Too much in savings?

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Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Too much in savings?

Post by roccodean »

Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
MrJedi
Posts: 343
Joined: Wed May 06, 2020 11:42 am

Re: Too much in savings?

Post by MrJedi »

Some people (myself included), prefer to include any cash/emergency type savings into the fixed income side of asset allocation. If you have years of expenses in relatively safe bonds, I don't think you really need a separate cash savings unless you have a specific savings goal (a big cash purchase or something). Just roll it all into your AA.
Dottie57
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Location: Earth Northern Hemisphere

Re: Too much in savings?

Post by Dottie57 »

I have cash which is included in fixed income Asset allocation .

If you sleep well at night and all cash is protected by FDIC, leave it alone.

Do you invest in mutual funds too? 401k or IRA? You left that out or is cash in retirement accounts?
Last edited by Dottie57 on Sat Jul 11, 2020 6:41 am, edited 1 time in total.
Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Re: Too much in savings?

Post by roccodean »

Dottie57 wrote: Sat Jul 11, 2020 6:40 am I have cash which is included in fixed income Asset allocation .

If you sleep well at night and all cash is protected by FDIC, leave it alone.

Do you invest in mutual funds too?
Only in mutual funds in my retirement accounts.
sfnerd
Posts: 207
Joined: Tue Apr 08, 2014 1:16 am

Re: Too much in savings?

Post by sfnerd »

From what I understand here, you have 1.1m in cash, 200k in a house, and 30k split between stocks and bonds. So you only have 20k of equity exposure, which is a 1.5% allocation.

I would say you are drastically under allocated to equities. As you mention, your cash will lose value over time. It may help you sleep well at night, but personally this would keep me awake. You are lucky in that you have good income. Don't waste it through inflation.

How much equities is very personal, but I'm roughly your age and I probably have a 70-80% allocation to equities. Remember, you're playing a long term game. Keep enough in cash for a year of expenses, maybe two. Outside of that, pay off the mortgage and invest in stocks (and bonds as appropriate).

(edited to remove an extra s from as :oops:)
Olemiss540
Posts: 1506
Joined: Fri Aug 18, 2017 8:46 pm

Re: Too much in savings?

Post by Olemiss540 »

You are 38 and make a half a million a year. You could mess up royally and still retire successfully. What is it that's special about 1.1M that made you decide to stop there? When do you want to be financially independent? When do you want to retire? What's your current level of expenses and current level of savings per year?

You need to asses your personal NEED, ABILITY, AND WILLINGNESS to take risk by investing in equities. You may have no need to invest a large portion of your assets in equities and a cash pile with low current/future returns may be perfectly acceptable depending on your answers to the above.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Re: Too much in savings?

Post by roccodean »

sfnerd wrote: Sat Jul 11, 2020 6:55 am From what I understand here, you have 1.1m in cash, 200k in a house, and 30k split between stocks and bonds. So you only have 20k of equity exposure, which is a 1.5% allocation.

I would say you are drastically under allocated to equities. As you mention, your cash will lose value over time. It may help you sleep well at night, but personally this would keep me awake. You are lucky in that you have good income. Don't waste it through inflation.

How much equities is very personal, but I'm roughly your age and I probably have a 70-80% allocation to equities. Remember, you're playing a long term game. Keep enough in cash for a year of expenses, maybe two. Outside of that, pay off the mortgage and invest in stocks (and bonds as appropriate).

(edited to remove an extra s from as :oops:)

To clarify, We also have approx 750k in 401k/Iras which is in a 75/25 stock/bond mix
Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Re: Too much in savings?

Post by roccodean »

Olemiss540 wrote: Sat Jul 11, 2020 7:00 am You are 38 and make a half a million a year. You could mess up royally and still retire successfully. What is it that's special about 1.1M that made you decide to stop there? When do you want to be financially independent? When do you want to retire? What's your current level of expenses and current level of savings per year?

You need to asses your personal NEED, ABILITY, AND WILLINGNESS to take risk by investing in equities. You may have no need to invest a large portion of your assets in equities and a cash pile with low current/future returns may be perfectly acceptable depending on your answers to the above.
We wanted to have 1m with no risk. Why is this a magic number...no specific reason but it feels comfortable.

Goal to be financially independent at age 50.

Low expenses. After all expenses (retirement , 529, living expenses ), we save 170k/year.
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tennisplyr
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Re: Too much in savings?

Post by tennisplyr »

Retired 9 years and I generally keep ~4-5% in cash at Ally savings.
Those who move forward with a happy spirit will find that things always work out.
jvini
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Re: Too much in savings?

