Investing money for use in 5-7 years

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Topic Author
yosemite_mountain
Posts: 119
Joined: Tue Oct 02, 2018 8:44 pm

Investing money for use in 5-7 years

Post by yosemite_mountain » Mon Feb 04, 2019 3:02 pm

My asset allocation is 80:20 stocks:bonds. At the moment all my bonds are in my 401k and are invested in Vanguard Total Bond Market Index Fund.
I plan to use part of the 20% bond allocation for a down payment in 5-7 years.

Questions
1) In a taxable account, whats a good fund to park part of the bond allocation that will be used for a down payment in 5-7 years? I do not want to lose money to inflation.

2) Or should I keep all bonds in tax advantaged accounts for higher expected return?

Stats
Emergency funds: yes (3 months expenses)
Debt: 0
Tax Filing Status: Single, no kids
Tax Rate: 32% Federal, 9.2% State
State of Residence: California
Age: 30
Income: 220k a year before taxes. This includes RSUs and bonuses.
Desired Asset allocation: 80% stocks / 20% bonds

Taxable at Vanguard
51% Vanguard Total Stock Market (ER =0.04%)
10% Vanguard Total International Stock (ER = 0.11%)
Roth IRA at Vanguard
5% Vanguard Total Stock Market Index Fund Admiral Shares (ER =0.04%)
401k with employer
20% Vanguard Total Bond Market Index Trust (ER = 0.029%)
14% Vanguard Total International Stock (ER = 0.11%)
Company match? YES

Annual Contributions
maxing out 401k to annual limit: 19k
maxing out back door Roth to annual limit: 6k
maxing out mega back door Roth to annual limit: 13k
maxing ESPP and re-investing in index funds: 13k
Paycheck contribution: 15k
Annual bonus: 70k
Employer 401k match: 7.6k
Total annual contributions: 141k

Questions
1) In a taxable account, whats a good fund to park part of the bond allocation that will be used for a down payment in 5-7 years? I do not want to lose money to inflation.

2) Or should I keep all bonds in tax advantaged accounts for higher expected return?

bloom2708
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Re: Investing money for use in 5-7 years

Post by bloom2708 » Mon Feb 04, 2019 4:27 pm

Hard one as we would have to know the future.

Not losing to inflation is different from not losing money. Even short term bond funds are subject to fluctuations in value (up and down).

Vanguard Prime Money Market is currently at ~2.5% SEC yield.

You could do the Vanguard Int-Term Treasury Index fund. Safe, low cost, but you can lose value. Not nearly as much as stocks.

You could stay with stocks in taxable until 1 year from your decision. That has the most upside. Also downside as the amount you need may not be there 1 year out.

5 to 7 years is quite a ways out. I would probably stay the course until you have a better idea you are 1-2 years out.

Sorry, I probably didn't help.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

Topic Author
yosemite_mountain
Posts: 119
Joined: Tue Oct 02, 2018 8:44 pm

Re: Investing money for use in 5-7 years

Post by yosemite_mountain » Mon Feb 04, 2019 4:51 pm

bloom2708 wrote:
Mon Feb 04, 2019 4:27 pm


Vanguard Prime Money Market is currently at ~2.5% SEC yield.

You could do the Vanguard Int-Term Treasury Index fund. Safe, low cost, but you can lose value. Not nearly as much as stocks.

Thanks bloom2708!

Question

I'd have to pay federal and state ordinary income tax on the 2.5% yield in the Vanguard Prime Money Market and Vanguard Int-Term Treasury Index, right?

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dunkmachine
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Re: Investing money for use in 5-7 years

Post by dunkmachine » Mon Feb 04, 2019 5:29 pm

At your tax rate, you'd benefit from muni bonds if you want to hold bond allocation in your taxable. They are federal exempt, and also state exempt if issued in the state you live in. For example, VCAIX Vanguard California Intermediate-Term Tax-Exempt Fund Investor Shares has a duration of 5-6 years with a current tax free SEC yield 2.15%. This would be an equivalent of a non-exempt bond fund yielding 2.15%/(1-41.2%) = 3.66%.

