Where to invest money that will be needed in four or five years?

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AZAttorney11
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Joined: Wed Jan 21, 2015 12:12 pm

Where to invest money that will be needed in four or five years?

Post by AZAttorney11 » Tue Jan 14, 2020 6:18 pm

Generally speaking, I think the consensus on this forum is that money needed in the short-term, say less than 12 or 24 months, should be conservatively invested in money market funds, high yield savings accounts, short-term bonds, etc. (but no equities). For longer-term savings goals, equities are frequently recommended depending on one's need, ability, and willingness to take risk. But what about money needed in the medium term, say within the next four or five years? It's a short enough time period where equities could easily under perform. Given the current interest rate environment, fixed income investments could deliver negative real returns after inflation and taxes. So, where to park a chunk of money that is not needed for four or five years?

KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Where to invest money that will be needed in four or five years?

Post by KlangFool » Tue Jan 14, 2020 6:23 pm

AZAttorney11 wrote:
Tue Jan 14, 2020 6:18 pm
Generally speaking, I think the consensus on this forum is that money needed in the short-term, say less than 12 or 24 months, should be conservatively invested in money market funds, high yield savings accounts, short-term bonds, etc. (but no equities). For longer-term savings goals, equities are frequently recommended depending on one's need, ability, and willingness to take risk. But what about money needed in the medium term, say within the next four or five years? It's a short enough time period where equities could easily under perform. Given the current interest rate environment, fixed income investments could deliver negative real returns after inflation and taxes. So, where to park a chunk of money that is not needed for four or five years?
OP,

If your annual saving is high enough, you could pay for the expense out of your annual savings. So, why would you need to save money for that expense?

I do not save for a new car, house down payment, and college education. I pay them as they occurred.

KlangFool

ExitStageLeft
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Re: Where to invest money that will be needed in four or five years?

Post by ExitStageLeft » Tue Jan 14, 2020 6:27 pm

I would consider bond funds in addition to the money market or CD route. Many commenters on the forum think that stocks should be avoided for savings you will need within five years.

Weight the reward of gain against the risk of loss and choose.

retiredjg
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Re: Where to invest money that will be needed in four or five years?

Post by retiredjg » Tue Jan 14, 2020 6:31 pm

What happens if the money is not there in 4 or 5 years? That's your answer.

sailaway
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Re: Where to invest money that will be needed in four or five years?

Post by sailaway » Tue Jan 14, 2020 6:35 pm

KlangFool wrote:
Tue Jan 14, 2020 6:23 pm
AZAttorney11 wrote:
Tue Jan 14, 2020 6:18 pm
Generally speaking, I think the consensus on this forum is that money needed in the short-term, say less than 12 or 24 months, should be conservatively invested in money market funds, high yield savings accounts, short-term bonds, etc. (but no equities). For longer-term savings goals, equities are frequently recommended depending on one's need, ability, and willingness to take risk. But what about money needed in the medium term, say within the next four or five years? It's a short enough time period where equities could easily under perform. Given the current interest rate environment, fixed income investments could deliver negative real returns after inflation and taxes. So, where to park a chunk of money that is not needed for four or five years?
OP,

If your annual saving is high enough, you could pay for the expense out of your annual savings. So, why would you need to save money for that expense?

I do not save for a new car, house down payment, and college education. I pay them as they occurred.

KlangFool
We save a LOT, usually twice what we spend. We could not cash flow a 20% house down payment in HCOL without entirely forfeiting tax sheltered savings and ESPP for a year.

OP, I see five years out as uncertain. I might like to buy a house or boat or whatever then, but if my investments crash, I probably won't. As such, five year funds are just a normal part of our allocation.

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: Where to invest money that will be needed in four or five years?