Post by jvini »

sfnerd wrote: Sat Jul 11, 2020 6:55 am From what I understand here, you have 1.1m in cash, 200k in a house, and 30k split between stocks and bonds. So you only have 20k of equity exposure, which is a 1.5% allocation.

I would say you are drastically under allocated to equities. As you mention, your cash will lose value over time. It may help you sleep well at night, but personally this would keep me awake. You are lucky in that you have good income. Don't waste it through inflation.

How much equities is very personal, but I'm roughly your age and I probably have a 70-80% allocation to equities. Remember, you're playing a long term game. Keep enough in cash for a year of expenses, maybe two. Outside of that, pay off the mortgage and invest in stocks (and bonds as appropriate).

(edited to remove an extra s from as :oops:)
+1. My wife and I are 53 now and at your age made a bit less, but had an investing plan with a far greater exposure to equities which has helped us become quite comfortable, pay off a house worth 800k-1mill., and save enough to fund two private college educations totaling about 550k. We feel extremely blessed and fortunate.

You don't give all the details of how much you plan to save for and pay for college (not sure why you found a 529 inflexible since you can own most states plans through Vanguard and have a very good self directed plan), but each to his own. I'd just say exclude that money from counting towards your savings. I look at that 550K as distinct from my net worth. Yes, that's painful but hey, it's what we signed up for as parents.

I'd be very afraid of inflation in your current situation. Also, it's nice to have the flexibility to not work someday. We live below our means and aren't overly aggressive, BUT if we had most of our money in a savings account similar to you, we'd have a huge amount less than we have now, and that's after investing through the dot.com bubble and the great recession, along with the pandemic which I believe is still a risk.

I don't know if this will help, but we followed a set of rules fairly closely. Some people hate rules of thumb, but I found that it helped us stay the course. I guess calling it our Personal Savings Plan makes it more acceptable. Basically in our 30s and much of our 40s we held our age-15 in bonds. We rebalanced every year on around the same date. I always dollar cost averaged monthly into equities after maxing our our 401ks and my mega backdoor roth. When we reached 50, we switched to age-10 (and when we recently reached a new high, I switched us to age minus 5 because I'm not sure what's going to happen and we don't need to take as much risk). We'll probably stay at approximately 55/45 to 50/50 indefinitely.

We've pretty much had a 3 etf portfolio with 15% in international etf, the rest in total U.S. stock market etf, and our bond allocation in BND, a total U.S. bond fund. I did overweight in small caps at one point and bought the odd equity here and there but never for more than 2% of our portfolio and now we're in line with ITOT, ishares total U.S. stock market etf.

(Since February I put half of our fixed portion into a CD, high yield savings, and stable value fund, with the remainder split between BND and VGIT (intermediate treasury etf). I wanted to be a bit more conservative in that part of our portfolio since it's for protection and not necessarily to make a lot (other than rebalancing into equities if they've gone down when it's time to rebalance.)

This has helped us save quite a bit and be fortunate enough to be able to sleep at night. I found that following rules that reflected our risk tolerance and keeping things simple was the best way to go. I hope this wasn't too confusing or convoluted.
HomeStretch
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Re: Too much in savings?

Post by HomeStretch »

Your overall asset allocation is < 50% equities which is low IMO.

Does your $1.1 million in the Ally account exceed the FDIC limit?

What is your mortgage rate? Have you considered using some of the excess cash to payoff your mortgage?

Have you made backdoor Roth contributions for you and spouse? You can make 2019 contributions of $6K each up until 7/15. You can also contribute $6k each for 2020. Roth accounts grow tax free. If you can’t/won’t do both, consider prioritizing contributions via a backdoor Roth over 529 contributions.
https://www.bogleheads.org/wiki/Backdoor_Roth

Are you making the maximum 2020 elective deferral of $19.5k to your 401k? Does your 401k offer a mega Backdoor?
https://www.bogleheads.org/wiki/After-tax_401(k)

Does spouse have access to a retirement plan such as a 401k?
Last edited by HomeStretch on Sat Jul 11, 2020 7:44 am, edited 1 time in total.
TimeTheMarket
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Re: Too much in savings?

Post by TimeTheMarket »

You’re way too young to be so heavy in cash. You sleep well because you are naive of the opportunity cost.

At your spending rate and savings rate you won’t be ready at 50
Because you are accumulating so little from real investments. Saving your way to financial independence is unnecessarily slow.
Username is not serious :)
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calvin+hobbes
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Re: Too much in savings?