You could also do a mix with VFISX Vanguard Short-Term Treasury Fund Investor Shares which is I believe just state exempt. You may be able to add some equity, 5-7 years is still kind of borderline, but 50/50 may be tolerable, especially if you minimize your risk on the bond side.
I'd have to pay federal and state ordinary income tax on the 2.5% yield in the Vanguard Prime Money Market and Vanguard Int-Term Treasury Index, right?
Yes, MMF will be taxed as ordinary income at both state and federal.

bloom2708
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Location: Fargo, ND

Re: Investing money for use in 5-7 years

Post by bloom2708 » Mon Feb 04, 2019 5:40 pm

yosemite_mountain wrote:
Mon Feb 04, 2019 4:51 pm
bloom2708 wrote:
Mon Feb 04, 2019 4:27 pm


Vanguard Prime Money Market is currently at ~2.5% SEC yield.

You could do the Vanguard Int-Term Treasury Index fund. Safe, low cost, but you can lose value. Not nearly as much as stocks.

Thanks bloom2708!

Question

I'd have to pay federal and state ordinary income tax on the 2.5% yield in the Vanguard Prime Money Market and Vanguard Int-Term Treasury Index, right?
Treasury bond interest is not subject to state tax. I assume the Treasury index would have that as a feature. Hopefully someone can confirm.

Money market is taxable by Fed and State. Yes.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

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vineviz
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Re: Investing money for use in 5-7 years

Post by vineviz » Mon Feb 04, 2019 5:42 pm

yosemite_mountain wrote:
Mon Feb 04, 2019 3:02 pm
My asset allocation is 80:20 stocks:bonds. At the moment all my bonds are in my 401k and are invested in Vanguard Total Bond Market Index Fund.
I plan to use part of the 20% bond allocation for a down payment in 5-7 years.

Questions
1) In a taxable account, whats a good fund to park part of the bond allocation that will be used for a down payment in 5-7 years? I do not want to lose money to inflation.
In my mind the obvious choice for a savings goal like this (assuming you're pretty sure on the 5-7 year part) is a target maturity bond ETF like an iShares iBonds ETF or Invesco BulletShares ETF.

iShares® iBonds® Dec 2023 Term Corporate ETF (IBDO) has a yield to maturity of 3.5% and with a little more credit risk Invesco BulletShares 2023 High Yield Corporate Bond ETF (BSJN) has a yield to maturity of 6.80%.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Jmh04j
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Re: Investing money for use in 5-7 years

Post by Jmh04j » Mon Feb 04, 2019 5:55 pm

What about Wellington?

adam1712
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Re: Investing money for use in 5-7 years

Post by adam1712 » Mon Feb 04, 2019 6:04 pm

Is your taxable account in stocks large enough that you'd have enough even with some losses? When the time comes you can then sell bonds in retirement accounts and sell stocks in taxable to effectively end up with money for the downpayment and your stocks in the retirement accounts.

Chuck
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Re: Investing money for use in 5-7 years

Post by Chuck » Mon Feb 04, 2019 6:07 pm

5-year CDs are all over 3% nowadays:

https://www.nerdwallet.com/blog/banking ... -cd-rates/

If you want to keep it in your brokerage, there are brokered CD's at 3.10% as well.

Grt2bOutdoors
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Re: Investing money for use in 5-7 years

Post by Grt2bOutdoors » Mon Feb 04, 2019 6:11 pm

Jmh04j wrote:
Mon Feb 04, 2019 5:55 pm
What about Wellington?
Wellington is an actively managed fund. Each year it normally distributes roughly 5-7% of its net asset value. It's inappropriate to use Wellington besides the tax ramifications, because monies you can not afford to lose do not belong in the equities markets. Approximately 65% of the Wellington fund is held in equities. Investing in a balanced fund such as Wellington fund can expose the investor to the risk of meaningful principal loss. In 2008, the fund lost 20%+ due to market disruption.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Sandtrap
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Re: Investing money for use in 5-7 years

Post by Sandtrap » Mon Feb 04, 2019 6:12 pm

How would you react if that allotted money were to drop in value by 20-50%?
Thus: to some degree: security of principal, liquidity, accessibility in that time frame.