Post by KlangFool » Tue Jan 14, 2020 6:54 pm

sailaway wrote:
Tue Jan 14, 2020 6:35 pm
KlangFool wrote:
Tue Jan 14, 2020 6:23 pm
AZAttorney11 wrote:
Tue Jan 14, 2020 6:18 pm
Generally speaking, I think the consensus on this forum is that money needed in the short-term, say less than 12 or 24 months, should be conservatively invested in money market funds, high yield savings accounts, short-term bonds, etc. (but no equities). For longer-term savings goals, equities are frequently recommended depending on one's need, ability, and willingness to take risk. But what about money needed in the medium term, say within the next four or five years? It's a short enough time period where equities could easily under perform. Given the current interest rate environment, fixed income investments could deliver negative real returns after inflation and taxes. So, where to park a chunk of money that is not needed for four or five years?
OP,

If your annual saving is high enough, you could pay for the expense out of your annual savings. So, why would you need to save money for that expense?

I do not save for a new car, house down payment, and college education. I pay them as they occurred.

KlangFool
We save a LOT, usually twice what we spend. We could not cash flow a 20% house down payment in HCOL without entirely forfeiting tax sheltered savings and ESPP for a year.

OP, I see five years out as uncertain. I might like to buy a house or boat or whatever then, but if my investments crash, I probably won't. As such, five year funds are just a normal part of our allocation.
sailaway,

1) I did not have enough tax-sheltered space for my annual savings. So, I have 500K in my taxable account. When I "cash flow" my expense, I can move my money from my taxable account to the tax-sheltered account.

2) I have 1 year to 1 1/2 year of emergency and I save 1 year of expense every year. So, that is about 120K to 150K in total. It is big enough for any house that I am willing to buy.

KlangFool

sailaway
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Re: Where to invest money that will be needed in four or five years?

Post by sailaway » Tue Jan 14, 2020 7:01 pm

KlangFool wrote:
Tue Jan 14, 2020 6:54 pm
sailaway wrote:
Tue Jan 14, 2020 6:35 pm
KlangFool wrote:
Tue Jan 14, 2020 6:23 pm
AZAttorney11 wrote:
Tue Jan 14, 2020 6:18 pm
Generally speaking, I think the consensus on this forum is that money needed in the short-term, say less than 12 or 24 months, should be conservatively invested in money market funds, high yield savings accounts, short-term bonds, etc. (but no equities). For longer-term savings goals, equities are frequently recommended depending on one's need, ability, and willingness to take risk. But what about money needed in the medium term, say within the next four or five years? It's a short enough time period where equities could easily under perform. Given the current interest rate environment, fixed income investments could deliver negative real returns after inflation and taxes. So, where to park a chunk of money that is not needed for four or five years?
OP,

If your annual saving is high enough, you could pay for the expense out of your annual savings. So, why would you need to save money for that expense?

I do not save for a new car, house down payment, and college education. I pay them as they occurred.

KlangFool
We save a LOT, usually twice what we spend. We could not cash flow a 20% house down payment in HCOL without entirely forfeiting tax sheltered savings and ESPP for a year.

OP, I see five years out as uncertain. I might like to buy a house or boat or whatever then, but if my investments crash, I probably won't. As such, five year funds are just a normal part of our allocation.
sailaway,

1) I did not have enough tax-sheltered space for my annual savings. So, I have 500K in my taxable account. When I "cash flow" my expense, I can move my money from my taxable account to the tax-sheltered account.

2) I have 1 year to 1 1/2 year of emergency and I save 1 year of expense every year. So, that is about 120K to 150K in total. It is big enough for any house that I am willing to buy.

KlangFool
I don't count pulling from my EF or brokerage account as "cash flow." That is pulling out of savings, which is exactly what OP is asking about.

With higher than usual expenses this year, we pulled $X out of brokerage to cover an expense. A few months later, with cash bonus, we had the opportunity to put $X+ into the brokerage. To me, that does not equal cash flowing the expense.

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: Where to invest money that will be needed in four or five years?