Post by calvin+hobbes »

Too much in savings? I believe the answer is yes. It helps you sleep at night but perhaps you don’t realize how much longer it is costing you in terms of accumulation time.

If you don’t want to put it in equities, at least pay off your mortgage for that guaranteed return.
Last edited by calvin+hobbes on Sat Jul 11, 2020 8:44 am, edited 1 time in total.
sfnerd
Posts: 207
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Re: Too much in savings?

Post by sfnerd »

roccodean wrote: Sat Jul 11, 2020 7:03 am
sfnerd wrote: Sat Jul 11, 2020 6:55 am From what I understand here, you have 1.1m in cash, 200k in a house, and 30k split between stocks and bonds. So you only have 20k of equity exposure, which is a 1.5% allocation.

I would say you are drastically under allocated to equities. As you mention, your cash will lose value over time. It may help you sleep well at night, but personally this would keep me awake. You are lucky in that you have good income. Don't waste it through inflation.

How much equities is very personal, but I'm roughly your age and I probably have a 70-80% allocation to equities. Remember, you're playing a long term game. Keep enough in cash for a year of expenses, maybe two. Outside of that, pay off the mortgage and invest in stocks (and bonds as appropriate).

(edited to remove an extra s from as :oops:)

To clarify, We also have approx 750k in 401k/Iras which is in a 75/25 stock/bond mix
So, still a fairly small equity allocation, but better... At this allocation you are probably running the risk of retiring at a lifestyle significantly lower than your current one (I'm guessing based on your income and savings rates).

It can work at this allocation for sure, especially since you have 12 years of potentially high savings (assuming no job loss). However, if I were you I would shift my allocation to be a bit more aggressive. Cash is good in the short term, but unless you have a reason to hold cash, it can be poison long term.

An important thing to think about is that that cash is potentially high risk: there is tons of stimulus pumping into world economies, and at some point there may be a reckoning. (Or not... I have no idea of course, but it is a very feasible outcome).

You are very lucky, and your income and assets are above average. Just read the Wiki here and select a reasonable allocation and put it on autopilot. Just keep a year or two of cash to make yourself feel safe.
nix4me
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Re: Too much in savings?

Post by nix4me »

You are losing money everyday to inflation.

Take 1-2 years of expenses and leave in cash.
Take the rest and invest it.
panhead
Posts: 458
Joined: Fri Feb 22, 2013 10:53 am

Re: Too much in savings?

Post by panhead »

roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
Many have and will say you have too much in cash because many of us believe in a more traditional asset allocation. There are a few here that have not chimed in that plan on funding their retirement with cash in the form of savings accounts, CDs, and maybe individual bonds (probably tips) almost exclusively. It is possible and you may be one of the few that can do it. It requires a very high savings rate compared to your expenses. I don't have the details because I am more of a traditional AA person, but that doesn't mean you have to be. Many roads to Dublin....
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TheTimeLord
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Re: Too much in savings?

Post by TheTimeLord »

roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
Why do you have a mortgage? Sorry if you have already answered.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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CyclingDuo
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Re: Too much in savings?

Post by CyclingDuo »

TheTimeLord wrote: Sat Jul 11, 2020 9:22 am
roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
Why do you have a mortgage? Sorry if you have already answered.
Exactly! Pull $175K from the Ally account and pay off the mortgage to be done with it.

You are doing great by having $1.1M + $750K in 401k's for a total of $1.85M at age 38. That's a bit of being ahead in terms of the journey Fidelity recommends where you have a multiple of 3X your salary by age 40. 3 X $600K = $1.8M and you are already there which is why I think paying off the mortgage is well worth doing now as you will build that $175K right back up in a few years with the amount you are saving. However, if you have plans of retiring earlier then the Fidelity multiples may be too conservative for you depending on your household annual expenses. It's a good starting point to consider, though.

Image

https://www.fidelity.com/viewpoints/ret ... retirement.

Famed investor Ben Graham said never be less than 25% in equities and never more than 75%.
https://www.bogleheads.org/wiki/Graham_75-25_rule

In your situation, you could look at it in two ways. On the one hand, you have no need to take risk with your amount of savings at this point since you have saved so much, have such a high salary, and are socking it away. On the other hand, because of your salary and level of savings, you can afford to take on more risk.

Either way, as has been pointed out above - inflation is the beast you will need to fight in the upcoming decades. Increasing your equity exposure is one way to combat that as having the $1.1M sitting in an online savings account could cost you over time. Putting some of that cash to work would be what most of us would recommend.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Re: Too much in savings?

