance into buckets for me (i.e. - Emergency Fund, Gift money, etc.).

BW1985
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Re: Where do you save for large purchases?

Post by BW1985 » Wed Mar 15, 2017 11:02 am

All of our cash is in VG prime money market. I like all our accounts in one place.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

RDHlooking4FIRE
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Re: Where do you save for large purchases?

Post by RDHlooking4FIRE » Wed Mar 15, 2017 11:28 am

BW1985 wrote:All of our cash is in VG prime money market. I like all our accounts in one place.
What interest rate do you get on a money market? When i looked at money markets they were similar % to the online savings account i already had.

Green_98
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Re: Where do you save for large purchases?

Post by Green_98 » Wed Mar 15, 2017 11:34 am

Does Fidelity have a Bond Fund similar to VWIUX?

RDHlooking4FIRE
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Re: Where do you save for large purchases?

Post by RDHlooking4FIRE » Wed Mar 15, 2017 11:44 am

Green_98 wrote:Does Fidelity have a Bond Fund similar to VWIUX?
I'm going to look into it.

What about FMTLX?

Green_98
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Re: Where do you save for large purchases?

Post by Green_98 » Wed Mar 15, 2017 11:57 am

RDHlooking4FIRE wrote:
Green_98 wrote:Does Fidelity have a Bond Fund similar to VWIUX?
I'm going to look into it.

What about FMTLX?
That looks like a target date/lifepath fund from Franklin

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bligh
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Re: Where do you save for large purchases?

Post by bligh » Wed Mar 15, 2017 12:12 pm

I keep two tiers.

The first tier consists of sizable (to me) cash reserves that do double duty as my emergency fund. I keep these cash reserves in a range between 3 and 9 months of expenses. These cash reserves smooth out any large purchases or expenses (vacations, cars, etc.)

The second tier consists of a regular 3 fund portfolio invested more conservatively (60 total world stock/40 intermediate term muni bonds) than my retirement or regular portfolio. This money is kept separate from my taxable retirement portfolio in its own brokerage account. This is "fun" money and ear marked for large purchases or expenses and I have no intent of keeping it. In my mind it is money waiting to be spent at some point.

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queso
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Re: Where do you save for large purchases?

Post by queso » Wed Mar 15, 2017 12:24 pm

CapitalOne @ 1%. That's got emergency fund, car fund and house repair fund in it.

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whodidntante
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Re: Where do you save for large purchases?

Post by whodidntante » Wed Mar 15, 2017 12:41 pm

I borrow for large purchases because rates are low right now. I owe 120k and it costs me $2,100 a year. I'll happily take those terms.

LateStarter1975
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Re: Where do you save for large purchases?

Post by LateStarter1975 » Wed Mar 15, 2017 12:47 pm

Tyrobi wrote:I save mine in Ally Bank online saving with 1% APY.

Simple, safe and easy access.
+1
Debt is dangerous...simple is beautiful

RDHlooking4FIRE
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Re: Where do you save for large purchases?

Post by RDHlooking4FIRE » Wed Mar 15, 2017 12:50 pm

Green_98 wrote:
RDHlooking4FIRE wrote:
Green_98 wrote:Does Fidelity have a Bond Fund similar to VWIUX?
I'm going to look into it.

What about FMTLX?
That looks like a target date/lifepath fund from Franklin
Opps typo. I ment Fidelity® Intermediate Municipal Income Fund- FLTMX

RDHlooking4FIRE
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Re: Where do you save for large purchases?

Post by RDHlooking4FIRE » Wed Mar 15, 2017 12:57 pm

Also I choose SHYG because they were short term bonds. I thought that would be better if interest rate rise. Is total bond market or intermed. term municipal fund still ok when there is a lot of talk of rising interest rates?

orca91
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Re: Where do you save for large purchases?

Post by orca91 » Wed Mar 15, 2017 1:14 pm

In a two year timeframe with worries of rising rates, no, intermediate term would be more risky interest rate wise. You got flak for that because it's a high yield or junk bond fund. That's risky on the default side. Although, I'm not sure how big a concern that is in a mutual fund or ETF with lots of bonds in it?

Interest rates and defaults are the main risks in the bond area.

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Re: Where do you save for large purchases?

Post by magicmom » Wed Mar 15, 2017 1:17 pm

Ally online. :D

BW1985
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Re: Where do you save for large purchases?

