Newbie Seeks Taxable Investment Account Help

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FinanceBabe
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Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Fri Nov 24, 2017 7:32 am

Hello all! I'm relatively new to investing and wish to open a taxable investment account for my husband and I. The purpose of this account would be for our long-term savings goals -- ideally a new-to-us car for myself in 3-5 years and our home down payment (approx. 12 years out). Let me give some info about us.

Married. 32 (husband almost 33) - No kids and none for the foreseeable future.
$90K gross household income
Zero debt (no mortgage)
Over $70K in retirement
$18K emergency fund (6 months of expenses)
$12K in a car replacement fund for my husband next summer -- still building this up
Various cash for other small funds
Husband is in the Air Force with 12 years of service left before retirement
My job offers no retirement benefits, but I max a Roth IRA at Vanguard

He is currently contributing 20% of his income to his TSP. He is deployed until June 2018, so there is no state or federal taxes taken out of his income so we have allocated all 20% to his Roth TSP (not being taxed now, not being taxed later). When he returns from his deployment, we'll put it back into his traditional TSP for the tax savings. We put $10K (the max) of his current car replacement fund into the Savings Deposit Program (available for deployed active duty personnel).

Anyway. The purpose of this post is to get some guidance on opening a taxable investment account. I am comfortable with our current retirement contributions + the pension (of course, can't really count on it until it happens). Like I said above, we have some long-term savings goals. My car is nearing 10 years old and we'll need something in 3-5 years. And we do not plan on being home owners until my husband retires, so we hope to steadily grow a home down payment fund over the next decade as well.

We are currently able to funnel about $4000 a month into various savings goals. I'd like to throw about $1500 a month (or more) into a taxable investment account. I was looking at Vanguard Mutual Funds but just not clear on what to pick. Please explain my best options as if I were 12, I'm still learning.

dbr
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Re: Newbie Seeks Taxable Investment Account Help

Post by dbr » Fri Nov 24, 2017 10:04 am

Not an attempt to fob off your question, but I would seriously recommend going here https://www.bogleheads.org/wiki/Getting_started and getting a systematic primer on investing.

I think a basic point to keep in mind is that all of one's investments should be considered as a whole so you do not want to proceed by picking funds for "taxable" investing before thinking through the whole plan.

Having just said that, 3-5 years for a new car is not long term investing and a goal like that is probably best served by just opening a savings account at a bank. Saving for a house downpayment in 10 years or so is also not long term nor is it short term. That one is a little more complicated and how much risk you might take is dependent on how serious it would be for you if the amount your were planning on did not fully materialize at the time. Keep in mind that a ten year goal becomes a five year goal five years from now. That is one reason it does not behave as a long term investment. I would probably be inclined to put money like that in CDs.

FinanceBabe
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Fri Nov 24, 2017 10:37 am

Thank you for your response! I will check out the link. I also own the Boglehead's book, but admit I haven't delved too far into and tend to get a little confused along the way.

It's disheartening to hear to throw money into CDs. Over the course of a decade, that's a lot of money (to us) earning not much at all. But I can understand what you're saying.

I haven't looked at CD is in a long time (I used to work for a bank), but from my recollection, you cannot continuously deposit into them. Meaning I'd need to save up to a certain lump sum, (let's say $10K) before I can even put that in. That's roughly a year of that money just sitting in a savings account doing next to nothing. Is this what others do?

So, not to ask even more questions, but what are people using taxable investment accounts for? Another means for retirement savings just not under the retirement umbrella (when all space is maxed, I assume)? Do most people really not invest other money into the market at all for things like home down payments?

dbr
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Re: Newbie Seeks Taxable Investment Account Help

Post by dbr » Fri Nov 24, 2017 10:55 am

FinanceBabe wrote:
Fri Nov 24, 2017 10:37 am
Thank you for your response! I will check out the link. I also own the Boglehead's book, but admit I haven't delved too far into and tend to get a little confused along the way.

It's disheartening to hear to throw money into CDs. Over the course of a decade, that's a lot of money (to us) earning not much at all. But I can understand what you're saying.

I haven't looked at CD is in a long time (I used to work for a bank), but from my recollection, you cannot continuously deposit into them. Meaning I'd need to save up to a certain lump sum, (let's say $10K) before I can even put that in. That's roughly a year of that money just sitting in a savings account doing next to nothing. Is this what others do?

You can buy CDs in almost any amount. The real issue is the length of term, which can be up to seven years and being less and less as you get closer to wanting the money. As to yield on CDs, that is your bad luck that interest rates are very low now. There is nothing that can be done about this. Note that low interest rates also mean low mortgage interest rates.

So, not to ask even more questions, but what are people using taxable investment accounts for? Another means for retirement savings just not under the retirement umbrella (when all space is maxed, I assume)? Do most people really not invest other money into the market at all for things like home down payments?