Post by roccodean »

HomeStretch wrote: Sat Jul 11, 2020 7:41 am Your overall asset allocation is < 50% equities which is low IMO.

Does your $1.1 million in the Ally account exceed the FDIC limit?

What is your mortgage rate? Have you considered using some of the excess cash to payoff your mortgage?

Have you made backdoor Roth contributions for you and spouse? You can make 2019 contributions of $6K each up until 7/15. You can also contribute $6k each for 2020. Roth accounts grow tax free. If you can’t/won’t do both, consider prioritizing contributions via a backdoor Roth over 529 contributions.
https://www.bogleheads.org/wiki/Backdoor_Roth

Are you making the maximum 2020 elective deferral of $19.5k to your 401k? Does your 401k offer a mega Backdoor?
https://www.bogleheads.org/wiki/After-tax_401(k)

Does spouse have access to a retirement plan such as a 401k?
Yes to all: both max out 401 and back door Roth.

Mortgage is 2.5% fixed 15 year (recent refi )
Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Re: Too much in savings?

Post by roccodean »

TheTimeLord wrote: Sat Jul 11, 2020 9:22 am
roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
Why do you have a mortgage? Sorry if you have already answered.

Basically because I have been debating paying off mortgage vs investing lump some. I Am in process of refinance and will have 2.375 or 2.5% at 15 year fixed.
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TheTimeLord
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Re: Too much in savings?

Post by TheTimeLord »

roccodean wrote: Sat Jul 11, 2020 9:43 am
TheTimeLord wrote: Sat Jul 11, 2020 9:22 am
roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
Why do you have a mortgage? Sorry if you have already answered.

Basically because I have been debating paying off mortgage vs investing lump some. I Am in process of refinance and will have 2.375 or 2.5% at 15 year fixed.
Since you asked for people opinions here is mine. Paying off a mortgage will give you some of the same SWAN features as having money is a savings account (which seem to be important to you) and improve your monthly cash flow. Don't waste money on refi costs, just pay it off then monthly invest an amount equal to your old mortgage payment in a taxable account. This advice is worth what you paid for it.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Monsterflockster
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Re: Too much in savings?

Post by Monsterflockster »

roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
No, but you need a bigger house and a boat with that salary. :sharebeer
Last edited by Monsterflockster on Sat Jul 11, 2020 9:59 am, edited 1 time in total.
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TheTimeLord
Posts: 8249
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Re: Too much in savings?

Post by TheTimeLord »

Monsterflockster wrote: Sat Jul 11, 2020 9:51 am
roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
No, but you need a bigger house and a boat with that salary.
No one has enough money to need a boat.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Re: Too much in savings?

Post by roccodean »

Monsterflockster wrote: Sat Jul 11, 2020 9:51 am
roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
No, but you need a bigger house and a boat with that salary.
Hahahah. Great answer!
HomeStretch
Posts: 4999
Joined: Thu Dec 27, 2018 3:06 pm

Re: Too much in savings?

Post by HomeStretch »

If either 401k has a mega Backdoor option, great place to contribute some of your extra cash. The 2020 IRS limit < age 50 is $57k each.
Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Re: Too much in savings?

Post by roccodean »

HomeStretch wrote: Sat Jul 11, 2020 10:28 am If either 401k has a mega Backdoor option, great place to contribute some of your extra cash. The 2020 IRS limit < age 50 is $57k each.
I am not aware of this. What is it?
reln
Posts: 446
Joined: Fri Apr 19, 2019 4:01 pm

Re: Too much in savings?

Post by reln »

roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
I think you have way too much cash but that's just me.

You should manage your finances in a way that makes you feel comfortable. So don't do what I do and don't listen to anyone who pushes you out of your comfort zone.

I purposely keep at most 6 months worth of cash. The rest of my money goes into stocks, no bonds.
HomeStretch
Posts: 4999
Joined: Thu Dec 27, 2018 3:06 pm

Re: Too much in savings?

Post by HomeStretch »

roccodean wrote: Sat Jul 11, 2020 10:38 am
HomeStretch wrote: Sat Jul 11, 2020 10:28 am If either 401k has a mega Backdoor option, great place to contribute some of your extra cash. The 2020 IRS limit < age 50 is $57k each.
I am not aware of this. What is it?
See the link in my first post above to the BH wiki page about this. You make after-tax (non Roth) contributions to the 401k that are converted to Roth by an in-plan rollover to Roth 401k or in-service distribution to a Roth IRA. The $57k limit = employee deferral ($19.5k Max) + employer contribution + employee after-tax (non Roth) contribution. If available in your plans, consider prioritizing this over Taxable savings. Roth accounts grow tax free.