Post by KlangFool » Tue Jan 14, 2020 7:44 pm

sailaway wrote:
Tue Jan 14, 2020 7:01 pm

I don't count pulling from my EF or brokerage account as "cash flow." That is pulling out of savings, which is exactly what OP is asking about.

With higher than usual expenses this year, we pulled $X out of brokerage to cover an expense. A few months later, with cash bonus, we had the opportunity to put $X+ into the brokerage. To me, that does not equal cash flowing the expense.
sailaway,

<<I don't count pulling from my EF or brokerage account as "cash flow." That is pulling out of savings, which is exactly what OP is asking about.>>

A) You don't but I do. I keep a larger EF just for that reason.

B) As for the brokerage account, I am just answering your question about how to maximize the tax-sheltered account while using the annual savings.

<<With higher than usual expenses this year, we pulled $X out of brokerage to cover an expense. >>

And, you are contributing to the tax-sheltered account at the same time. You could have stopped your annual contribution to the tax-sheltered account. The net effect is you are spending your annual savings.

<<To me, that does not equal cash flowing the expense.>>

The numbers still ended up the same. You are spending your annual savings.

If your annual saving is 60K, you could

A) Stop your contribution to tax-sheltered accounts and spend that 60K.

B) Contribute that 60K to tax-sheltered accounts and spend that 60K from your brokerage account.

Whether (A) or (B), you are spending your annual savings of 60K. You did not save 60K. You are cash flowing the expense.

KlangFool

retired@50
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Joined: Tue Oct 01, 2019 2:36 pm

Re: Where to invest money that will be needed in four or five years?

Post by retired@50 » Tue Jan 14, 2020 7:51 pm

AZAttorney11 wrote:
Tue Jan 14, 2020 6:18 pm
Generally speaking, I think the consensus on this forum is that money needed in the short-term, say less than 12 or 24 months, should be conservatively invested in money market funds, high yield savings accounts, short-term bonds, etc. (but no equities). For longer-term savings goals, equities are frequently recommended depending on one's need, ability, and willingness to take risk. But what about money needed in the medium term, say within the next four or five years? It's a short enough time period where equities could easily under perform. Given the current interest rate environment, fixed income investments could deliver negative real returns after inflation and taxes. So, where to park a chunk of money that is not needed for four or five years?
I'm surprised livesoft hasn't chimed in on this one...

This situation is where ( I think ) the recommendation would be to either take the money market route and rest easy with the security of not losing a dollar due to market fluctuations, OR, you could try the 20% total stock market fund, 80% treasuries mixture. I guess it depends on whether or not you're willing to take on ANY risk?

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

SchruteB&B
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Re: Where to invest money that will be needed in four or five years?

Post by SchruteB&B » Tue Jan 14, 2020 8:00 pm

ExitStageLeft wrote:
Tue Jan 14, 2020 6:27 pm
Many commenters on the forum think that stocks should be avoided for savings you will need within five years.
Agreed. Conventional wisdom as I’ve heard it is money needed in 5 years or less should not be in equities.

sailaway
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Re: Where to invest money that will be needed in four or five years?

Post by sailaway » Tue Jan 14, 2020 8:28 pm

KlangFool wrote:
Tue Jan 14, 2020 7:44 pm
sailaway wrote:
Tue Jan 14, 2020 7:01 pm

I don't count pulling from my EF or brokerage account as "cash flow." That is pulling out of savings, which is exactly what OP is asking about.

With higher than usual expenses this year, we pulled $X out of brokerage to cover an expense. A few months later, with cash bonus, we had the opportunity to put $X+ into the brokerage. To me, that does not equal cash flowing the expense.
sailaway,

<<I don't count pulling from my EF or brokerage account as "cash flow." That is pulling out of savings, which is exactly what OP is asking about.>>

A) You don't but I do. I keep a larger EF just for that reason.

B) As for the brokerage account, I am just answering your question about how to maximize the tax-sheltered account while using the annual savings.