Here's the Vanguard listing for interest rates on fixed.
Image
CD Ladder, Treasuries, etc.
Diversify Fixed
j
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Topic Author
yosemite_mountain
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Re: Investing money for use in 5-7 years

Post by yosemite_mountain » Mon Feb 04, 2019 6:51 pm

adam1712 wrote:
Mon Feb 04, 2019 6:04 pm
When the time comes you can then sell bonds in retirement accounts and sell stocks in taxable to effectively end up with money for the downpayment and your stocks in the retirement accounts.
Thanks adama1712!

Question
Do you mean, (making numbers up) for instance in a downturn sell 100k of stocks in taxable and use the proceeds from the stock sale for the downpayment. Then sell 100k of bonds in retirement accounts and use the proceeds to buy 100k of stocks in the retirement account. That way I still have the same # of stocks across my portfolio.

By the way I have 200k of stocks in my taxable account.

Topic Author
yosemite_mountain
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Re: Investing money for use in 5-7 years

Post by yosemite_mountain » Mon Feb 04, 2019 6:58 pm

Chuck wrote:
Mon Feb 04, 2019 6:07 pm
5-year CDs are all over 3% nowadays:

https://www.nerdwallet.com/blog/banking ... -cd-rates/

If you want to keep it in your brokerage, there are brokered CD's at 3.10% as well.
Thanks Chuck!

Question
Do I pay federal and state income tax on that 3% from the CD?

Grt2bOutdoors
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Re: Investing money for use in 5-7 years

Post by Grt2bOutdoors » Mon Feb 04, 2019 7:01 pm

yosemite_mountain wrote:
Mon Feb 04, 2019 6:58 pm
Chuck wrote:
Mon Feb 04, 2019 6:07 pm
5-year CDs are all over 3% nowadays:

https://www.nerdwallet.com/blog/banking ... -cd-rates/

If you want to keep it in your brokerage, there are brokered CD's at 3.10% as well.
Thanks Chuck!

Question
Do I pay federal and state income tax on that 3% from the CD?
Yes, interest is taxable at the federal and state/local levels.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

diy60
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Re: Investing money for use in 5-7 years

Post by diy60 » Mon Feb 04, 2019 8:57 pm

vineviz wrote:
Mon Feb 04, 2019 5:42 pm
In my mind the obvious choice for a savings goal like this (assuming you're pretty sure on the 5-7 year part) is a target maturity bond ETF like an iShares iBonds ETF or Invesco BulletShares ETF.
Thanks for posting this. I've been a DIY investor for 35+ years and just learned something new. I looked at the prospectus and didn't see any unique risks, unless I missed something. I did note in the final 12 months the fund moves entirely into cash and will likely earn MM rates in the wind-down period. Nothing wrong with that, just something I probably would not have considered.

michaeljmroger
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Re: Investing money for use in 5-7 years

Post by michaeljmroger » Mon Feb 04, 2019 11:49 pm

Chuck wrote:
Mon Feb 04, 2019 6:07 pm
5-year CDs are all over 3% nowadays:

https://www.nerdwallet.com/blog/banking ... -cd-rates/

If you want to keep it in your brokerage, there are brokered CD's at 3.10% as well.
At 32% Federal and 9.2% State tax, a CD is definitely not the best option.

OP:
  • If you want to take almost no risk, go with VFIRX or VMLUX.
  • If you’re ok with some risk, go with VCADX.
  • If you’re comfortable with a more aggressive allocation, VTMFX is your friend.
You mentioned initially that you were going to use “part” of this money, so it seems to me you don’t need the entire capital to be secured. In that regard, I’d go with VTMFX which will likely return much higher yields while being extremely tax-efficient.