Does your Ally account balance of $1.1 million have full FDIC protection?

There is nothing wrong with having a large cash balance as long as you recognize that it may be delaying your financial independence date. So be sure you understand what you are giving up to hold such a large portion of your portfolio in fixed income (cash).
Last edited by HomeStretch on Mon Jul 13, 2020 8:05 am, edited 1 time in total.
LeftCoastIV
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Re: Too much in savings?

Post by LeftCoastIV »

There are two inter-related questions in this topic: [1] What AA are your comfortable with, [2] What % of your fixed income should be in cash vs. other fixed income instruments.

For another perspective: Our AA is approximately 50/50 and I'm comfortable with that, but we hold nearly all of our fixed income in cash. Fixed income just doesn't pay well these days, so I don't see the risk/return benefit to holding bonds. I would need to go into lower-credit rated bond funds to see any decent return, and then it's not really the "safe" part of my portfolio. We did pay off our mortgage though, as it didn't really make sense to hold cash earning less than a mortgage rate.

People criticize cash and the inflation drag (which is fair), but where do you get decent returns on fixed income these days that is worth the extra risk?
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Re: Too much in savings?

Post by goodenyou »

A lot of good advice above. I am "guilty" of holding too much cash as well. I am slowly deploying it after the sale of commercial real estate, but it is well over 7-figures. One of the biggest mistakes of holding cash, I believe, is that you convince yourself that you are waiting for a better use for it. All the while you continue to add more cash because you are living below your means. There is an excellent old thread on BHs on the difference between de-risking a portfolio and diversifying a portfolio. Cash will de-risk at an the expense of inflation. There is a cost to doing it and it shouldn't be discounted. Would you put your cash at ALLY savings bank if the advertised rate was -1%? It would be still be safe and insured by FDIC. I started buying I-Bonds 10 years ago when the the limit was $30,000 per person and the fixed rate was ~2%. I have added to the position over the years for both my wife and I so it is not an insignificant sum. You may want to consider doing this. At least your fixed income with I-bonds would be inflation-diversified and safe. The taxes are deferred as well. You could consider TIPS, but only do it in a qualified plan if it is available in your retirement plans because there are untoward immediate tax consequences if held in a taxable account.

Stock and bond investing gets boring after a while, especially if you spend a lot of time on your finances. In the common cultural speak of today, they are "sooooo" binary. So binary that they feel banal. So, the challenge becomes how do you use cash to squeeze out more value. The answer is debt reduction. So, pay off your mortgage. It makes no logical sense to have a mortgage with your risk profile and income level. Just stoke the check. That's what I did 10 years ago, and I have no regrets.

I would put much more than $300 per month in a 529. I don't know how old your children are, but you will want to have a minimum of $120,000 per child in today's dollars for a 4 year state school education and $300,000 for private. I have 3 and have given them each a merit-based full-ride with no hope for any need-based aid. You will get none. Merit-based scholarship money is hard to come by, and if your kids get it, you can pay >$100,000 per year for their professional graduate school, if you choose. Debt-free education is a great gift to give to your children when you can afford it. My kids' eyes are wide-open to the generosity of this gift as they witness their friends struggle through crushing education costs.

As your portfolio grows, you will be more comforted by the ability to weather stock and bond volatility. If the swings in the value don't put you outside your lifestyle boundaries, you will be able to sleep well. Remember, you are very unlikely to withdraw money from your qualified plans for 34 MORE years. That is a long time. The comfort of having a huge percentage in cash may go down as your net worth grows.
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Re: Too much in savings?

Post by CenTexan »

Pay off the mortgage. It is a great feeling to be rid of that. And you will be amazed you how much you can save once that debt is gone.
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Re: Too much in savings?

Post by wannalearn »

IMO, assuming you can still see yourself in your current house for at least the next 5 years, pay off your mortgage. I am sure many as well as I were even surprised to learn you still had one.

My financial profile is very similar to yours. But I am getting the impression you live in a smaller city than my NYC.

Finance is very complex... so much to consider... but I agree with what many have mentioned, the benefit you will get from paying off your mortgage will have everlasting mental gratification.
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Re: Too much in savings?