A taxable investment account may be additional retirement savings after tax preferred opportunities are maxed out. That can happen if your savings rate is very high, because you have inherited some money, because you have sold a business or some property, etc. It is a confusion to say that "retirement" investing and tax preferred accounts are the same thing. And, yes, I think the advice is to be careful before investing in stocks for needs that are going to materialize at a specific point in time that is getting closer and closer. Retirement is not a specific point in time because when one retires one does not spend the money all at once then but rather over a future time of twenty or thirty or forty years. Also, "the market" is an ambiguous term as there is a market for stocks, a market for bonds, a market for real estate, etc.

FinanceBabe
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Fri Nov 24, 2017 11:01 am

What I meant mostly about the CDs was that I'd need to be accumulating lump sums into regular savings first before I can even start to purchase them, I don't want 10 $3,000 CDs running around, if you know what I mean.

And unfortunately, low mortgage rates do nothing for me now as I'm not a home owner. :(

Thanks again for your advice! Greatly appreciated and gives me a lot to think about.

FinanceBabe
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Fri Nov 24, 2017 11:16 am

I guess another question I have then is -- if I go the route of CDs, do I choose just a general FDIC-insured CD? Or do I look into Treasuries or Agencies CDs?

dbr
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Re: Newbie Seeks Taxable Investment Account Help

Post by dbr » Fri Nov 24, 2017 11:18 am

FinanceBabe wrote:
Fri Nov 24, 2017 11:16 am
I guess another question I have then is -- if I go the route of CDs, do I choose just a general FDIC-insured CD? Or do I look into Treasuries or Agencies CDs?
There is no such thing as a Treasury or Agency CD. You would go to a bank for an FDIC-insured CD. You could buy Treasury bonds (technically notes or bills) but right now CD yields are probably better. You can also put money like this in short or short-intermediate bond mutual funds after you are more familiar with how bond funds work and decide that is ok for you. There are people who would put part of a ten year investment in stocks as long as the risk is understood. I probably wouldn't do that myself. Again there is the fact that your term to use is getting shorter and shorter.

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in_reality
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Re: Newbie Seeks Taxable Investment Account Help

Post by in_reality » Fri Nov 24, 2017 11:22 am

dbr wrote:
Fri Nov 24, 2017 11:18 am
FinanceBabe wrote:
Fri Nov 24, 2017 11:16 am
I guess another question I have then is -- if I go the route of CDs, do I choose just a general FDIC-insured CD? Or do I look into Treasuries or Agencies CDs?
There is no such thing as a Treasury or Agency CD. You would go to a bank for an FDIC-insured CD. You could buy Treasury bonds (technically notes or bills) but right now CD yields are probably better.
FDIC-insured CD are available at Vanguard and other brokers too. Interest is paid to your account instead of reinvested as with a bank CD. Look into threads on "brokered CDs" for all the details if you are thinking about this route.

FinanceBabe
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Fri Nov 24, 2017 12:03 pm

https://personal.vanguard.com/us/FixedIncomeHome

This is what I was looking at when asking about Treasuries and whatnot. Vanguard has them listed with the CD option, so I that's why I was asking.

dbr
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Re: Newbie Seeks Taxable Investment Account Help

Post by dbr » Fri Nov 24, 2017 1:24 pm

FinanceBabe wrote:
Fri Nov 24, 2017 12:03 pm
https://personal.vanguard.com/us/FixedIncomeHome

This is what I was looking at when asking about Treasuries and whatnot. Vanguard has them listed with the CD option, so I that's why I was asking.
There are CDs, Treasuries, Agency bonds, etc. The US Treasury and US Agencies do not issue CDs. CDs are issued by banks and can also be brokered.

MoonOrb
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Re: Newbie Seeks Taxable Investment Account Help

Post by MoonOrb » Fri Nov 24, 2017 4:13 pm

I'd consider taking out a car loan when you buy the car and quit putting cash aside for it now. The cost of borrowing is super cheap. So instead of sticking a bunch of money aside in a place where it's not going to grow just so you can avoid paying what will almost certainly be a minimal interest cost, I'd start shoving all of that money into long-term investments.

What actual investment product you choose for your taxable account depends on a lot of factors. I would be tempted to not be distracted by the home ownership idea right now. Home ownership is not some magical, amazing thing. It's a mixed bag that sometimes works out very well and other times doesn't work out well at all and a lot of the time turns out to be about six and one half dozen the other. Besides, you'll be able to use a VA loan, so the need to have a bunch saved as a down payment is not something you'll need to worry about.

The fact that you have no debt now and that you are saving for a car (presumably to be paid for in cash) and are thinking about saving for a home when you're not even going to buy a home until it's 2030 or so suggests to me that you have an aversion to debt. That's fine--this board is full of people who hate debt so much they prioritize avoiding it over other choices that would lead to a higher net worth in the long-term. If you find yourself in that camp, you'll have lots of company here. (Incidentally, there is in my mind a high correlation between this group and the group of people who prioritize home ownership--I think a common theme that unites them is an idea that paying interest/paying rent is something that predominantly benefits the lender/landlord not the borrower/tenant).