Admiral
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Re: Investing money for use in 5-7 years

Post by Admiral » Tue Feb 05, 2019 7:23 am

You could also use a Roth IRA: as long as it's after 5 years from account opening date, [EDIT: you can remove the earnings tax and penalty free; contributions can be removed anytime]. This is assuming your other retirement accounts are being funded fully.

5 years is a pretty long time. If it were me, I would leave it in the market, but put in more than you think you will need, such that you can absorb a reasonable loss and still have the downpayment required.
Last edited by Admiral on Tue Feb 05, 2019 9:14 am, edited 1 time in total.

DarkHelmetII
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Re: Investing money for use in 5-7 years

Post by DarkHelmetII » Tue Feb 05, 2019 7:23 am

Get a Universal Life policy from TIAA-CREF then 1035 it into a VUL which lets you drop the death benefit substantially while maintaining non-MEC status. Keep the majority in the fixed account with a small amount, say 10 - 20%, in low cost equity fund and / or high yield bonds.

EnjoyIt
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Re: Investing money for use in 5-7 years

Post by EnjoyIt » Tue Feb 05, 2019 8:08 am

DarkHelmetII wrote:
Tue Feb 05, 2019 7:23 am
Get a Universal Life policy from TIAA-CREF then 1035 it into a VUL which lets you drop the death benefit substantially while maintaining non-MEC status. Keep the majority in the fixed account with a small amount, say 10 - 20%, in low cost equity fund and / or high yield bonds.
Please explain how a VUL with all its complicated rules is a good choice? How is taking a loan on the policy help OP to get their money out or does the policy collapse and OP has to pay fees and taxes? Considering the initial fee for such a policy can be as much as the first years contributions, how is 3.75% return ever going to make up for the massive fee over just 5-7 years?

As of now this seams like a horrible idea. Please prove me wrong.

bmritz
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Re: Investing money for use in 5-7 years

Post by bmritz » Tue Feb 05, 2019 8:14 am

Admiral wrote:
Tue Feb 05, 2019 7:23 am
You could also use a Roth IRA: as long as it's after 5 years from account opening date, you can remove the principle tax and penalty free, and leave the earnings in to continue growing forever. This is assuming your other retirement accounts are being funded fully.

5 years is a pretty long time. If it were me, I would leave it in the market, but put in more than you think you will need, such that you can absorb a reasonable loss and still have the downpayment required.
This is not quite right. There's only a 5 year rule for earnings or conversions. Principal can be withdrawn always tax and penalty free.

https://www.nerdwallet.com/blog/investi ... ear-rules/

DarkHelmetII
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Re: Investing money for use in 5-7 years

Post by DarkHelmetII » Tue Feb 05, 2019 8:35 am

EnjoyIt wrote:
Tue Feb 05, 2019 8:08 am
DarkHelmetII wrote:
Tue Feb 05, 2019 7:23 am
Get a Universal Life policy from TIAA-CREF then 1035 it into a VUL which lets you drop the death benefit substantially while maintaining non-MEC status. Keep the majority in the fixed account with a small amount, say 10 - 20%, in low cost equity fund and / or high yield bonds.
Please explain how a VUL with all its complicated rules is a good choice? How is taking a loan on the policy help OP to get their money out or does the policy collapse and OP has to pay fees and taxes? Considering the initial fee for such a policy can be as much as the first years contributions, how is 3.75% return ever going to make up for the massive fee over just 5-7 years?

As of now this seams like a horrible idea. Please prove me wrong.
Great points, and please keep me honest if I am missing something. And I am not a life insurance agent ... I have just found the low-cost TIAA-CREF UL / VUL products to be decent place to stash some cash particularly if one is relatively young and healthy.

