VASIX or VWINX for emergency savings: crazy?

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PackersFan12
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VASIX or VWINX for emergency savings: crazy?

Post by PackersFan12 »

I currently have my emergency savings in a money market account that's yielding virtually nothing. I'm thinking of moving it into either VASIX (Vanguard LifeStrategy Income Fund) or VWINX (Wellesley Income Fund).

Is this crazy?
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Dialectical Investor
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Re: VASIX or VWINX for emergency savings: crazy?

Post by Dialectical Investor »

All that is necessary for an "emergency fund" is for the assets to be convertible to cash relatively quickly and preferably without penalty. Other than that, I do not find there is any purposes to having a separate fund and would include the possibility of an "emergency" (whatever that is for each investor) within the overall asset allocation.
lakpr
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Re: VASIX or VWINX for emergency savings: crazy?

Post by lakpr »

BWildt wrote: Sun May 19, 2019 11:30 pm I currently have my emergency savings in a money market account that's yielding virtually nothing. I'm thinking of moving it into either VASIX (Vanguard LifeStrategy Income Fund) or VWINX (Wellesley Income Fund).

Is this crazy?
Not crazy at all. You want to keep a portion of your available funds readily available, you want a bit more growth than what bank CDs offer, you are willing to accept a slightly higher risk that your principal could lose value at the precise time an “emergency” happens. If that accurately describes you, yes go ahead with your plan

Between the two choices you mentioned, I overwhelmingly recommend Wellesley.
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whodidntante
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Re: VASIX or VWINX for emergency savings: crazy?

Post by whodidntante »

It's simpler if you don't try to keep a certain pile of money in taxable that is safe from loss. It's also not tax-efficient or ideal for total return to do so.

In your last emergency, could you have used credit card float or cheap debt like a HELOC and could you have paid that off before interest is an issue from cash flow? If not, could you have sold some equities in taxable, and traded in tax-deferred accounts to restore your desired asset allocation?
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mindgap
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Re: VASIX or VWINX for emergency savings: crazy?

Post by mindgap »

Interesting topic. Looking forward to what other people will answer. I feel having my EF in an high yield online savings account (Marcus) is ok but with 2.25% it’s going nowhere.
WillRetire
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Re: VASIX or VWINX for emergency savings: crazy?

Post by WillRetire »

Look at how much those funds dropped during past market crashes... >20%

If that doesn't bother you, then fine, but don't call it an emergency fund. You can treat any and all holdings in your portfolio as withdrawal candidates in the case of an emergency.

Nothing wrong with 2% give-or-take in a money market or high yield savings account. Do that for at least a portion of your emergency fund.

Catastrophes have a habit of occurring all at once: stock market crashes, job losses, real estate declines, bond market declines.
Keep that in mind when deciding where you would draw from if/when the next crash or personal emergency comes.
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Wiggums
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Re: VASIX or VWINX for emergency savings: crazy?

Post by Wiggums »

WillRetire wrote: Mon May 20, 2019 9:14 am Look at how much those funds dropped during past market crashes... >20%

If that doesn't bother you, then fine, but don't call it an emergency fund. You can treat any and all holdings in your portfolio as withdrawal candidates in the case of an emergency.

Nothing wrong with 2% give-or-take in a money market or high yield savings account. Do that for at least a portion of your emergency fund.

Catastrophes have a habit of occurring all at once: stock market crashes, job losses, real estate declines, bond market declines.
Keep that in mind when deciding where you would draw from if/when the next crash or personal emergency comes.
I agree. Everyone has a different investment philosophy and risk tolerance. I’ve always slept well knowing that I had a reasonable amount in a higher yielding saving account.
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ruralavalon
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Re: VASIX or VWINX for emergency savings: crazy?

Post by ruralavalon »

BWildt wrote: Sun May 19, 2019 11:30 pm I currently have my emergency savings in a money market account that's yielding virtually nothing. I'm thinking of moving it into either VASIX (Vanguard LifeStrategy Income Fund) or VWINX (Wellesley Income Fund).