<<With higher than usual expenses this year, we pulled $X out of brokerage to cover an expense. >>

And, you are contributing to the tax-sheltered account at the same time. You could have stopped your annual contribution to the tax-sheltered account. The net effect is you are spending your annual savings.

<<To me, that does not equal cash flowing the expense.>>

The numbers still ended up the same. You are spending your annual savings.

If your annual saving is 60K, you could

A) Stop your contribution to tax-sheltered accounts and spend that 60K.

B) Contribute that 60K to tax-sheltered accounts and spend that 60K from your brokerage account.

Whether (A) or (B), you are spending your annual savings of 60K. You did not save 60K. You are cash flowing the expense.

KlangFool
If we had stopped t401k, HSA or ESPP contributions to direct incoming funds to expenses, we would have even less money now.

To me, to cash flow something means to make it fit within my budget. I definitely didn't cut back anywhere else to make this work.

It may be semantics, but much of budgeting is. The fact of the matter is we could afford it, by pretty much any standard.

Triple digit golfer
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Re: Where to invest money that will be needed in four or five years?

Post by Triple digit golfer » Tue Jan 14, 2020 8:34 pm

I would rather max tax advantaged accounts, but stop brokerage taxable investments and withdraw some from brokerage accounts for a big purchase, than stop all contributions and not withdrawing from any accounts and "cash flowing" the purchase.

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: Where to invest money that will be needed in four or five years?

Post by KlangFool » Tue Jan 14, 2020 8:45 pm

sailaway wrote:
Tue Jan 14, 2020 8:28 pm

If we had stopped t401k, HSA or ESPP contributions to direct incoming funds to expenses, we would have even less money now.

To me, to cash flow something means to make it fit within my budget. I definitely didn't cut back anywhere else to make this work.

It may be semantics, but much of budgeting is. The fact of the matter is we could afford it, by pretty much any standard.
sailaway,

1) I do not budget. I do the "Pay Yourself First" saving method. I cannot spend the money that I do not have.

2) For all expenses except the house downpayment and the college education, I reduce my annual expenses to refill or prefill the EF.

KlangFool

Ferdinand2014
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Re: Where to invest money that will be needed in four or five years?

Post by Ferdinand2014 » Tue Jan 14, 2020 8:47 pm

25% S&P 500 index fund and 75% short term U.S. treasury bond index fund.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

Topic Author
AZAttorney11
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Re: Where to invest money that will be needed in four or five years?

Post by AZAttorney11 » Tue Jan 14, 2020 11:11 pm

KlangFool wrote:
Tue Jan 14, 2020 6:23 pm
AZAttorney11 wrote:
Tue Jan 14, 2020 6:18 pm
Generally speaking, I think the consensus on this forum is that money needed in the short-term, say less than 12 or 24 months, should be conservatively invested in money market funds, high yield savings accounts, short-term bonds, etc. (but no equities). For longer-term savings goals, equities are frequently recommended depending on one's need, ability, and willingness to take risk. But what about money needed in the medium term, say within the next four or five years? It's a short enough time period where equities could easily under perform. Given the current interest rate environment, fixed income investments could deliver negative real returns after inflation and taxes. So, where to park a chunk of money that is not needed for four or five years?
OP,

If your annual saving is high enough, you could pay for the expense out of your annual savings. So, why would you need to save money for that expense?

I do not save for a new car, house down payment, and college education. I pay them as they occurred.

KlangFool
It is not a savings issue. It is an investment allocation issue.

Topic Author
AZAttorney11
Posts: 619
Joined: Wed Jan 21, 2015 12:12 pm

Re: Where to invest money that will be needed in four or five years?

Post by AZAttorney11 » Tue Jan 14, 2020 11:23 pm

sailaway wrote:
Tue Jan 14, 2020 7:01 pm
I don't count pulling from my EF or brokerage account as "cash flow." That is pulling out of savings, which is exactly what OP is asking about.