If the debt-aversion crowd is your people, then I would say the advice you've gotten is sound: in order to avoid borrowing for a car and in order to avoid a big loss in a fund that might be used for a house downpayment sometime in 12 years or so, you can't take a lot of risks with your investments. As a result, you're mostly limited to things like CDs and savings accounts.

If you're willing to take on debt, all kinds of new options open up: instead of pouring money into accounts that will earn a few % a year, you can think more long-term. Invest in taxable accounts with an eye towards your retirement. If, in 12 years or whenever you want to buy a home, you want to withdraw a bunch of it and use it for the house, go for it. But just realize that you have no idea what the market will do in the next 12 years. So it could be a possibility that you want to buy a home at a time when your taxable account has taken a hit. On the other hand, 12 years is a long time for those funds to grow and even if the market declines you might have more than if you had just put it in low-interest-earning CDs or savings accounts.

If you want to go this route, the mutual fund you choose will have to fit somehow within the larger scheme of your other investments. It helps to think of all of your accounts as one big portfolio. A lot of people here adhere to some version of the idea that you want to have your portfolio distributed among domestic stock funds, international stock funds, and bond funds. So take a look of everything you have as a whole and figure out what proportion you want of each of those. For reasons of tax efficiency, it makes sense to place international funds in taxable and bond funds within the deductible TSP and domestic stock funds in the Roth IRA and Roth TSP. That's a sort of rule of thumb to help you get started (see wiki on tax-efficient fund placement).

In short, there's no way to do this that guarantees that you will get an above-average return on the money you want to keep safe for a car and/or home. You should either accept the low rate of return that the risk-reward trade off gives you, or you should consider alternatives like whether you're willing to borrow money at low rates (likewise there's no guarantee that mortgage rates will be low in 12 years--but if they're not, presumably you'll get a higher return on any savings accounts as inflation goes up, etc.) or rent instead of own etc.

FinanceBabe
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Fri Nov 24, 2017 6:45 pm

Hi! We are debt-adverse. We paid off all our debt about a year and a half ago and we're incredibly proud as our income was not as high as it is now (we paid off $41,000 in 17 months grossing approx. $66,000 during that time). We have continued to keep our fixed expenses very low since then and plan to continue doing so.

With that said, I have considered taking out a loan on the car if it was 0% and I could park our car replacement fund somewhere with decent returns. If I'm just putting $20K in a CD earning 1% then it's not worth the hassle to me. I'd rather have no car payment. But it's not something I'm necessarily wary of.

As far as home ownership goes, we certainly have enjoyed living on base housing and not needing to really take care of anything -- mowing, utilities, the A/C breaks and the maintenance crew come and fix it at 10pm at night. It's been great! I'm not knocking renting at all. We've enjoyed the perks. But we do value home ownership and after 8 years of living in houses that are very old, not kept up with any modern renovations, and aren't ours to begin with, it gets old.

We don't know where we will settle in 12 years -- if it'll be HCOL or LCOL. My husband is from Boston, so there are talks of settling in New England, perhaps New Hampshire where it's cheaper to live but certainly likely to be MCOL. We're just not sure. So while we do have a generous amount of time to save, I guess I'd rather be too prepared in case we need a larger down payment or want just a better house. I don't know.

I appreciate your thoughtful response. I definitely have a lot to think about and discuss with my husband. We may just save this money for the time being and revisit in a few months, but I'm feeling pretty torn and disheartened at the moment.

MoonOrb
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Re: Newbie Seeks Taxable Investment Account Help

Post by MoonOrb » Fri Nov 24, 2017 7:40 pm

Don't be disheartened! What you're doing is impressive. Being honest with yourself about what you value is really important and will ultimately help you make better decisions.

But know also that because you are doing the big things right (living well within your means, saving for the long term, investing in low cost diversified funds) the little things (do we pay cash for a car or borrow at a low interest rate? Do we put a housing fund into something a little more risky or something that's guaranteed to be safe but won't grow much?) won't matter that much at the end of the day. Because you're doing so many of the big things right, you have the luxury of some choices here. So there's a case to follow the advice laid out in Hamlet: To thine own self be true. If you know you're debt averse and you know you will feel better at the end of each day if you're able to pay cash for a car or carry a smaller mortgage, then that's worth something, too. Given everything else you're doing, you're likely to be financially secure, so use the extra money you have in ways that make you feel better. It sounds like you'll feel better if you put that money aside in a low risk account. That's a reasonable choice here.

FinanceBabe
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sat Nov 25, 2017 7:30 am

Thank you, MoonOrb. Very insightful response and I'm feeling better. Much appreciated!

benjermenscu
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Re: Newbie Seeks Taxable Investment Account Help

Post by benjermenscu » Sat Nov 25, 2017 9:08 am

Hey Finance Babe,

I have a couple of recommendations for you. For your emergency fund, you should find a local credit Union. CU's often offer much more competitive interest rates on checking/savings accounts. For instance, my CU gives me 2% on up to $25k. That comes out to $500/year. Not bad for doing nothing.

