Realigning Accounts - CD/MMF/?

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Saagr
Posts: 6
Joined: Tue Sep 27, 2016 9:35 am

Realigning Accounts - CD/MMF/?

Post by Saagr » Mon Mar 12, 2018 6:15 pm

Emergency funds: $65k
Debt: Car Loan $20k @ 0% interest
Tax Filing Status: Single
Tax Rate: 23% Federal, 0% State
State of Residence: FL
Age: 27
Desired Asset allocation: Unsure
Desired International allocation: Unsure

Hello everyone! I've been looking at my accounts recently and was thinking about doing a little realigning - I hope you guys can offer me some guidance. Right now I've got my savings/emergency fund sitting at ~$65k and have started to get concerned about inflation chipping away ever so slowly at that number - the caveat is that with my "savings" account I am fairly risk adverse, much more so than with what I've designated as investment monies. After doing some research I've figured that a CD from somewhere like Ally or a money market would probably be the most suitable answer to try to mitigate losses to inflation. I don't intend to make any large purchases like a house in the near term but even so I'd like to keep the money more toward the liquid side of the equation. I figured it might be an idea to take $15k out of the savings fund to use toward this end.

To round out my portfolio picture: TSP - $57k (10% F fund, 20% I fund, 30% S fund, 40% C fund) - contributions max'd @ $18.5K/year. VTSMX - $9.2k (taxable brokerage account). Undecided about opening VGTSX fund.

Thoughts and advice are appreciated. Thanks in advance!

lazylarry
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Re: Realigning Accounts - CD/MMF/?

Post by lazylarry » Mon Mar 12, 2018 10:05 pm

How liquid do you need it to be, and for what? Seems too risk-averse at your age. But if you are truly feeling that you need liquidity, I think going with a CD is probably your safest bet. Particularly if you don't need the money soon, I would go with a 5- year CD with the thought that perhaps you could break it if needed.

I'm slightly confused why you have a taxable and not a Roth or backdoor Roth. I would really get a Roth. If nothing else, get a CD in a Roth at least as that space is gone once the year is up. Could consider a stable bond fund like VBTLX here too.

CD's are insured up to $250k FDIC. That's the same protection as any bank. Maybe not as safe as having 65k in a fire-proof high-grade security safe, but still quite safe. I would definitely allocate up to $50k (or $65k - emergency fund) to a CD.

In your case, the actual funds matter quite less (I would argue almost not at all). There is much more of a difference in your return based on how much you are actually investing rather than leaving in a savings account.
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Saagr
Posts: 6
Joined: Tue Sep 27, 2016 9:35 am

Re: Realigning Accounts - CD/MMF/?

Post by Saagr » Tue Mar 13, 2018 5:02 am

lazylarry wrote:
Mon Mar 12, 2018 10:05 pm
How liquid do you need it to be, and for what? Seems too risk-averse at your age. But if you are truly feeling that you need liquidity, I think going with a CD is probably your safest bet. Particularly if you don't need the money soon, I would go with a 5- year CD with the thought that perhaps you could break it if needed.

I'm slightly confused why you have a taxable and not a Roth or backdoor Roth. I would really get a Roth. If nothing else, get a CD in a Roth at least as that space is gone once the year is up. Could consider a stable bond fund like VBTLX here too.

CD's are insured up to $250k FDIC. That's the same protection as any bank. Maybe not as safe as having 65k in a fire-proof high-grade security safe, but still quite safe. I would definitely allocate up to $50k (or $65k - emergency fund) to a CD.

In your case, the actual funds matter quite less (I would argue almost not at all). There is much more of a difference in your return based on how much you are actually investing rather than leaving in a savings account.
Larry,
Thanks for the reply. The liquidity issue is more just personal preference honestly. My TSP account is a Roth account so I figured that front was covered; I mainly have the taxable account to be able to access that money without the penalties incurred by early Roth withdraws, etc.

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