With higher than usual expenses this year, we pulled $X out of brokerage to cover an expense. A few months later, with cash bonus, we had the opportunity to put $X+ into the brokerage. To me, that does not equal cash flowing the expense.
Agreed.

Grt2bOutdoors
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Re: Where to invest money that will be needed in four or five years?

Post by Grt2bOutdoors » Tue Jan 14, 2020 11:33 pm

How large is this bucket of money? Could you afford to lose 9-10% at any one time? If you could, then 20-25% S&P 500, 4-5 year Certificate of Deposit. If you can't, then put it in bank certificates of deposit.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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danielc
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Re: Where to invest money that will be needed in four or five years?

Post by danielc » Tue Jan 14, 2020 11:35 pm

KlangFool wrote:
Tue Jan 14, 2020 6:23 pm
OP,

If your annual saving is high enough, you could pay for the expense out of your annual savings. So, why would you need to save money for that expense?

I do not save for a new car, house down payment, and college education. I pay them as they occurred.

KlangFool
I don't know about the OP, but while I could pay for a car out of my cashflow, that would prevent me from maxing out my retirement accounts. Perhaps the OP has a similar constraint?

sailaway
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Re: Where to invest money that will be needed in four or five years?

Post by sailaway » Tue Jan 14, 2020 11:36 pm

KlangFool wrote:
Tue Jan 14, 2020 8:45 pm
sailaway wrote:
Tue Jan 14, 2020 8:28 pm

If we had stopped t401k, HSA or ESPP contributions to direct incoming funds to expenses, we would have even less money now.

To me, to cash flow something means to make it fit within my budget. I definitely didn't cut back anywhere else to make this work.

It may be semantics, but much of budgeting is. The fact of the matter is we could afford it, by pretty much any standard.
sailaway,

1) I do not budget. I do the "Pay Yourself First" saving method. I cannot spend the money that I do not have.

2) For all expenses except the house downpayment and the college education, I reduce my annual expenses to refill or prefill the EF.

KlangFool
Even 1) is semantics to me. If you pay yourself first, then spend the rest, you have made a budget for yourself. It may not be broken down into careful categories, but it determines how much you spend. Our "budget" is to try to spend what we have projected for when we don't have a salary. Our successes and failures then allow us to adjust our final number.

For 2), we pay tax sheltered and workplace advantaged first, but taxable savings are whatever we don't spend. If we buy according to our ISP in May and have to sell in August for an unexpected expense (albeit planned for in the long term, the timing was unexpected), we have failed at cash flow. We have still won at overall asset management, though.
Last edited by sailaway on Wed Jan 15, 2020 8:49 am, edited 1 time in total.

KlangFool
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Re: Where to invest money that will be needed in four or five years?

Post by KlangFool » Wed Jan 15, 2020 8:44 am

AZAttorney11 wrote:
Tue Jan 14, 2020 11:11 pm
KlangFool wrote:
Tue Jan 14, 2020 6:23 pm
AZAttorney11 wrote:
Tue Jan 14, 2020 6:18 pm
Generally speaking, I think the consensus on this forum is that money needed in the short-term, say less than 12 or 24 months, should be conservatively invested in money market funds, high yield savings accounts, short-term bonds, etc. (but no equities). For longer-term savings goals, equities are frequently recommended depending on one's need, ability, and willingness to take risk. But what about money needed in the medium term, say within the next four or five years? It's a short enough time period where equities could easily under perform. Given the current interest rate environment, fixed income investments could deliver negative real returns after inflation and taxes. So, where to park a chunk of money that is not needed for four or five years?
OP,

If your annual saving is high enough, you could pay for the expense out of your annual savings. So, why would you need to save money for that expense?

I do not save for a new car, house down payment, and college education. I pay them as they occurred.

KlangFool
It is not a savings issue. It is an investment allocation issue.
If you can pay this expense out of your cash flow, you don't need to allocate this money.

KlangFool

KlangFool
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Re: Where to invest money that will be needed in four or five years?