Post by geerhardusvos »

roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
This is another good example of a post that should have been edited to the following format: viewtopic.php?t=6212

My advice: Start a taxable brokerage account if you haven’t already. Pick an asset allocation (70/30 is great at your age, but this is personal). With your income you should be able to invest $20,000+ per month. Lump sum all your cash right now into your desired asset allocation in the taxable. Use a total Stock market index fund and a long-term treasury fund or your preferred bond holding. Keep one year or so in cash. You should be able to retire next year or in the next five years if you are diligent and depending on how much you spend per year. Continue maxing out retirement accounts. Don’t buy the bigger house and boat as someone else recommended. Buy your freedom instead. What do you have between 25 and 30 times your living expenses, you are completely free and clear. Nice job saving, now it’s time to invest.

Your $1 million in cash is too risky long term. You need to come to grips with that.
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roccodean
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Re: Too much in savings?

Post by roccodean »

geerhardusvos wrote: Sat Jul 11, 2020 2:13 pm
roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
This is another good example of a post that should have been edited to the following format: viewtopic.php?t=6212

My advice: Start a taxable brokerage account if you haven’t already. Pick an asset allocation (70/30 is great at your age, but this is personal). With your income you should be able to invest $20,000+ per month. Lump sum all your cash right now into your desired asset allocation in the taxable. Use a total Stock market index fund and a long-term treasury fund or your preferred bond holding. Keep one year or so in cash. You should be able to retire next year or in the next five years if you are diligent and depending on how much you spend per year. Continue maxing out retirement accounts. Don’t buy the bigger house and boat as someone else recommended. Buy your freedom instead. What do you have between 25 and 30 times your living expenses, you are completely free and clear. Nice job saving, now it’s time to invest.

Your $1 million in cash is too risky long term. You need to come to grips with that.

Thank you.
I do have a taxable account w vanguard in which I have a 60/40 portfolio. Haven’t had the guts to place in lump sum (especially w correct state of market volatility )
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Re: Too much in savings?

Post by Katietsu »

roccodean wrote: Sat Jul 11, 2020 2:53 pm
geerhardusvos wrote: Sat Jul 11, 2020 2:13 pm
roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
This is another good example of a post that should have been edited to the following format: viewtopic.php?t=6212

My advice: Start a taxable brokerage account if you haven’t already. Pick an asset allocation (70/30 is great at your age, but this is personal). With your income you should be able to invest $20,000+ per month. Lump sum all your cash right now into your desired asset allocation in the taxable. Use a total Stock market index fund and a long-term treasury fund or your preferred bond holding. Keep one year or so in cash. You should be able to retire next year or in the next five years if you are diligent and depending on how much you spend per year. Continue maxing out retirement accounts. Don’t buy the bigger house and boat as someone else recommended. Buy your freedom instead. What do you have between 25 and 30 times your living expenses, you are completely free and clear. Nice job saving, now it’s time to invest.

Your $1 million in cash is too risky long term. You need to come to grips with that.

Thank you.
I do have a taxable account w vanguard in which I have a 60/40 portfolio. Haven’t had the guts to place in lump sum (especially w correct state of market volatility )
We followed a path similar to yours. We built up a cash cushion that was similar to yours before we started maxing out retirement accounts. At 38, our asset allocation was probably similar to yours with 5+ years of expenses in cash and retirement accounts at 70/30.

So I am of your mindset there. But now that you have the 1 million “safe”, you need to go forward with investing the amounts over that. I consider that anchor to be there both to let me sleep at night and to let me invest the rest with less hesitation. With your savings rate, your asset allocation should quickly move toward a range that forum members are more comfortable with.

I am not sure that there are many good options for the cash right now. But consider utilizing CDs or short term treasuries if the offerings become desirable again. I was lucky enough to snag a few CDs at >3% last fall.
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Re: Too much in savings?

Post by geerhardusvos »

roccodean wrote: Sat Jul 11, 2020 2:53 pm
geerhardusvos wrote: Sat Jul 11, 2020 2:13 pm
roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
Age: 38
Income: 550-600k
No debt except home mortgage (175k on home worth 380k)
We max out 401k's, backdoor Roth's.
Put $600 monthly split into 2 children's 529 (purposely don't max out bc don't like the lack of flexibility associated w it).

We have 1.1m in Ally savings account. Was 2.1% APR but given recent fed actions is now 1.1%. I fully understand the financial side of investing this instead of having in savings (not even keeping up w inflation), but we enjoy not having to worry about volatility...it helps us sleep at night comfortably.

Since reaching savings goal, I put 30k in 60/40 portfolio stock/bond portfolio (in various vanguard ETFs) and plan on putting 5k/month from here on out.

Bogleheads, do I have too much in savings or should I keep it there?