1) Please explain how a VUL with all its complicated rules is a good choice? Yes VULs can be complicated, definitely read through all of the prospectuses etc... But I have found with TIAA-CREF if you don't tinker with loans etc... (see next point) it's not really that complicated. Why is it a good choice? One, the fixed account kicks off the 3.75% (at current crediting rates) with no additional "expense ratio." Now, one might say the life insurance cost is a drag; well, it is, but after doing the 1035 from a UL into a VUL the life insurance drag is in the neighborhood of 0.3% per year. You also get tax deferral, meaning you don't pay taxes until you take money out of this thing (whereas with a CD or Money Market you have to pay taxes every year); this is not a huge difference but it helps.

2) How is taking a loan on the policy help OP to get their money out or does the policy collapse and OP has to pay fees and taxes? Agreed taking a loan gets complex real fast. My suggestion, however, is to not take a loan. But to simply surrender the policy when you need the money. TIAA-CREF does not have surrender fees (unlike most other UL / VUL products) so TIAA imposes no penalty. You will owe state + federal taxes but this is no different than a money market or CD. The non-MEC status is important because otherwise you are hit with an additional 10% early withdrawal penalty (I believe if < 59.5 years).

3) Considering the initial fee for such a policy can be as much as the first years contributions, how is 3.75% return ever going to make up for the massive fee over just 5-7 years? There is an initial on-time up-front 2% premium tax that covers things like the state's guaranty fund, and with this in place the break-even point is around 9 or 12 months per my estimates. And at least with the 1035 I did with TIAA from UL to VUL, I did not pay the state premium tax again.


More complicated than a money market, CD, or bond fund? Absolutely. But wanted to at least share as an option.

Admiral
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Re: Investing money for use in 5-7 years

Post by Admiral » Tue Feb 05, 2019 9:12 am

bmritz wrote:
Tue Feb 05, 2019 8:14 am
Admiral wrote:
Tue Feb 05, 2019 7:23 am
You could also use a Roth IRA: as long as it's after 5 years from account opening date, you can remove the principle tax and penalty free, and leave the earnings in to continue growing forever. This is assuming your other retirement accounts are being funded fully.

5 years is a pretty long time. If it were me, I would leave it in the market, but put in more than you think you will need, such that you can absorb a reasonable loss and still have the downpayment required.
This is not quite right. There's only a 5 year rule for earnings or conversions. Principal can be withdrawn always tax and penalty free.

https://www.nerdwallet.com/blog/investi ... ear-rules/
Yes, sorry, thanks for that correction, I have edited my post.

The Wizard
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Re: Investing money for use in 5-7 years

Post by The Wizard » Tue Feb 05, 2019 9:26 am

yosemite_mountain wrote:
Mon Feb 04, 2019 4:51 pm
bloom2708 wrote:
Mon Feb 04, 2019 4:27 pm


Vanguard Prime Money Market is currently at ~2.5% SEC yield.

You could do the Vanguard Int-Term Treasury Index fund. Safe, low cost, but you can lose value. Not nearly as much as stocks.

Thanks bloom2708!

Question

I'd have to pay federal and state ordinary income tax on the 2.5% yield in the Vanguard Prime Money Market and Vanguard Int-Term Treasury Index, right?
Right.
This is why I only invest in broad stock market funds in my taxable account.
I typically buy a new car every 5-7 years which is the same time frame.
But I have various options for financing a new vehicle purchase if the stock market isn't to my liking when new car time rolls around.
For a down payment on principal residence, the situation is different...
Attempted new signature...

KlangFool
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Re: Investing money for use in 5-7 years

Post by KlangFool » Tue Feb 05, 2019 9:34 am

yosemite_mountain wrote:
Mon Feb 04, 2019 3:02 pm

2) Or should I keep all bonds in tax advantaged accounts for higher expected return?
yosemite_mountain,

1) You should do (2). And, put Total Stock Market Index fund into your taxable account.

2) In the worst case scenario, the stock drop by 50%.

A) You still have enough money in the taxable for the down payment.

B) Or, you could use some of your Roth contribution to cover the shortfall.

C) You have tax loss to write off your income.