Post by BW1985 » Wed Mar 15, 2017 1:42 pm

RDHlooking4FIRE wrote:
BW1985 wrote:All of our cash is in VG prime money market. I like all our accounts in one place.
What interest rate do you get on a money market? When i looked at money markets they were similar % to the online savings account i already had.
It's 0.79% but there is also a 0.16% ER.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

Calygos
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Re: Where do you save for large purchases?

Post by Calygos » Wed Mar 15, 2017 2:55 pm

There's a new bank (like a month old) called PurePoint that has a savings account at 1.25% interest with a minimum of $10k.

livesoft
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Re: Where do you save for large purchases?

Post by livesoft » Wed Mar 15, 2017 2:57 pm

We always "save" by investing in the stock market. That is: Equities and specifically broad-market stock index funds. If they go down, then we just either don't buy what we are saving for until they go up or we just buy anyways. Over the long-term, equities beat the performance pants off of savings accounts, plus their gains are not taxed as much and we get to deduct losses.
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dave_k
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Re: Where do you save for large purchases?

Post by dave_k » Wed Mar 15, 2017 3:29 pm

Green_98 wrote:Does Fidelity have a Bond Fund similar to VWIUX?
I recently decided to place a lot of the cash I had accumulated into tax-exempt bonds, and I was wondering the same thing since I had a Fidelity account and not Vanguard. The conclusion was that Fidelity's bond funds were not as good, and it was enough money to be worth opening a Vanguard account to buy VWIUX and VWLUX (note that they have $50k minimums). Opening the Vanguard account and funding it by bank transfer was very easy. So far I'm leaving everything else at Fidelity, and also put some more cash into FSTVX and FTIPX.

ancho
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Re: Where do you save for large purchases?

Post by ancho » Wed Mar 15, 2017 3:30 pm

livesoft wrote:We always "save" by investing in the stock market. That is: Equities and specifically broad-market stock index funds. If they go down, then we just either don't buy what we are saving for until they go up or we just buy anyways. Over the long-term, equities beat the performance pants off of savings accounts, plus their gains are not taxed as much and we get to deduct losses.
Interesting. So if you're saving for a particular expense (new car, home maintenance, whatever), do you cash flow a bit extra from each paycheck into a taxable account with it's own asset allocation? Or do you think of the taxable portion of your retirement savings as being separated into multiple buckets, with a portion of it designated for shorter term needs?

Curious how this works in practice in terms of cash flow, asset allocation, and tracking.

The Wizard
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Re: Where do you save for large purchases?

Post by The Wizard » Wed Mar 15, 2017 3:48 pm

livesoft wrote:We always "save" by investing in the stock market. That is: Equities and specifically broad-market stock index funds. If they go down, then we just either don't buy what we are saving for until they go up or we just buy anyways. Over the long-term, equities beat the performance pants off of savings accounts, plus their gains are not taxed as much and we get to deduct losses.
I'm going to do this as well.
In retirement, my only large purchases will be new vehicles. I'm all set with my house and my travel expenses I pay as I go from my modest checking account buffer.
My last vehicle purchase in December, 2015, I saved up part of the funds in my Ally bank account and part in the VBILX bond fund.
But the combined 33% marginal tax rate on these savings is annoying...
Attempted new signature...

livesoft
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Re: Where do you save for large purchases?

Post by livesoft » Wed Mar 15, 2017 3:50 pm

ancho wrote:Interesting. So if you're saving for a particular expense (new car, home maintenance, whatever), do you cash flow a bit extra from each paycheck into a taxable account with it's own asset allocation? Or do you think of the taxable portion of your retirement savings as being separated into multiple buckets, with a portion of it designated for shorter term needs?

Curious how this works in practice in terms of cash flow, asset allocation, and tracking.
We have a taxable account that is 100% equities. We just put money into it when we have money to put into it. It is not earmarked for anything in particular, but does count towards our "retirement" investments and is just rolled into our overall portfolio asset allocation. There are no buckets and no separate asset allocation.

The taxable account is more than 40% of the entire portfolio. I don't get a paycheck.
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dave_k
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Re: Where do you save for large purchases?

Post by dave_k » Wed Mar 15, 2017 3:58 pm

The Wizard wrote:I saved up part of the funds in my Ally bank account and part in the VBILX bond fund.
But the combined 33% marginal tax rate on these savings is annoying...
That's why I decided to go with VWIUX tax-exempt - the somewhat lower average returns than VBILX are more than offset by the tax savings at high marginal rates.

orca91
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Re: Where do you save for large purchases?