In terms of investing, both long term and shorter term you can't win unless you play. You mentioned you have the Bogleheads book, which means you should know that actively managed investment accounts essentially never outperform the market. I'd suggest investing in VTSAX (Vanguard Total Stock Market Index). Since inception, it has averaged 9.61% in annual returns. Of course you can't base future gains on past performance, but in the end things always move in the upward direction. Check out VTSAX here: https://personal.vanguard.com/us/funds/ ... irect=true. For more perspective on investing this way I would also recommend a book called The Simple Path to Wealth by JL Collins.

Happy investing!

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CyclingDuo
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Re: Newbie Seeks Taxable Investment Account Help

Post by CyclingDuo » Sat Nov 25, 2017 12:17 pm

FinanceBabe wrote:
Fri Nov 24, 2017 7:32 am
I'm relatively new to investing and wish to open a taxable investment account for my husband and I. The purpose of this account would be for our long-term savings goals -- ideally a new-to-us car for myself in 3-5 years and our home down payment (approx. 12 years out).

Married. 32 (husband almost 33) - No kids and none for the foreseeable future.
$90K gross household income
Zero debt (no mortgage)
Over $70K in retirement
$18K emergency fund (6 months of expenses)
$12K in a car replacement fund for my husband next summer -- still building this up
Various cash for other small funds
Husband is in the Air Force with 12 years of service left before retirement
My job offers no retirement benefits, but I max a Roth IRA at Vanguard

He is currently contributing 20% of his income to his TSP.
We put $10K (the max) of his current car replacement fund into the Savings Deposit Program (available for deployed active duty personnel).

The purpose of this post is to get some guidance on opening a taxable investment account. I am comfortable with our current retirement contributions + the pension (of course, can't really count on it until it happens). Like I said above, we have some long-term savings goals. My car is nearing 10 years old and we'll need something in 3-5 years. And we do not plan on being home owners until my husband retires, so we hope to steadily grow a home down payment fund over the next decade as well.

We are currently able to funnel about $4000 a month into various savings goals. I'd like to throw about $1500 a month (or more) into a taxable investment account. I was looking at Vanguard Mutual Funds but just not clear on what to pick.
You have options come 3-5 years when your car is anticipated needing to be replaced. Nothing wrong with beginning a taxable account once all of your retirement funding space has been filled. 3-5 years is a shorter term duration, so the risk/reward scenario is elevated enough that you need returns on your invested cash, but want to lower your risk. You will also have things/goals that are out there in the future, but beyond the shorter term duration of 3-5 years. Hence, you would want to structure your taxable portfolio investing to account for several durations and choose appropriate risk for the goals that you know, as well as the ones that remain a mystery.

$1500 a month alone works out to $54,000 of principal you will save in 3 years, or up to $90,000 5 years out. What kind of car are you planning on buying? :shock:

Average selling price for a new car had stagnated for a good 6-7 years before jumping 2.6% this year. Chances are, the most change in selling price you see 3-5 years out will stay within or around inflation. Outside of inflation, it will all depend on how many bells, whistles, and gadgets get added between now and then as standard equipment. Suffice it to say, there will be plenty of reasonably priced vehicles to choose between when the time comes.

This allows you to set a realistic target for the 3-5 year time frame using the $1500 monthly contribution that can go toward the new or newer car purchase at the time. Let's say we take the average selling price for 2017, inflate that 2% per year to arrive at a target range for 3 years - 5 years from now.

$33,560 (average new car cost in 2017**)
$34,231 (2018)
$34,915 (2019)
$35,613 (2020) = Save $969 per month between now and then.
$36,325 (2021) = Save $756 per month between now and then.
$37,051 (2022) = Save $617 per month between now and then.

We would utilize shorter term investing vehicles within taxable to at least try and keep pace with inflation, but lower your risk so you don't lose capital as you build that portion of your taxable fund for the car purchase. CD's have been mentioned, Treasuries, money market, savings rates are all pathetic - but your goal with that portion of your savings is to meet your goal of purchasing a new car. The other portion of your $1500 a month could go into higher risk investments. You could choose Total Stock Market index fund (domestic and international if so desired) as they are both very tax efficient. You could also add Vanguard's Municipal Bond ETF in taxable. That way, you have longer term investing going on as well in your taxable that may or may not surprise you in the shorter duration to the point you could utilize it for a car purchase, but no need to worry about using it as you would be setting aside the proper amount in the less risky investments to cover the cost of the car. So a blended approach.

**Now the above is the "average selling price that includes all vehicle types - including the more costly pickup trucks". That's why I asked what type of car you drive or foresee replacing 3-5 years from now.

Break down 2017's by brand, and you see that a Nissan, Honda, and Hyundai are all (surprise, surprise) much lower in average selling costs. So the figures above could be adjusted lower if you have an idea of what type of vehicle you would purchase or prefer to drive. Are you buying a $60,000 Ford pickup, or a $27,000 Honda Accord?