Is this crazy?
For an emergency fund its good to have a combination of both very safe plus very liquid.

If you have a large taxable account then a separate dedicated emergency fund is probably not necessary in my opinion. It depends on your risk tolerance, and what allows you to sleep at night.

For an emergency fund don't use a bank money market account. You can get a higher yield with a money market fund, like Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.42%.

Another very safe, very liquid possibility for an emergency fund is Vanguard Ultra Short-term Bond Fund (VUBFX) current SEC Yield = 2.58%.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
carmonkie
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Re: VASIX or VWINX for emergency savings: crazy?

Post by carmonkie »

Our goal was to have a 12 month EF. When we got to 10 months, I started investing the rest on Total World Stock (VT) ETF. So 10 months in Prime MM and 2 months in VT to give it an extra equity boost without losing sleep. If VT loses 50%, we are still down to 11 months EF.

My wife and I decided not to make our EF part of our AA partially for mental accounting and because of past experiences, There are a lot of thoughts about if it should be or should not be. Do what you think is best and lets you sleep at night. I do agree that LifeStrategy might not be very tax efficient. Look at the distributions, it throws significant LT and ST distributions.
Trader Joe
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Re: VASIX or VWINX for emergency savings: crazy?

Post by Trader Joe »

BWildt wrote: Sun May 19, 2019 11:30 pm I currently have my emergency savings in a money market account that's yielding virtually nothing. I'm thinking of moving it into either VASIX (Vanguard LifeStrategy Income Fund) or VWINX (Wellesley Income Fund).

Is this crazy?
Yes, your idea is outlined is very crazy to me. I use Vanguard Prime Money Market Fund (VMMXX) for my emergency fund and I am very happy with my returns.
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mindgap
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Re: VASIX or VWINX for emergency savings: crazy?

Post by mindgap »

Trader Joe wrote: Mon May 20, 2019 5:10 pm

Yes, your idea is outlined is very crazy to me. I use Vanguard Prime Money Market Fund (VMMXX) for my emergency fund and I am very happy with my returns.
A little off topic but do you have a specific Vanguard account for your EF or how do you separate them on Vanguard?
nix4me
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Re: VASIX or VWINX for emergency savings: crazy?

Post by nix4me »

carmonkie wrote: Mon May 20, 2019 5:05 pm Our goal was to have a 12 month EF. When we got to 10 months, I started investing the rest on Total World Stock (VT) ETF. So 10 months in Prime MM and 2 months in VT to give it an extra equity boost without losing sleep. If VT loses 50%, we are still down to 11 months EF.

My wife and I decided not to make our EF part of our AA partially for mental accounting and because of past experiences, There are a lot of thoughts about if it should be or should not be. Do what you think is best and lets you sleep at night. I do agree that LifeStrategy might not be very tax efficient. Look at the distributions, it throws significant LT and ST distributions.
We do similar. EF in Federal Money Market settlement fund - and the rest in VTI
lakpr
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Re: VASIX or VWINX for emergency savings: crazy?

Post by lakpr »

mindgap wrote: Mon May 20, 2019 5:40 pm A little off topic but do you have a specific Vanguard account for your EF or how do you separate them on Vanguard?
I am not Trader Joe, but for me, every mutual fund I invest in, has its own unique number. I am not sure how it looks on the new Brokerage platform, I am still on the old mutual fund platform.
MotoTrojan
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Re: VASIX or VWINX for emergency savings: crazy?

Post by MotoTrojan »

Some people (I once did) do this and then hold 30% more in EF. That’s just mental accounting. No different than the original EF size in cash and the 30% in your equity allocation where it belongs.

I’m building my EF back up and plan to leave it rolling in t-bills with Fidelity.
youngpleb
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Re: VASIX or VWINX for emergency savings: crazy?

Post by youngpleb »

It's certainly an interesting idea to put your emergency fund in something like VASIX. I was thinking of something similar the other day...often people will say E-funds need to be able to be quickly accessed and very liquid, but I think something like VASIX would work although it would be slower.