Thanks
This is another good example of a post that should have been edited to the following format: viewtopic.php?t=6212

My advice: Start a taxable brokerage account if you haven’t already. Pick an asset allocation (70/30 is great at your age, but this is personal). With your income you should be able to invest $20,000+ per month. Lump sum all your cash right now into your desired asset allocation in the taxable. Use a total Stock market index fund and a long-term treasury fund or your preferred bond holding. Keep one year or so in cash. You should be able to retire next year or in the next five years if you are diligent and depending on how much you spend per year. Continue maxing out retirement accounts. Don’t buy the bigger house and boat as someone else recommended. Buy your freedom instead. What do you have between 25 and 30 times your living expenses, you are completely free and clear. Nice job saving, now it’s time to invest.

Your $1 million in cash is too risky long term. You need to come to grips with that.

Thank you.
I do have a taxable account w vanguard in which I have a 60/40 portfolio. Haven’t had the guts to place in lump sum (especially w correct state of market volatility )
The truth is, today’s the best day to invest in your desired asset allocation. 50% of your assets in cash isn’t a winning strategy in any market for a 38 year old making over $200k. You will not regret investing your money and sticking to a program
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Re: Too much in savings?

Post by Wanderingwheelz »

roccodean wrote: Sat Jul 11, 2020 7:07 am
Olemiss540 wrote: Sat Jul 11, 2020 7:00 am You are 38 and make a half a million a year. You could mess up royally and still retire successfully. What is it that's special about 1.1M that made you decide to stop there? When do you want to be financially independent? When do you want to retire? What's your current level of expenses and current level of savings per year?

You need to asses your personal NEED, ABILITY, AND WILLINGNESS to take risk by investing in equities. You may have no need to invest a large portion of your assets in equities and a cash pile with low current/future returns may be perfectly acceptable depending on your answers to the above.
We wanted to have 1m with no risk. Why is this a magic number...no specific reason but it feels comfortable.

Goal to be financially independent at age 50.

Low expenses. After all expenses (retirement , 529, living expenses ), we save 170k/year.
I just turned 49 and my wife (45) and I keep $1mm in TBM 90%/STB 10% and anything we have that comes in after that goes immediately into TSM 80%/TISM 20%, where we have about $1.6mm more.

Having $1mm in safe/low risk investments makes perfectly good sense to me, since that’s exactly what we do. We own our home and our college expenses are over.

We feel like we’ve won the game so we don’t feel like we need to take the kind of risks we did when we were heavily in the accumulation phase. It’s our plan to be 60/40 for life.

I’m seriously considering retiring at the end of this year. My wife will then work until she’s 50 and that will be that.
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Re: Too much in savings?

Post by geerhardusvos »

Wanderingwheelz wrote: Sat Jul 11, 2020 3:32 pm
roccodean wrote: Sat Jul 11, 2020 7:07 am
Olemiss540 wrote: Sat Jul 11, 2020 7:00 am You are 38 and make a half a million a year. You could mess up royally and still retire successfully. What is it that's special about 1.1M that made you decide to stop there? When do you want to be financially independent? When do you want to retire? What's your current level of expenses and current level of savings per year?

You need to asses your personal NEED, ABILITY, AND WILLINGNESS to take risk by investing in equities. You may have no need to invest a large portion of your assets in equities and a cash pile with low current/future returns may be perfectly acceptable depending on your answers to the above.
We wanted to have 1m with no risk. Why is this a magic number...no specific reason but it feels comfortable.

Goal to be financially independent at age 50.

Low expenses. After all expenses (retirement , 529, living expenses ), we save 170k/year.
I just turned 49 and my wife (45) and I keep $1mm in TBM 90%/STB 10% and anything we have that comes in after that goes immediately into TSM 80%/TISM 20%, where we have about $1.6mm more.

Having $1mm in safe/low risk investments makes perfectly good sense to me, since that’s exactly what we do. We own our home and our college expenses are over.

We feel like we’ve won the game so we don’t feel like we need to take the kind of risks we did when we were heavily in the accumulation phase. It’s our plan to be 60/40 for life.

I’m seriously considering retiring at the end of this year. My wife will then work until she’s 50 and that will be that.
You are not 60/40 for life, you are 60/40 once you’ve saved up enough money. You are hardly even 40% equities in your 40s... OP is in their 30s... Anything less than 60% equities should be highly questioned and suspect in your 30s... especially for two income families, not to mention high income.