• Volkswagen Group (Audi, Volkswagen, Porsche), $39,203, down 0.9%.

• General Motors (Buick, Cadillac, Chevrolet, GMC), $38,632, up 2.9%.

• Ford Motor (Ford, Lincoln), $35,406, up 3.3%

• Fiat Chrysler Automobiles, (Alfa Romeo, Chrysler, Dodge, Fiat, Jeep, Ram), $33,901, up 3.3%.

• Toyota Motor (Lexus, Scion, Toyota), $30,463, up 1.1%.

• Nissan North America (Nissan, Infiniti), $27,767, up 2.4%.

• American Honda (Acura, Honda), $27,564, up 1.9%.

•Hyundai Motor Group (Hyundai, Kia), $24,980, up 4.7%.


https://www.usatoday.com/story/money/ca ... /26690191/

You should be able to guesstimate the type of car, use its current price, and predict what it will cost in 3-5 years. That way you know how much of the $1500 per month should go into those less risky, shorter duration funds, and how much can go into the longer term, higher risk taxable funds/ETF's.

For safety's sake, we would choose the 3 year duration target because you will then have built up your funds in the shortest duration and can decide in three years based on how your current car is doing if you want to buy a new vehicle then, or wait. If you wait, you can then direct more of the $1500 to the higher risk, longer term investments at that time - unless another shorter term goal has come up. However, the entire time, you would also have been contributing at least 33%+ to longer term investments in your taxable up to that point.

The speculative investor would most likely use the risk on method, and invest the entire $1500 each month into longer term investments and have whatever they have in the taxable fund to use for a car purchase at the time. So if you saved $54,000 - $90,000 in taxable, higher risk investments and experienced a bear market loss of 50%, a scenario might mean that you would only have $27,000 - $45,000 of your principal left at the time of a car purchase. With reinvested dividends, DCA into the taxable assets from now until then, it probably wouldn't end up being such a doom and gloom scenario. However, the risk is much higher, and is why the answers in this thread all mention the shorter term duration leading to a less risky preservation of capital for the real need of new transportation 3-5 years out.

We would go with the hybrid/blended approach where the car money you'll need itself is in less risky capital preservation investments, and the rest resides in higher risk, longer term taxable investments.

Sirjames
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Re: Newbie Seeks Taxable Investment Account Help

Post by Sirjames » Sat Nov 25, 2017 12:25 pm

Hey all,

Choosing an online broker for my taxable account. Likely will do a basic 2-4 fund portfolio with index funds. Currently have my Roth IRA with vanguard, spousal Roths IRA with fidelity, her 401k with tsp, and my 403b with fidelity although I will be leaving that job in 2018. Slicing and dicing the retirement accounts treating as one overall portfolio.

Thoughts on your experiences?

Major brokers treat tax loss harvesting differently?

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badbreath
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Re: Newbie Seeks Taxable Investment Account Help

Post by badbreath » Sat Nov 25, 2017 1:18 pm

Just do it as tax efficient as you can

/www.bogleheads.org/wiki/Tax-efficient_fund_placement
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

pilot_error
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Re: Newbie Seeks Taxable Investment Account Help

Post by pilot_error » Sat Nov 25, 2017 3:26 pm

You are in a rare position to get 10% guaranteed for the next year. Research the savings deposit program at the following link and have your husband visit the finance office before the end of the month to set it up.

https://www.dfas.mil/militarymembers/payentitlements/

And since his income is tax free double check that it is ROTH TSP.

FinanceBabe
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sat Nov 25, 2017 3:54 pm

Just to clarify, the $1500/month is NOT for a car only. The hard limit on a car would be $25K so around $415/month on a 5 year time frame. The remaining funds would be for a house down payment on the 12 year time frame.

FinanceBabe
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sat Nov 25, 2017 3:57 pm

pilot_error wrote:
Sat Nov 25, 2017 3:26 pm
You are in a rare position to get 10% guaranteed for the next year. Research the savings deposit program at the following link and have your husband visit the finance office before the end of the month to set it up.

https://www.dfas.mil/militarymembers/payentitlements/

And since his income is tax free double check that it is ROTH TSP.
Yep, we are doing all that. The SDP is already maxed at $10K. :) And his current TSP contributions are all going to the Roth.

FinanceBabe
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sat Nov 25, 2017 3:59 pm

CyclingDuo wrote:
Sat Nov 25, 2017 12:17 pm
$1500 a month alone works out to $54,000 of principal you will save in 3 years, or up to $90,000 5 years out. What kind of car are you planning on buying? :shock:
Sorry, I replied above but realized I should have quoted you. We are not spending that kind of money on a car! Hard limit is $25K or $415/month. Remaining funds out of the $1500 would be for the home down payment portion. Sorry to scare you! I do not wish to own a car that expensive!

pilot_error
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Re: Newbie Seeks Taxable Investment Account Help

Post by pilot_error » Sat Nov 25, 2017 8:06 pm

From what I've heard, my recommendation is start allocating money for a down payment to a Vanguard 3 fund portfolio. Based on the job security, I'd even use $10k of your emergency fund to start with an Admiral's share.