Post by KlangFool » Wed Jan 15, 2020 8:46 am

danielc wrote:
Tue Jan 14, 2020 11:35 pm
KlangFool wrote:
Tue Jan 14, 2020 6:23 pm
OP,

If your annual saving is high enough, you could pay for the expense out of your annual savings. So, why would you need to save money for that expense?

I do not save for a new car, house down payment, and college education. I pay them as they occurred.

KlangFool
I don't know about the OP, but while I could pay for a car out of my cashflow, that would prevent me from maxing out my retirement accounts. Perhaps the OP has a similar constraint?
I believe OP has much higher annual savings and income.

KlangFool

KlangFool
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Re: Where to invest money that will be needed in four or five years?

Post by KlangFool » Wed Jan 15, 2020 10:03 am

Folks,

There are two approaches to handle this kind of lumpy scheduled expenses:

A) The bucket approach -> One bucket per expense. And, each bucket needs to be invested separately depending on when you need to spend the money.


B) The flow approach

A bigger than normal emergency fund and one portfolio to handle everything including the lumpy expense. By looking at the cash flow requirement, the expense is handled by a combination of the emergency fund, annual savings, and dividend/distribution of the taxable account.


To each its own. Some folks prefer (A) and some prefer (B).

KlangFool

Triple digit golfer
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Re: Where to invest money that will be needed in four or five years?

Post by Triple digit golfer » Wed Jan 15, 2020 10:52 am

KlangFool wrote:
Wed Jan 15, 2020 10:03 am
Folks,

There are two approaches to handle this kind of lumpy scheduled expenses:

A) The bucket approach -> One bucket per expense. And, each bucket needs to be invested separately depending on when you need to spend the money.


B) The flow approach

A bigger than normal emergency fund and one portfolio to handle everything including the lumpy expense. By looking at the cash flow requirement, the expense is handled by a combination of the emergency fund, annual savings, and dividend/distribution of the taxable account.


To each its own. Some folks prefer (A) and some prefer (B).

KlangFool
I am interested in Option B. I'll give you some background. I hope my scenario helps others who are reading as well.

In the past, I carefully saved each month, an estimate of what I'd need for large one-time expenses like new roof, new HVAC system, new car in a savings account. I realized that my estimates were usually far off. I needed a roof and HVAC much sooner than expected, we had a flooding issue that cost us a few thousand dollars, and we did not need a car nearly as soon as I anticipated.

In short, I'm of the opinion that many of these things are hard to predict. Therefore, I have been migrating toward Option B because:

1. Our taxable investment account is 2.5+ years of expenses (in equity funds). Therefore, even a 50% drop still leaves us with more than a year's worth of expenses. If there is a drop and I needed the cash, I'd sell, realize the losses, and exchange an equal amount in my tax deferred accounts from bond funds to equity funds.

2. We invest approximately $15k annually in taxable investment accounts. When a big purchase is upcoming, I can simply redirect the cash flow to savings rather than investments. This avoids having to "save up" each month. For now, I can simply direct all funds to taxable investment accounts, keeping just a relatively small amount (maybe $5-10k) in savings. This will pay for 95% of our lumpy expenses. When big things are upcoming, we can stop adding new money to taxable investment accounts and put the money in savings instead.

Is this what you essentially do?

KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Where to invest money that will be needed in four or five years?

Post by KlangFool » Wed Jan 15, 2020 11:08 am

Triple digit golfer wrote:
Wed Jan 15, 2020 10:52 am
KlangFool wrote:
Wed Jan 15, 2020 10:03 am
Folks,

There are two approaches to handle this kind of lumpy scheduled expenses:

A) The bucket approach -> One bucket per expense. And, each bucket needs to be invested separately depending on when you need to spend the money.


B) The flow approach

A bigger than normal emergency fund and one portfolio to handle everything including the lumpy expense. By looking at the cash flow requirement, the expense is handled by a combination of the emergency fund, annual savings, and dividend/distribution of the taxable account.