I can't think of anything that would be so incredibly urgent (i.e. need money in <48 hours) that couldn't be covered with a credit card and then followed-up on with the actual emergency funds.
FRT15
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Re: VASIX or VWINX for emergency savings: crazy?

Post by FRT15 »

I use vwinx for emergency fund. Not very tax efficient but has earned far more than mm after tax. I can see argument both ways.
tdmp
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Re: VASIX or VWINX for emergency savings: crazy?

Post by tdmp »

Not crazy ... but you can do: 20% prime money market/savings account and 80% VWINX or VTMFX (depending on ur tax situation)....
m@ver1ck
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Re: VASIX or VWINX for emergency savings: crazy?

Post by m@ver1ck »

I’ve got my emergency fund in 50% vtsax 50% vbtlx. I’ll use the bonds in the case of an emergency. This is about 2 years of expenses including mortgage payments if it came to that. It’s 150K. Got another 30K in cds. Would need about 7K in monthly expenses.
But like the vasix approach if it means lower volatility.
Fishing50
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Re: VASIX or VWINX for emergency savings: crazy?

Post by Fishing50 »

Two years from retirement with a military pension, we don't have an emergency fund.
https://earlyretirementnow.com/2016/05/ ... ency-fund/
2yrs from military pension. 80 equites / 20 bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash), 33% taxable, 30% Roth, 37% tax deferred. | Gone Fishing At 52yrs old!
Trust_In_TylerDurden
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Re: VASIX or VWINX for emergency savings: crazy?

Post by Trust_In_TylerDurden »

For an emergency fund its good to have a combination of both very safe plus very liquid.

If you have a large taxable account then a separated dedicated emergency fund is probably not necessary in my opinion. It depends on your risk tolerance, and what allows you to sleep at night.

For an emergency fund don't use a bank money market account. You can get a higher yield with a money market fund, like Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.42%.

Another very safe, very liquid possibility for an emergency fund is Vanguard Ultra Short-term Bond Fund (VUBFX) current SEC Yield = 2.58%.
Thanks, great suggestions. what accounts do you recommend holding VUBFX and VMMXX? Should they be held on taxable, 401k, traditional or ROTH IRA? What is the order of priority?
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ruralavalon
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Re: VASIX or VWINX for emergency savings: crazy?

Post by ruralavalon »

Trust_In_TylerDurden wrote: Tue May 21, 2019 12:49 am
For an emergency fund its good to have a combination of both very safe plus very liquid.

If you have a large taxable account then a separated dedicated emergency fund is probably not necessary in my opinion. It depends on your risk tolerance, and what allows you to sleep at night.

For an emergency fund don't use a bank money market account. You can get a higher yield with a money market fund, like Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.42%.

Another very safe, very liquid possibility for an emergency fund is Vanguard Ultra Short-term Bond Fund (VUBFX) current SEC Yield = 2.58%.
Thanks, great suggestions. what accounts do you recommend holding VUBFX and VMMXX? Should they be held on taxable, 401k, traditional or ROTH IRA? What is the order of priority?
Currently retired and have no dedicated emergency fund.

When we had an emergency fund it we used Vanguard Prime Money Market Fund (VMMXX) in a second taxable account, different from a taxable account which held stock index funds held for long-term investing. This is definitely mental accounting, but it felt like a useful way to do it.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
wriley4409
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Re: VASIX or VWINX for emergency savings: crazy?

Post by wriley4409 »

In a multi-tiered approach, I have a good chunk of mine in VTMFX (Vanguard Tax-Managed Balanced Adm). This follows a few months in a high yield checking account, and a few more months in an online savings account.
sixtyforty
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Re: VASIX or VWINX for emergency savings: crazy?

Post by sixtyforty »

BWildt wrote: Sun May 19, 2019 11:30 pm I currently have my emergency savings in a money market account that's yielding virtually nothing. I'm thinking of moving it into either VASIX (Vanguard LifeStrategy Income Fund) or VWINX (Wellesley Income Fund).