Post by orca91 » Wed Mar 15, 2017 4:24 pm

ancho wrote:
livesoft wrote:We always "save" by investing in the stock market. That is: Equities and specifically broad-market stock index funds. If they go down, then we just either don't buy what we are saving for until they go up or we just buy anyways. Over the long-term, equities beat the performance pants off of savings accounts, plus their gains are not taxed as much and we get to deduct losses.
Interesting. So if you're saving for a particular expense (new car, home maintenance, whatever), do you cash flow a bit extra from each paycheck into a taxable account with it's own asset allocation? Or do you think of the taxable portion of your retirement savings as being separated into multiple buckets, with a portion of it designated for shorter term needs?

Curious how this works in practice in terms of cash flow, asset allocation, and tracking.
There's a timing and situational aspect to that, but it can work fine for some.

If one is just starting out and doesn't have much that may not be a good plan.

aristotelian
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Re: Where do you save for large purchases?

Post by aristotelian » Wed Mar 15, 2017 4:59 pm

We have 3 months expenses in cash, 6 months in a variety of bond funds (gmna, short corporate, and Muni), and then our taxable stocks. I would draw from stocks if they are up or bonds when the market is down, and try not to touch the cash.

2 Tasty
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Re: Where do you save for large purchases?

Post by 2 Tasty » Thu Mar 16, 2017 10:11 am

livesoft wrote:We always "save" by investing in the stock market. That is: Equities and specifically broad-market stock index funds. If they go down, then we just either don't buy what we are saving for until they go up or we just buy anyways. Over the long-term, equities beat the performance pants off of savings accounts, plus their gains are not taxed as much and we get to deduct losses.
Ditto (though we generally do not base our decisions on whether to invest or divest on if the market is up or down). I am of the opinion that money in a low-risk "savings" account is in many cases a manifestation of loss aversion, as the math generally shows a much better return when money is fully invested (even if occasionally having to pull out of a down market). If one is living on the edge financially, I can see where a loss is no longer so much a psychological fear, and a savings account makes a bit more sense.

surfstar
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Re: Where do you save for large purchases?

Post by surfstar » Thu Mar 16, 2017 10:17 am

We had multiple Netspend, Mango Money and LMCU accounts.
Had.
Then we bought a house.
"luckily" those same accounts no longer pay 5% on $5k each (LMCU 3% on $15k), but were neutered. Mango accounts were bad enough to cancel, but we still have Netspend and Brinks which pay 5% on $1k each (max 5 per SSN).

You will have to do some searching to find more information on these type of accounts. They are not as good as they were, but still helpful for those who don't have a ton of cash sitting around.
I mean you can still get 5% on $5k per person, plus 3% at LMCU on $15k. So $40k for a couple, paying a good APR. That's a healthy e-fund for almost everyone. It takes a bit of work, but "nothing in life is free", right?

BW1985
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Re: Where do you save for large purchases?

Post by BW1985 » Thu Mar 16, 2017 11:51 am

surfstar wrote:We had multiple Netspend, Mango Money and LMCU accounts.
Had.
Then we bought a house.
"luckily" those same accounts no longer pay 5% on $5k each (LMCU 3% on $15k), but were neutered. Mango accounts were bad enough to cancel, but we still have Netspend and Brinks which pay 5% on $1k each (max 5 per SSN).

You will have to do some searching to find more information on these type of accounts. They are not as good as they were, but still helpful for those who don't have a ton of cash sitting around.
I mean you can still get 5% on $5k per person, plus 3% at LMCU on $15k. So $40k for a couple, paying a good APR. That's a healthy e-fund for almost everyone. It takes a bit of work, but "nothing in life is free", right?
I'm glad I didn't bother with those. I opened a Mango but didn't fund it, then the rates all dropped.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

remomnyc
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Re: Where do you save for large purchases?

Post by remomnyc » Thu Mar 16, 2017 2:54 pm

Our house fund is currently 34% in savings accounts, and 66% taxable (of which 70% is in intermediate munis and 30% is stock). (If you're wondering how the percentages were allocated, the amount in savings is sufficient for a 20% deposit.) We are on year 3 of our house hunt. The first 1-1/2 years the entire balance was in savings accounts, but earning 1% on so much cash was painful. Based on the rent/buy disconnect here, we could be renting for another 5 years unless we decide to move to a LCOL area.

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avenger
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Re: Where do you save for large purchases?

Post by avenger » Sun Mar 19, 2017 6:15 am

I have an overall portfolio allocation that accounts for all needs (retirement, long- and short-term, emergency) which is on the conservative side. My taxable account makes up the majority of my portfolio, so I have easy access to cash should I need it.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [3 fund portfolio: VTI, VXUS, SV fund (yield 3.01%)]

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