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Portfolio Checkup - how do I deal with emergency/savings cash in my portfolio?

Posted: Wed Jul 11, 2018 1:01 pm
by nasrullah
Emergency Funds: 3 Months (approximately)
Debt: Mortgage $1,168M @ 3.650%
Tax Filing Status: Married Filing Jointly
Tax Rate: 32% Federal, 9.3% State
State of Residence: California
Age: 39
Desired Asset allocation: 75% Stocks / 25% Bonds
Desired International allocation: 30%

Current retirement assets

Online Savings
$50,288.03 3.34% Ally High Yield Savings

Taxable
$776,539.84 51.58% Vanguard Federal Money Market Fund VMFXX
$108,035.30 7.18% Vanguard 500 Index Fund Admiral Shares VFIAX 0.04%
$50,846.77 3.38% Vanguard Developed Markets Index Fund Admiral Shares VTMGX 0.07%
$38,538.59 2.56% Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares VWIUX 0.09%
$28,906.80 1.92% Vanguard Limited-Term Tax-Exempt Fund Admiral Shares VMLUX 0.09%
$28,875.96 1.92% Vanguard Long-Term Tax-Exempt Fund Admiral Shares VWLUX 0.09%
$14,860.15 0.99% Vanguard Total Stock Market Index Fund Admiral Shares VTSAX 0.04%
$16,890.12 1.12% VANGUARD DIVIDEND APPRECIATION ETF VIG 0.08%
$32,686.19 2.17% VANGUARD EXTENDED MARKET ETF VXF 0.08%
$17,063.76 1.13% VANGUARD FTSE DEVELOPED MKTS ETF VEA 0.07%
$28,879.20 1.92% VANGUARD SMALL CAP ETF VB 0.05%
$55,039.26 3.66% VANGUARD TOTAL STOCK MARKET ETF VTI 0.04%
$38,378.83 2.55% ISHARES CORE MSCI EMERGING MARKETS ETF IEMG 0.14%
$57,808.39 3.84% SCHWAB INTL EQUITY ETF SCHF 0.06%
$14,867.58 0.99% SCHWAB U S DIVIDEND EQUITY ETF SCHD 0.07%
$99,123.98 6.58% FACEBOOK INC CL A FB

Traditional IRA
$179.05 0.01% Vanguard Federal Money Market Fund VMFXX
$33,346.46 2.21% Vanguard Total Bond Market Index Fund Admiral Shares VBTLX 0.05%
$14,445.59 0.96% Vanguard Total International Bond Index Fund Admiral Shares VTABX 0.11%

Background:
- Current holdings are a result of transfer out of Wealthfront and Vanguard PAS streamlining with special consideration to short and long term gains. While more complex than a three/four fund portfolio, sensitivity to triggering additional taxes will dictate future sales.

- FB is my last individual stock I am holding. Current plan is to sell and trigger tax in 2019. As % of portfolio has been decreasing my plan might change. Ultimately it will be a matter if I can stop looking at the stock ticker online.

- My emergency fund is currently $50k or approximately three months worth of cash flow (3.34% of total portfolio if factored in). I've been considering increasing this to $100k or approximately six months. At almost 7% of my total portfolio it's not an insignificant amount, this has caused me to question how I manage this fund now and long term into the future.

Questions:
1. At what percentage of portfolio should the emergency fund just be looked at as cash/short term in the total portfolio?

2. If I was to include cash in my asset allocation, would the smartest plan be to decrease the % of bonds - e.g. 75/20/5?

3. If excluded from my AA, with simplicity in mind (no CD ladders) and a cash savings of $100k, would I be better served holding in a tax advantaged California Municipal Money Market Fund (VCTXX)?

2. Am I over thinking this, and should just park $100k in a FDIC insured savings account and try to forget about it?

Re: Portfolio Checkup - how do I deal with emergency/savings cash in my portfolio?

Posted: Wed Jul 11, 2018 1:07 pm
by UniversityEmployee9
Many (if not most) here would suggest that you should think of everything you own as your portfolio and set your AA accordingly, so yes the EF should be considered part of the cash/short-term allocation.

Re: Portfolio Checkup - how do I deal with emergency/savings cash in my portfolio?

Posted: Wed Jul 11, 2018 1:08 pm
by KlangFool
nasrullah wrote:
Wed Jul 11, 2018 1:01 pm

2. Am I over thinking this, and should just park $100k in a FDIC insured savings account and try to forget about it?
nasrullah,

<< 2. Am I over thinking this, and should just park $100k in a FDIC insured savings account and try to forget about it?>>

1) Yes, you are overthinking this.

2) Just exclude emergency fund from your portfolio.

3) The best risk-adjusted return AA is from 70/30 to 30/70.

KlangFool

Re: Portfolio Checkup - how do I deal with emergency/savings cash in my portfolio?

Posted: Wed Jul 11, 2018 1:12 pm
by KlangFool
OP,

Effectively, you have another 776K of the emergency fund now.

<<$776,539.84 51.58% Vanguard Federal Money Market Fund VMFXX >>

KlangFool

Re: Portfolio Checkup - how do I deal with emergency/savings cash in my portfolio?

Posted: Wed Jul 11, 2018 1:23 pm
by Pajamas
Lots of people would disagree, but I don't think the concept of an emergency fund is really useful in your non-fragile financial situation.

You should be able to handle routine "emergencies" such as needing to replace an appliance without any difficulties from your usual income or other cash flow and any real emergency such as losing your job and not being able to find another one for a couple of years or becoming unable to work would probably require you to adjust the way you manage your portfolio to accommodate the change in lifestyle and that would be preferable to holding more than $20k or maybe $50k in checking, savings, or money market accounts or even in CDs.

For instance, you could simply stop reinvesting all of the dividends in your taxable account and survive on that, could you not?

Re: Portfolio Checkup - how do I deal with emergency/savings cash in my portfolio?

Posted: Wed Jul 11, 2018 1:34 pm
by nasrullah
KlangFool wrote:
Wed Jul 11, 2018 1:12 pm
OP,

Effectively, you have another 776K of the emergency fund now.

<<$776,539.84 51.58% Vanguard Federal Money Market Fund VMFXX >>

KlangFool
Opportunistic asset sales that were just converted to cash. Pending investment according to AA and Emergency Fund needs.

Re: Portfolio Checkup - how do I deal with emergency/savings cash in my portfolio?

Posted: Wed Jul 11, 2018 1:49 pm
by KlangFool
nasrullah wrote:
Wed Jul 11, 2018 1:34 pm
KlangFool wrote:
Wed Jul 11, 2018 1:12 pm
OP,

Effectively, you have another 776K of the emergency fund now.

<<$776,539.84 51.58% Vanguard Federal Money Market Fund VMFXX >>

KlangFool
Opportunistic asset sales that were just converted to cash. Pending investment according to AA and Emergency Fund needs.
Just keep 50K in this fund and you have another 50K in your emergency fund.

KlangFool