Excess cash for car fund - Would you invest?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
ASpenderInRecovery
Posts: 233
Joined: Sat Jul 29, 2017 9:17 am

Excess cash for car fund - Would you invest?

Post by ASpenderInRecovery »

Hello, I've been building a dedicated car fund outside of my 6 months emergency savings account. I expect to make a car purchase in the next 10 months. I realize my time horizon is rather short to put it in the market and expose it to risk but I wonder if I am leaving money on the sidelines doing mental accounting. In reality I sufficient money in the emergency fund that I could temporarily borrow against to invest with then pay myself back on a monthly basis as I reach the car purchase next year.

6 month emergency fund is in high-yield savings
car fund is in high yield savings and grows through monthly contribution to reach total car purchase price within 10 months

What is everyone's thoughts on doing this? Has anyone approached this differently before?
EHEngineer
Posts: 957
Joined: Sat Feb 28, 2015 4:35 pm

Re: Excess cash for car fund - Would you invest?

Post by EHEngineer »

Gambling. If the money is burning a hole in your pocket just buy the car now and enjoy it.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius
Jack FFR1846
Posts: 12823
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Excess cash for car fund - Would you invest?

Post by Jack FFR1846 »

You're asking if you can do mental gymnastics to justify putting your emergency/car fund money into risky investments because you have separate emergency and car funds?

No. All that money should stay in risk free vehicles like a high yield savings account or no penalty cd.
Bogle: Smart Beta is stupid
drg02b
Posts: 142
Joined: Fri Dec 18, 2015 2:08 pm

Re: Excess cash for car fund - Would you invest?

Post by drg02b »

Yes, you'll likely be leaving money on the table. But in 10 months, in the unlikely but highly plausible scenario that the market drops 25-50% and you have to raid your emergency fund, how will that make you feel?
Billionaire
Posts: 339
Joined: Sat Jan 04, 2014 3:05 pm

Re: Excess cash for car fund - Would you invest?

Post by Billionaire »

Many years ago I started a car fund putting about $250.00 per month into a Vanguard 500 S&P fund. After five of so years of contributing and when it came time to buy the vehicle, the interest rates were so low, I just decided to finance the car purchase. I ended up owning the fund for close to 20 years and sold it last year. Huge profit. Transferred the proceeds to my Schwab SIP. Just saying.
In your case, it's probably too short of a period to do anything interesting.
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Excess cash for car fund - Would you invest?

Post by chevca »

I'd leave it where it's at. No need to invest this money, IMO.
User avatar
avenger
Posts: 864
Joined: Mon Dec 02, 2013 12:11 pm

Re: Excess cash for car fund - Would you invest?

Post by avenger »

I have an asset allocation for all goals (emergency fund, my next car, down payment on house, retirement). My taxable account is 3 times larger than my retirement account, however. So your mileage may vary.

I’m not sure I answered your question.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, VWITX, SV fund]
bloom2708
Posts: 8258
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Excess cash for car fund - Would you invest?

Post by bloom2708 »

Max out 401k, Roth and HSA.

Then we pile up money in taxable (3 fund style) at a 60/40 mix. I usually buy, but if I have a lumpy spend (car), then I might sell some taxable.

If the car purchase is 1 to 3 years away, then I'd probably leave most of it in savings.

Give every dollar a purpose. Dollars that are "floating" are not working for you. I read posts about a single account with Emergency, house down payment, car fund, all in one. The single account is fine, but somewhere you need to clearly state what each dollar is for. You can certainly change your mind, but If you use $80k of your $100k "all in one fund" for the house down payment, your other funds just took a 1-2 punch.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
3funder
Posts: 1489
Joined: Sun Oct 15, 2017 9:35 pm

Re: Excess cash for car fund - Would you invest?

Post by 3funder »

bloom2708 wrote: Tue Oct 17, 2017 1:23 pm Max out 401k, Roth and HSA.

Then we pile up money in taxable (3 fund style) at a 60/40 mix. I usually buy, but if I have a lumpy spend (car), then I might sell some taxable.

If the car purchase is 1 to 3 years away, then I'd probably leave most of it in savings.

Give every dollar a purpose. Dollars that are "floating" are not working for you. I read posts about a single account with Emergency, house down payment, car fund, all in one. The single account is fine, but somewhere you need to clearly state what each dollar is for. You can certainly change your mind, but If you use $80k of your $100k "all in one fund" for the house down payment, your other funds just took a 1-2 punch.
My wife and I have a single account; however, we have mentally earmarked a good chunk of it, as we are re-doing our kitchen this month and at least one of us will need to purchase a new vehicle in the next few years.
Topic Author
ASpenderInRecovery
Posts: 233
Joined: Sat Jul 29, 2017 9:17 am

Re: Excess cash for car fund - Would you invest?