I would also support the strategy that assets be allocated to long term higher risk funds, not intended for buying a car. Just because you could easily save that much doesn't mean you should. Your aversion to debt in relation to the price you are consider seem at odds. Make sure you calculate what that $25k could be in 30 years with 4% real growth and think carefully on what is more appealing.

Lastly, financially there are a lot of good reasons to live off base and collect BAH. Very location dependent, but it is always worth careful analysis. A frugal decision on where to live with tax free additional income can noticeably improve cash flow and then your investment options.

Your family is in a good place, you are right to be asking this question and I hope our opinions help.

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CyclingDuo
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Re: Newbie Seeks Taxable Investment Account Help

Post by CyclingDuo » Sat Nov 25, 2017 8:25 pm

FinanceBabe wrote:
Sat Nov 25, 2017 3:59 pm
CyclingDuo wrote:
Sat Nov 25, 2017 12:17 pm
$1500 a month alone works out to $54,000 of principal you will save in 3 years, or up to $90,000 5 years out. What kind of car are you planning on buying? :shock:
Sorry, I replied above but realized I should have quoted you. We are not spending that kind of money on a car! Hard limit is $25K or $415/month. Remaining funds out of the $1500 would be for the home down payment portion. Sorry to scare you! I do not wish to own a car that expensive!
That's good!

That will be a piece of cake to save for, and you should have accumulated enough to purchase in cash when the time comes. Fingers crossed that your current car doesn't need several thousand in repairs between now and then, but be prepared. 8-)

If you save the remaining $1085 per month for a down payment on a house, you'll have principal of $156K in your target goal 12 years from now. That's principal alone. Not that investment returns are linear, but that 12 year time frame is long enough away that taking on risk in the stock market is worthwhile. Even at a 5% rate of return, starting with a balance of $0 and adding $1085 a month yields you $213K after 144 months.

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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sun Nov 26, 2017 7:02 am

pilot_error wrote:
Sat Nov 25, 2017 8:06 pm
From what I've heard, my recommendation is start allocating money for a down payment to a Vanguard 3 fund portfolio. Based on the job security, I'd even use $10k of your emergency fund to start with an Admiral's share.

I would also support the strategy that assets be allocated to long term higher risk funds, not intended for buying a car. Just because you could easily save that much doesn't mean you should. Your aversion to debt in relation to the price you are consider seem at odds. Make sure you calculate what that $25k could be in 30 years with 4% real growth and think carefully on what is more appealing.

Lastly, financially there are a lot of good reasons to live off base and collect BAH. Very location dependent, but it is always worth careful analysis. A frugal decision on where to live with tax free additional income can noticeably improve cash flow and then your investment options.

Your family is in a good place, you are right to be asking this question and I hope our opinions help.
I am hesitant to pull money from the emergency fund because we will be PCSing next summer when my husband returns from his deployment. I am in talks with my employer to take my job with me and work remotely. This is the best decision as I'm paid well for having no college degree in the accounting field and we are moving to a much lower cost of living. My employer really loves me, I've been with the company almost three years, and the president is pushing remote work on other areas of our company. It's not set in stone so I don't want to bank on that happening, but we're exploring this avenue. It's just a little too far out to say if it's definitely going to happen.

Either way, I'm very employable and have never had an issue finding employment whenever we move to a new duty station. But if I can keep my current job and work remotely, that would set me up for a job I can take anywhere with me regardless of where we end up in the world as a military family.

The $25K car is just a hard limit, not necessarily what we will spend. We would look at gently used Honda, Toyota, Nissan, or Kia, something that can last 15 years like our previous cars have for us. I could lower that, of course. We are looking at spending around $18K for my husband on a Kia Optima next year, but set the limit to $20K in case of taxes and fees and whatnot. I haven't bought a car in a decade (last time I did was in Oregon so there was no sales tax and I was young and stupid and financed it), so it's kind of foreign to me.

And to be honest, I wouldn't be surprised if our next duty station (4 years from now) is an overseas assignment (we've been CONUS this entire time) and we can only take one car anyway, so we may not end up getting another for a long, long time. Sorry, just so many "ifs" in our situation and hard to really plan for anything.

We will be opting to live off-base at our next duty station (Oklahoma City). We are currently in Key West, FL and it's incredibly expensive to rent anything more than 1 or 2 bedrooms off base. So we chose to live on base. However, we opted to live in one of the unrenovated homes and by doing so, we receive 10% back on our BAH every month. It's not counted as income and it's not taxed, which is currently over $400. We felt that was the best bang for our buck given that housing in Key West is so expensive. Plus, we have two big dogs and finding rentals for two big dogs is harder down here (less housing options, mostly condos and apartments). And we don't pay for our utilities, so that worked in our favor as well. We feel for us we made the best decision. But in Oklahoma City, we will definitely be getting a rental off-base.