Keep one portfolio with one AA. You do not need to worry about the 7 years goal. You could sell stock at your taxable account and buy it back at your tax-advantaged account.

KlangFool

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travelogue
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Re: Investing money for use in 5-7 years

Post by travelogue » Tue Feb 05, 2019 9:38 am

Tax Rate: 32% Federal, 9.2% State
At this investment horizon and at those marginal tax rates, as mentioned above, would it be worth considering a municipal bond fund like VCAIX/VCADX? Your TEY would currently be about 3.4% – 3.6%. Not bad.

As this seems to be for a discretionary purchase, could you defer selling for a time if the fund experienced a temporary decline?

Dottie57
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Re: Investing money for use in 5-7 years

Post by Dottie57 » Tue Feb 05, 2019 10:19 am

If OP really wants the money to be there, put it in the 5 year CDs mentioned above.

KlangFool
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Re: Investing money for use in 5-7 years

Post by KlangFool » Tue Feb 05, 2019 10:36 am

OP,

Do you really need to save for the 20% down payment?

Your annual saving is 140K. Assuming that you are buying a 1 million dollar house, you only need 200K. As long as you have 100K in your taxable account, you could stop your Roth contribution for one year and accumulate the 200K. Or, keep 130K and use the 70K bonus.

You may not need to save that much for your 20% down payment.

KlangFool

EnjoyIt
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Re: Investing money for use in 5-7 years

Post by EnjoyIt » Tue Feb 05, 2019 12:11 pm

DarkHelmetII wrote:
Tue Feb 05, 2019 8:35 am
EnjoyIt wrote:
Tue Feb 05, 2019 8:08 am
DarkHelmetII wrote:
Tue Feb 05, 2019 7:23 am
Get a Universal Life policy from TIAA-CREF then 1035 it into a VUL which lets you drop the death benefit substantially while maintaining non-MEC status. Keep the majority in the fixed account with a small amount, say 10 - 20%, in low cost equity fund and / or high yield bonds.
Please explain how a VUL with all its complicated rules is a good choice? How is taking a loan on the policy help OP to get their money out or does the policy collapse and OP has to pay fees and taxes? Considering the initial fee for such a policy can be as much as the first years contributions, how is 3.75% return ever going to make up for the massive fee over just 5-7 years?

As of now this seams like a horrible idea. Please prove me wrong.
Great points, and please keep me honest if I am missing something. And I am not a life insurance agent ... I have just found the low-cost TIAA-CREF UL / VUL products to be decent place to stash some cash particularly if one is relatively young and healthy.

1) Please explain how a VUL with all its complicated rules is a good choice? Yes VULs can be complicated, definitely read through all of the prospectuses etc... But I have found with TIAA-CREF if you don't tinker with loans etc... (see next point) it's not really that complicated. Why is it a good choice? One, the fixed account kicks off the 3.75% (at current crediting rates) with no additional "expense ratio." Now, one might say the life insurance cost is a drag; well, it is, but after doing the 1035 from a UL into a VUL the life insurance drag is in the neighborhood of 0.3% per year. You also get tax deferral, meaning you don't pay taxes until you take money out of this thing (whereas with a CD or Money Market you have to pay taxes every year); this is not a huge difference but it helps.

2) How is taking a loan on the policy help OP to get their money out or does the policy collapse and OP has to pay fees and taxes? Agreed taking a loan gets complex real fast. My suggestion, however, is to not take a loan. But to simply surrender the policy when you need the money. TIAA-CREF does not have surrender fees (unlike most other UL / VUL products) so TIAA imposes no penalty. You will owe state + federal taxes but this is no different than a money market or CD. The non-MEC status is important because otherwise you are hit with an additional 10% early withdrawal penalty (I believe if < 59.5 years).

3) Considering the initial fee for such a policy can be as much as the first years contributions, how is 3.75% return ever going to make up for the massive fee over just 5-7 years? There is an initial on-time up-front 2% premium tax that covers things like the state's guaranty fund, and with this in place the break-even point is around 9 or 12 months per my estimates. And at least with the 1035 I did with TIAA from UL to VUL, I did not pay the state premium tax again.