Is this crazy?

You are making a gamble the market will go up after investing in these funds. Anything that says "Emergency savings" implies you need access to the funds and the funds can't drop in value. VMMXX would be my recommendation.
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci
lakpr
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Re: VASIX or VWINX for emergency savings: crazy?

Post by lakpr »

sixtyforty wrote: Tue May 21, 2019 2:39 pm You are making a gamble the market will go up after investing in these funds. Anything that says "Emergency savings" implies you need access to the funds and the funds can't drop in value. VMMXX would be my recommendation.
Even if the stock market tanks 50%, with Wellesley the max draw down would only be 17% to 20% of the portfolio. With VASIX, it is only 15% of the portfolio. Actually, as markets tank and people flee to the safety of treasuries in down markets, the bonds will increase in value further cushioning the effect ( though cannot fully eliminate the loss).

An emergency fund’s purpose is to be there, liquid and quickly accessible, in case of an emergency. It is not, at least to me, a strict requirement that it cannot drop in value.

It depends on the risk tolerance, but a portfolio heavy in bonds such as these two funds can provide reasonable protection in an emergency, preserving at least 80% of the original contribution.

Simply fund the emergency fund a little bit higher than you planned for ( about 10% to 15% more ), and you should be fine!
sixtyforty
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Re: VASIX or VWINX for emergency savings: crazy?

Post by sixtyforty »

lakpr wrote: Tue May 21, 2019 4:32 pm
sixtyforty wrote: Tue May 21, 2019 2:39 pm You are making a gamble the market will go up after investing in these funds. Anything that says "Emergency savings" implies you need access to the funds and the funds can't drop in value. VMMXX would be my recommendation.
Even if the stock market tanks 50%, with Wellesley the max draw down would only be 17% to 20% of the portfolio. With VASIX, it is only 15% of the portfolio. Actually, as markets tank and people flee to the safety of treasuries in down markets, the bonds will increase in value further cushioning the effect ( though cannot fully eliminate the loss).

An emergency fund’s purpose is to be there, liquid and quickly accessible, in case of an emergency. It is not, at least to me, a strict requirement that it cannot drop in value.

It depends on the risk tolerance, but a portfolio heavy in bonds such as these two funds can provide reasonable protection in an emergency, preserving at least 80% of the original contribution.

Simply fund the emergency fund a little bit higher than you planned for ( about 10% to 15% more ), and you should be fine!
Funding it higher to account for a drop in the market ? Wow. I must be old school, but when someone states "emergency savings" it implies not invested in the market, especially equities. If one does invest 'emergency savings' then they clearly don't need or use emergency savings. Wellesley is an outstanding fund and we own it but would not use it for 'emergency savings'. VMMXX is a no-brainer, IMO.
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci
stan1
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Re: VASIX or VWINX for emergency savings: crazy?

Post by stan1 »

BWildt wrote: Sun May 19, 2019 11:30 pm I currently have my emergency savings in a money market account that's yielding virtually nothing. I'm thinking of moving it into either VASIX (Vanguard LifeStrategy Income Fund) or VWINX (Wellesley Income Fund).

Is this crazy?
Maybe you don't really need a traditional emergency fund? You didn't give us your income or assets. If you have stable, high income and robust taxable investing accounts you probably don't need an emergency fund unless you are more comfortable having one.
guyesmith
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Re: VASIX or VWINX for emergency savings: crazy?

Post by guyesmith »

BWildt wrote: Sun May 19, 2019 11:30 pm I currently have my emergency savings in a money market account that's yielding virtually nothing. I'm thinking of moving it into either VASIX (Vanguard LifeStrategy Income Fund) or VWINX (Wellesley Income Fund).

Is this crazy?
Not crazy. Just more risk/reward than a savings account. I keep mine in a State Municipal Money Market Fund. The yield is like an online savings account and I get a tiny tax break and I can write checks to it. :beer
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