Should short term and mid term be held in separate accounts?

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bironology
Posts: 49
Joined: Sun Nov 08, 2015 6:18 pm

Should short term and mid term be held in separate accounts?

Post by bironology » Thu Nov 23, 2017 6:20 am

Looking for advice on when to bust out a new account to track different time horizons.

Background

I generally try not to create savings or investment accounts willy-nilly, yet we (my wife and I combined) have ended up with 12 accounts at 7 different institutions! My wife thinks this is hard to understand and track. I don't have that concern personally, but I am sympathetic to her concerns, of course.

The chart of accounts works out like this
  • Retirement: (1) 401k for me, (2) IRAs for me (traditional and Roth), (2) IRAs for my wife
  • Checking: just (1)
  • Savings: (2), cushion spread equally between a local brick n' mortar for quick access and an online bank with a great rate
  • College Savings: (2), one for each child
  • Employee stock plan: just (1)
  • Additional Savings Beyond retirement: (1) brokerage account
Question:
The question is about the latter account. It is supporting, as per my IPS, two distinct objectives right now.
  • A place to invest for a long term horizon like retirement beyond what I can save in tax advantaged accounts after I max those out
  • A place to park short term savings earmarked for projects like major home improvement/repairs, new vehicles, etc
While simplicity is a goal, so is proper accounting and performance tracking. Since this one account is overloaded with two responsibilities, my sense of organization is irritated. I'd feel better about a single account having a single purpose.

What is the best practice?

Are there other issues you can see with the way I have structured our chart of accounts?

Chip
Posts: 1646
Joined: Wed Feb 21, 2007 4:57 am

Re: Should short term and mid term be held in separate accounts?

Post by Chip » Thu Nov 23, 2017 6:51 am

bironology wrote:
Thu Nov 23, 2017 6:20 am
While simplicity is a goal, so is proper accounting and performance tracking. Since this one account is overloaded with two responsibilities, my sense of organization is irritated. I'd feel better about a single account having a single purpose.

What is the best practice?

Are there other issues you can see with the way I have structured our chart of accounts?
It looks good to me. Why not put the vehicle replacement and home improvement savings in the online savings account instead of the brokerage account?

bironology
Posts: 49
Joined: Sun Nov 08, 2015 6:18 pm

Re: Should short term and mid term be held in separate accounts?

Post by bironology » Thu Nov 23, 2017 7:08 am

Chip wrote:
Thu Nov 23, 2017 6:51 am

It looks good to me. Why not put the vehicle replacement and home improvement savings in the online savings account instead of the brokerage account?
Great question. I use the savings account in Ally for "oh crap" cushion and to stroke checks for projects that are imminently planned. So call it "immediate term". For other intentions that aren't long term savings, in my experience these things may or may not happen in 1-4 years. For example, we began planning a major home outdoor renovation 3 years ago that only just completed, and along the way we almost called it off two or three times. Our vehicles are currently OK, so no immediate plans, but I know one of them will be ready for the junkyard in 1-3 years. I may also catch wind of a real estate or business opportunity that I'd like to invest in, so I like some semi-liquid dry powder somewhere to be opportunistic.

So I feel this immediate term need is separate from "pretty sure we'll do this in a few years" which is separate from "hang on to this mama, we'll need it when we're 90!".

Chip
Posts: 1646
Joined: Wed Feb 21, 2007 4:57 am

Re: Should short term and mid term be held in separate accounts?

Post by Chip » Thu Nov 23, 2017 7:29 am

bironology wrote:
Thu Nov 23, 2017 7:08 am
So I feel this immediate term need is separate from "pretty sure we'll do this in a few years" which is separate from "hang on to this mama, we'll need it when we're 90!".
Getting a separate account for that intermediate term stuff seems excessive to me, but it's your money & time. :D

But perhaps you could score some points with your wife by avoiding it: "See, I really wanted to open this extra account but I decided to keep things simple since that's what you wanted." :P

Another thought: You could just buy a 2-3 year duration bond fund in the brokerage acccount and keep that "mentally separate". Though having bond funds in taxable accounts isn't the most tax efficient way of going about things.

bironology
Posts: 49
Joined: Sun Nov 08, 2015 6:18 pm

Re: Should short term and mid term be held in separate accounts?

Post by bironology » Thu Nov 23, 2017 7:47 am

Chip wrote:
Thu Nov 23, 2017 7:29 am
Getting a separate account for that intermediate term stuff seems excessive to me, but it's your money & time. :D
I'm a software engineer, and therefore a complex-aholic. that's why I needed this group advice :)
Chip wrote:
Thu Nov 23, 2017 7:29 am
But perhaps you could score some points with your wife by avoiding it: "See, I really wanted to open this extra account but I decided to keep things simple since that's what you wanted." :P

Another thought: You could just buy a 2-3 year duration bond fund in the brokerage account and keep that "mentally separate". Though having bond funds in taxable accounts isn't the most tax efficient way of going about things.
Yup, that's exactly the approach I've have been taking. My wife however is not very impressed with the "look honey, we could have needed 13 accounts but I got us down to a simple and intuitive 12!" argument. :oops: No relationship points scored there, I'm afraid. C'est la vie.

As far as keeping bonds funds in a taxable account, I'm with ya there, but I figure making 2-3% and paying tax on the income is better than ~1% from a savings account, and still paying tax on that income.

AND, wait for it... my newest friend in the world is SWNTX (http://beta.morningstar.com/funds/xnas/swntx/quote.html). Tax free (well, federal anyway) and not a bad yield at all! So this puppy is my go-to "save for some XYZ project" fund. Tosses off a nice dividend each month, liquid and stable. What's not to love?

So anyway back to the original question, the messiness that comes with mixing long and short term objectives in one account comes when time to think about asset allocation. Ideally I would have one account that is aggressive, say 90/10, and another conservative, say 30/70. Instead I have them mixed together so the Schwab tools (which are getting pretty darn good) for analyzing portfolios don't work for me. I do of course track this in Excel (and oh man do I have some complex workbooks! :) ).

Anyway, that's enough of that for today. Turkey time coming up!

dbr
Posts: 24136
Joined: Sun Mar 04, 2007 9:50 am

Re: Should short term and mid term be held in separate accounts?

Post by dbr » Thu Nov 23, 2017 9:36 am

Investments have a purpose but accounts don't, excepting tax considerations. A taxable brokerage account could hold money in a money market or in short term bonds and also money in stocks. Probably the incentive for you to keep short term money in a different account from a brokerage is that you might prefer an interest bearing savings account or CDs, both of which are better obtained at a bank than at a broker.

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