Post by ASpenderInRecovery »

Jack FFR1846 wrote: Tue Oct 17, 2017 12:16 pm You're asking if you can do mental gymnastics to justify putting your emergency/car fund money into risky investments because you have separate emergency and car funds?

No. All that money should stay in risk free vehicles like a high yield savings account or no penalty cd.
I was thinking more along the lines of using a 20-25% of the emergency fund to put into my taxable and then just paying that back to myself over that 10 month period however I see your point and recognize the risk.
Topic Author
ASpenderInRecovery
Posts: 233
Joined: Sat Jul 29, 2017 9:17 am

Re: Excess cash for car fund - Would you invest?

Post by ASpenderInRecovery »

bloom2708 wrote: Tue Oct 17, 2017 1:23 pm Max out 401k, Roth and HSA.

Then we pile up money in taxable (3 fund style) at a 60/40 mix. I usually buy, but if I have a lumpy spend (car), then I might sell some taxable.

If the car purchase is 1 to 3 years away, then I'd probably leave most of it in savings.

Give every dollar a purpose. Dollars that are "floating" are not working for you. I read posts about a single account with Emergency, house down payment, car fund, all in one. The single account is fine, but somewhere you need to clearly state what each dollar is for. You can certainly change your mind, but If you use $80k of your $100k "all in one fund" for the house down payment, your other funds just took a 1-2 punch.
I agree with having a goal/purpose for every dollar. For me dollars that haven't been allocated to savings, investments, or fixed monthly expenses tend to get spent aimlessly. I read Why Smart People Make Big Money Mistakes recently and they point out how small changes like renaming a savings account to a specific goal helps enforce the right behavior and ultimately helps people save more consistently so they attain it.
mega317
Posts: 4582
Joined: Tue Apr 19, 2016 10:55 am

Re: Excess cash for car fund - Would you invest?

Post by mega317 »

Can you clarify your plan? You have a car fund, and an emergency fund. You're asking about investing the car fund. But then you say you'd borrow against the emergency fund to invest?

I'd leave the 6 mos expenses alone. If you have additional money in taxable on top of that you can explore options. What's your flexibility? If you invest and it drops, can you delay the purchase or buy something cheaper? Some people post here asking about bond funds or whatever for their down payments. My opinion is that unless you are extremely flexible the risk isn't worth the reward.

I don't know your background but with that user name I'm a little nervous for you. If you know you can pay yourself back monthly you should invest that monthly cash flow.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
Topic Author
ASpenderInRecovery
Posts: 233
Joined: Sat Jul 29, 2017 9:17 am

Re: Excess cash for car fund - Would you invest?

Post by ASpenderInRecovery »

mega317 wrote: Tue Oct 17, 2017 3:36 pm Can you clarify your plan? You have a car fund, and an emergency fund. You're asking about investing the car fund. But then you say you'd borrow against the emergency fund to invest?

I'd leave the 6 mos expenses alone. If you have additional money in taxable on top of that you can explore options. What's your flexibility? If you invest and it drops, can you delay the purchase or buy something cheaper? Some people post here asking about bond funds or whatever for their down payments. My opinion is that unless you are extremely flexible the risk isn't worth the reward.

I don't know your background but with that user name I'm a little nervous for you. If you know you can pay yourself back monthly you should invest that monthly cash flow.
Apologies I should clarify. The current plan is to make monthly contributions till I reach $15k and come next year when my lease (poor choice) is up I can buy a solid used car cash. This would eliminate my monthly payment so moving forward I'd invest what I was spending on the lease in my taxable account in accordance with my AA.

If I were to combine the car fund and emergency fund some might say I have excess cash sitting on the sidelines. On the other hand I'm just setting it aside so I can lower my monthly expenses come next year. I guess I am unsure if it makes any difference besides allowing the money to compound a bit longer. My plan would be to take a 20-25% of the of the 6 month contingency fund and lump sum it into my taxable instead of waiting to make the monthly contributions. Then I'd pay myself back through the monthly car savings.

Another thought I had was to just save half of what I had planned, invest the rest and finance the other half of the vehicle with the safe assumption (based on credit) I could get a ultra low interest rate and pay back it very quickly based on my income.
Post Reply