Sorry for the novel!

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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sun Nov 26, 2017 7:16 am

CyclingDuo wrote:
Sat Nov 25, 2017 8:25 pm
That's good!

That will be a piece of cake to save for, and you should have accumulated enough to purchase in cash when the time comes. Fingers crossed that your current car doesn't need several thousand in repairs between now and then, but be prepared. 8-)

If you save the remaining $1085 per month for a down payment on a house, you'll have principal of $156K in your target goal 12 years from now. That's principal alone. Not that investment returns are linear, but that 12 year time frame is long enough away that taking on risk in the stock market is worthwhile. Even at a 5% rate of return, starting with a balance of $0 and adding $1085 a month yields you $213K after 144 months.
We do set aside money every month in various sinking funds, one of them is for car repairs, so no worries there!

Currently, my husband's TSP is split between C and S funds. They've performed well this year. He's at a little over $18K in his TSP (he started late, started low, was in the too conservative G fund for a long time, but all that has been corrected for over a year now).

I have a Roth target date fund 2050 with Vanguard with almost $12k -- it will be maxed this year and I will continue maxing it for 2018. I also have a rollover IRA from previous employers invested using the three fund method. Total balance on the rollover is approx. $40,600. $20,600 is in VTSAX, $10K is in VTIAX, and another $10k in VBTLX.

So for the roughly $1,000 I have to invest every month, would you suggest the VTSAX once I have $10k for the admiral shares?
Last edited by FinanceBabe on Sun Nov 26, 2017 7:45 am, edited 1 time in total.

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Re: Newbie Seeks Taxable Investment Account Help

Post by CyclingDuo » Sun Nov 26, 2017 7:37 am

FinanceBabe wrote:
Sun Nov 26, 2017 7:16 am
So for the roughly $1,000 I have to invest every month, would you suggest the VTSAX once I have $10k for the admiral shares?
Yes. I would skip worrying about the different class shares and just buy the VTI ETF's in your Vanguard Brokerage account (same ER fee as Admiral) and turn on the DRIP's function so dividends are reinvested automatically.

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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sun Nov 26, 2017 7:56 am

Awesome, thank you very much for your time and help!

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Re: Newbie Seeks Taxable Investment Account Help

Post by UpperNwGuy » Sun Nov 26, 2017 8:06 am

If you are a military family, check out the CD rates at Navy Federal Credit Union and Pentagon Federal Credit Union. They're both offering approximately 2.3% on five-year CDs right now. NFCU even has an introductory offer for 3% on a 12 or 18 month CD (my memory is failing me as to which). NFCU's website also has nice tutorial on how to ladder CDs.

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Re: Newbie Seeks Taxable Investment Account Help

Post by livesoft » Sun Nov 26, 2017 8:11 am

FinanceBabe wrote:
Sun Nov 26, 2017 7:16 am
So for the roughly $1,000 I have to invest every month, would you suggest the VTSAX once I have $10k for the admiral shares?
While you could also try the ETF route and buy VTI if you like, ...

In your shoes, I would either invest now in VTSMX ($3,000 minimum) or VTSAX ($10,000) minimum. If you think you only have $1,000 to start, then get either $2,000 or $9,000 from your car purchase sinking fund or* your emergency fund (or both) to get started. You can replace the money "borrowed" from those other places with the $1,000 a month for a few months.

*Your original post says this will be your car sinking fund and your home down payment fund.
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sun Nov 26, 2017 8:29 am

livesoft wrote:
Sun Nov 26, 2017 8:11 am
*Your original post says this will be your car sinking fund and your home down payment fund.
Correct, but the general consensus I'm getting, and correct me if I'm wrong, is that the car fund should not be invested because it could possibly be used in 3-5 years (the goal is 5+, but who knows). So I suppose only the portion of the home down payment fund (roughly $1000/month) should be invested while the car portion be kept more liquid (high interest savings, CDs, etc).
Last edited by FinanceBabe on Sun Nov 26, 2017 8:32 am, edited 2 times in total.

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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sun Nov 26, 2017 8:31 am

UpperNwGuy wrote:
Sun Nov 26, 2017 8:06 am
If you are a military family, check out the CD rates at Navy Federal Credit Union and Pentagon Federal Credit Union. They're both offering approximately 2.3% on five-year CDs right now. NFCU even has an introductory offer for 3% on a 12 or 18 month CD (my memory is failing me as to which). NFCU's website also has nice tutorial on how to ladder CDs.
Thank you very much. I often forget those CUs exist since! I'll look into them, they might be a good place to park some of the car buying fund.