More complicated than a money market, CD, or bond fund? Absolutely. But wanted to at least share as an option.
So instead of paying a small amount in taxes every year you take a lump sum and pay all the taxes at once which will definitely be putting people in a higher tax bracket when said savings are substantial. Add in a 2% fee, the .3% death benefit which you give up, the added taxes paid, and the increase in complexity this product does not seem like a good idea as compared to the other options offered above.

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vineviz
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Re: Investing money for use in 5-7 years

Post by vineviz » Tue Feb 05, 2019 12:41 pm

diy60 wrote:
Mon Feb 04, 2019 8:57 pm
vineviz wrote:
Mon Feb 04, 2019 5:42 pm
In my mind the obvious choice for a savings goal like this (assuming you're pretty sure on the 5-7 year part) is a target maturity bond ETF like an iShares iBonds ETF or Invesco BulletShares ETF.
Thanks for posting this. I've been a DIY investor for 35+ years and just learned something new. I looked at the prospectus and didn't see any unique risks, unless I missed something. I did note in the final 12 months the fund moves entirely into cash and will likely earn MM rates in the wind-down period. Nothing wrong with that, just something I probably would not have considered.
Yes, one of the features of these funds that makes them ideal for fixed-date savings goals is that (like individual bonds) they become progressively less risky as the maturity date approaches.

Not only does the effective duration of the fund steadily decrease as the maturity date grows closer, during that final year the principal from bonds that mature is generally reinvested in Treasuries or Treasury money market funds.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Topic Author
yosemite_mountain
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Re: Investing money for use in 5-7 years

Post by yosemite_mountain » Tue Feb 05, 2019 1:48 pm

Thank y’all for the responses!

Since my taxable account in stocks is large enough, I’ll go with KlangFool and adam1712's suggestion to keep all bonds in tax advantaged accounts for higher expected return. In a downturn I then can sell stock in my taxable account and buy back stock in tax advantaged accounts.

For instance in a downturn I’d sell 100k of stocks in taxable and use the proceeds from the taxable account stock sale for the downpayment. I’d then sell 100k of bonds in tax advantged accounts and use the proceeds to buy back 100k of stocks in tax advantaged. That way I still have the same # of stocks in my portfolio.

johnsmithsf
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Re: Investing money for use in 5-7 years

Post by johnsmithsf » Tue Feb 05, 2019 3:29 pm

yosemite_mountain wrote:
Tue Feb 05, 2019 1:48 pm
Thank y’all for the responses!

Since my taxable account in stocks is large enough, I’ll go with KlangFool and adam1712's suggestion to keep all bonds in tax advantaged accounts for higher expected return. In a downturn I then can sell stock in my taxable account and buy back stock in tax advantaged accounts.

For instance in a downturn I’d sell 100k of stocks in taxable and use the proceeds from the taxable account stock sale for the downpayment. I’d then sell 100k of bonds in tax advantged accounts and use the proceeds to buy back 100k of stocks in tax advantaged. That way I still have the same # of stocks in my portfolio.
That is not the same number of stocks. You will end up with LESS number of stocks unless you do it in Roth. Not 100% of 401k is yours. A part of it belongs to uncle Sam. Your Roth should already be 100% stock anyway as 100% of it is yours.

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yosemite_mountain
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Re: Investing money for use in 5-7 years

Post by yosemite_mountain » Tue Feb 05, 2019 4:35 pm

johnsmithsf wrote:
Tue Feb 05, 2019 3:29 pm

That is not the same number of stocks. You will end up with LESS number of stocks unless you do it in Roth. Not 100% of 401k is yours. A part of it belongs to uncle Sam. Your Roth should already be 100% stock anyway as 100% of it is yours.
Thats a good point johnsmithsf.
I eventually would rebalance in a bull market by buying bonds in my 401k.

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