To each its own. Some folks prefer (A) and some prefer (B).

KlangFool
I am interested in Option B. I'll give you some background. I hope my scenario helps others who are reading as well.

In the past, I carefully saved each month, an estimate of what I'd need for large one-time expenses like new roof, new HVAC system, new car in a savings account. I realized that my estimates were usually far off. I needed a roof and HVAC much sooner than expected, we had a flooding issue that cost us a few thousand dollars, and we did not need a car nearly as soon as I anticipated.

In short, I'm of the opinion that many of these things are hard to predict. Therefore, I have been migrating toward Option B because:

1. Our taxable investment account is 2.5+ years of expenses (in equity funds). Therefore, even a 50% drop still leaves us with more than a year's worth of expenses. If there is a drop and I needed the cash, I'd sell, realize the losses, and exchange an equal amount in my tax deferred accounts from bond funds to equity funds.

2. We invest approximately $15k annually in taxable investment accounts. When a big purchase is upcoming, I can simply redirect the cash flow to savings rather than investments. This avoids having to "save up" each month. For now, I can simply direct all funds to taxable investment accounts, keeping just a relatively small amount (maybe $5-10k) in savings. This will pay for 95% of our lumpy expenses. When big things are upcoming, we can stop adding new money to taxable investment accounts and put the money in savings instead.

Is this what you essentially do?
Triple digit golfer,

Yes, but I use a bigger buffer (Emergency Fund) and more flows to tap into.

A) EF of 60K to 90K. I can spend first and refill later.

B) Annual savings of 50K to 60K. I can continue to contribute to my tax-advantaged accounts while spending from my taxable account.

C) Additional 5K to 10K of the savings that I invest in my taxable account.

D) Annual dividend/distribution of 500K in the taxable account. This is about 10K to 12K per year.

E) 500K of 100% stock in my taxable account.

KlangFool

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danielc
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Re: Where to invest money that will be needed in four or five years?

Post by danielc » Thu Jan 16, 2020 4:58 am

KlangFool wrote:
Wed Jan 15, 2020 11:08 am
Triple digit golfer,

Yes, but I use a bigger buffer (Emergency Fund) and more flows to tap into.
I'm curious, what is your super-size emergency fund invested in? One normally associates an emergency fund with a safe vehicle like CDs or treasuries, but 60K or 500K seems like way too much money for that. So I assume you invest it in a portfolio of stocks and bonds, but perhaps it has a higher bond % than your longer term retirement fund?

My own plan is to keep maybe 3 months of expenses in something safe (currently, ultra short bonds) and the rest in a stock/bond portfolio. I haven't exactly decided how I'm going to do it. I suspect that as the savings grow, I'll gradually become more comfortable with a larger stock allocation.

KlangFool
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Re: Where to invest money that will be needed in four or five years?

Post by KlangFool » Thu Jan 16, 2020 7:52 am

danielc wrote:
Thu Jan 16, 2020 4:58 am
KlangFool wrote:
Wed Jan 15, 2020 11:08 am
Triple digit golfer,

Yes, but I use a bigger buffer (Emergency Fund) and more flows to tap into.
I'm curious, what is your super-size emergency fund invested in? One normally associates an emergency fund with a safe vehicle like CDs or treasuries, but 60K or 500K seems like way too much money for that. So I assume you invest it in a portfolio of stocks and bonds, but perhaps it has a higher bond % than your longer term retirement fund?

My own plan is to keep maybe 3 months of expenses in something safe (currently, ultra short bonds) and the rest in a stock/bond portfolio. I haven't exactly decided how I'm going to do it. I suspect that as the savings grow, I'll gradually become more comfortable with a larger stock allocation.
I don't invest my emergency fund. I save 1 year of expense every year. I don’t need to invest my emergency fund in order to reach my FI number in less than 20 years.

KlangFool

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