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Re: Newbie Seeks Taxable Investment Account Help

Post by livesoft » Sun Nov 26, 2017 8:39 am

FinanceBabe wrote:
Sun Nov 26, 2017 8:29 am
livesoft wrote:
Sun Nov 26, 2017 8:11 am
*Your original post says this will be your car sinking fund and your home down payment fund.
Correct, but the general consensus I'm getting, and correct me if I'm wrong, is that the car fund should not be invested because it could possibly be used in 3-5 years (the goal is 5+, but who knows). So I suppose only the portion of the home down payment fund (roughly $1000/month) should be invested while the car portion be kept more liquid (high interest savings, CDs, etc).
We have always saved/invested for our cars and our home down payment by investing in the stock market. One reason is that if the market drops, it was of little consequence to us: We simply delayed car purchase or home purchase. Or we got a loan. I think folks who say this money should not be invested are wrong and too conservative in how they look at money.
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Re: Newbie Seeks Taxable Investment Account Help

Post by Toons » Sun Nov 26, 2017 8:50 am

Vanguard Balanced Index Fund.
Simple. :happy

https://personal.vanguard.com/us/funds/ ... irect=true
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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sun Nov 26, 2017 8:50 am

livesoft wrote:
Sun Nov 26, 2017 8:39 am
We have always saved/invested for our cars and our home down payment by investing in the stock market. One reason is that if the market drops, it was of little consequence to us: We simply delayed car purchase or home purchase. Or we got a loan. I think folks who say this money should not be invested are wrong and too conservative in how they look at money.
Thank you very much for your perspective. I was wondering if I was looking at things the wrong way (investing the car fund). I guess everyone has their own risk tolerance so I appreciate hearing your viewpoint. We have a lot to consider!

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Re: Newbie Seeks Taxable Investment Account Help

Post by dbr » Sun Nov 26, 2017 9:56 am

A perspective, and don't take this the wrong way, is that if you have to save in a car buying fund to buy a car it may be you are paying too much for the car. We didn't buy anything more costly than about five year old 50,000 mile used cars for years when we were younger. What we didn't spend on cars was invested for the long term starting with maxing 401k's. Another area to address is how effectively you are prepared or are preparing yourself to earn a good income. It takes time to be established in an effective career but the outcome makes all the difference. We are also probably "house rich" meaning living in a less expensive house than we might have afforded distinct from being "house poor" meaning living in a house expensive out of proportion to income and assets.

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Re: Newbie Seeks Taxable Investment Account Help

Post by FinanceBabe » Sun Nov 26, 2017 10:24 am

dbr wrote:
Sun Nov 26, 2017 9:56 am
A perspective, and don't take this the wrong way, is that if you have to save in a car buying fund to buy a car it may be you are paying too much for the car. We didn't buy anything more costly than about five year old 50,000 mile used cars for years when we were younger. What we didn't spend on cars was invested for the long term starting with maxing 401k's. Another area to address is how effectively you are prepared or are preparing yourself to earn a good income. It takes time to be established in an effective career but the outcome makes all the difference. We are also probably "house rich" meaning living in a less expensive house than we might have afforded distinct from being "house poor" meaning living in a house expensive out of proportion to income and assets.
But if you don't save to buy a car then the alternative is to finance. You either finance it or you save up for it -- we are choosing to save up for it. Whether the car is $10K or $20K, we'd have to save for it either way. I understand investing the money and taking out a low-cost loan, but not sure if that's the route we will take. We can certainly pay less for a car and we may do so in five years -- I can't predict what will sound more appealing to us in five years. I'm just being prepared. Car costs rise every year it seems and want to be ready to find something gently used, not too terribly old, and will last 15 years.

We certainly aren't into fancy houses or furniture. That's not us. We have the majority of our furniture from a decade ago that was bought from Ikea before we were even married. We've ONLY upgraded our couches because the big dogs have torn them up over the years and they got to be really awful to sit on. But we don't buy expensive couches and when we did replace them, we paid cash. Our mattress was $250 on Amazon (that we only replaced after the other mattress was 10 years old and painful to sleep on). Things like our washer and dryer are basic models we've had for a decade as well, we never upgraded to fancier models. Up until this year, if we had any guests over, they slept on air mattresses in our second bedroom because we didn't want to spend money on a proper guest bed. We did upgrade to a guest bed this year -- I think we spent $500 on the bed and box spring which was on sale and we bought another $250 mattress from Amazon. We know a ton of people who go out and drop THOUSANDS on tempurpedic mattress.

I just want to be clear that we aren't -those- people that keep up with the Joneses or need fancy things. My husband was driving a 2001 Cadillac Seville that was an ugly beater, but it was only driven a few miles to work. Most people at his work poked fun at him because they all drive big new trucks and fancy sports cars. We eventually donated his beater after it sustained some damage in Hurricane Irma and it wasn't worth repairing and I don't need a second car while he's deployed.

We have taken maybe two small vacations together in our entire marriage, weekend trips to nearby locations. Every other time we have to travel, it's for family-related things that end up eating up my vacation time and any other money we could have put towards a vacation or savings (weddings, funeral, birth of nephews, sick parents, etc).

Anyway, I just want to clarify because it seems a few people are hung up on the size of the car fund, but we really aren't spending a ton of money anywhere else in our budget.

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