The truth is, long-term risk ends up being portfolio depletion, so unless the OP is willing to save up much more than they need to (ie less than 3% WR), they should keep equities to help sustain a portfolio long-term:

Image

In some sense, investing is about sticking with the program and doing what makes you feel comfortable and allows you to sleep at night. The OP was seeking feedback, and the feedback overwhelmingly from someone like Jack Bogle would be to have a 38-year-old high income professional in more equities than not, and he would also say to stick with an asset allocation and seek the long term preservation and growth.

FYI, I sleep well at night with almost 100% equities at age 30. I will sleep well in retirement with 80% equities.
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Re: Too much in savings?

Post by Wanderingwheelz »

geerhardusvos wrote: Sat Jul 11, 2020 4:03 pm
Wanderingwheelz wrote: Sat Jul 11, 2020 3:32 pm
roccodean wrote: Sat Jul 11, 2020 7:07 am
Olemiss540 wrote: Sat Jul 11, 2020 7:00 am You are 38 and make a half a million a year. You could mess up royally and still retire successfully. What is it that's special about 1.1M that made you decide to stop there? When do you want to be financially independent? When do you want to retire? What's your current level of expenses and current level of savings per year?

You need to asses your personal NEED, ABILITY, AND WILLINGNESS to take risk by investing in equities. You may have no need to invest a large portion of your assets in equities and a cash pile with low current/future returns may be perfectly acceptable depending on your answers to the above.
We wanted to have 1m with no risk. Why is this a magic number...no specific reason but it feels comfortable.

Goal to be financially independent at age 50.

Low expenses. After all expenses (retirement , 529, living expenses ), we save 170k/year.
I just turned 49 and my wife (45) and I keep $1mm in TBM 90%/STB 10% and anything we have that comes in after that goes immediately into TSM 80%/TISM 20%, where we have about $1.6mm more.

Having $1mm in safe/low risk investments makes perfectly good sense to me, since that’s exactly what we do. We own our home and our college expenses are over.

We feel like we’ve won the game so we don’t feel like we need to take the kind of risks we did when we were heavily in the accumulation phase. It’s our plan to be 60/40 for life.

I’m seriously considering retiring at the end of this year. My wife will then work until she’s 50 and that will be that.
You are not 60/40 for life, you are 60/40 once you’ve saved up enough money. You are hardly even 40% equities in your 40s... OP is in their 30s... Anything less than 60% equities should be highly questioned and suspect in your 30s... especially for two income families, not to mention high income.

The truth is, long-term risk ends up being portfolio depletion, so unless the OP is willing to save up much more than they need to (ie less than 3% WR), they should keep equities to help sustain a portfolio long-term:

Image

In some sense, investing is about sticking with the program and doing what makes you feel comfortable and allows you to sleep at night. The OP was seeking feedback, and the feedback overwhelmingly from someone like Jack Bogle would be to have a 38-year-old high income professional in more equities than not, and he would also say to stick with an asset allocation and seek the long term preservation and growth.

FYI, I sleep well at night with almost 100% equities at age 30. I will sleep well in retirement with 80% equities.
At age 30 you don’t know what you’ll fell like in 25+ years. Right now you’re feeling pretty good about things since you’re just starting out, but there are many of us on here who know what a real bear market feels like.

For a reasonably high earner there’s no reason to be any more than 80% equites other than just seeking wealth at the expense of all else. 50% to 70% equities will make a rich person richer, although maybe his kids or grandkids would want him 100% equities, but it ain’t their money. Yet.
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Re: Too much in savings?

Post by geerhardusvos »

Wanderingwheelz wrote: Sat Jul 11, 2020 6:39 pm
geerhardusvos wrote: Sat Jul 11, 2020 4:03 pm
Wanderingwheelz wrote: Sat Jul 11, 2020 3:32 pm
roccodean wrote: Sat Jul 11, 2020 7:07 am
Olemiss540 wrote: Sat Jul 11, 2020 7:00 am You are 38 and make a half a million a year. You could mess up royally and still retire successfully. What is it that's special about 1.1M that made you decide to stop there? When do you want to be financially independent? When do you want to retire? What's your current level of expenses and current level of savings per year?

You need to asses your personal NEED, ABILITY, AND WILLINGNESS to take risk by investing in equities. You may have no need to invest a large portion of your assets in equities and a cash pile with low current/future returns may be perfectly acceptable depending on your answers to the above.
We wanted to have 1m with no risk. Why is this a magic number...no specific reason but it feels comfortable.

Goal to be financially independent at age 50.

Low expenses. After all expenses (retirement , 529, living expenses ), we save 170k/year.
I just turned 49 and my wife (45) and I keep $1mm in TBM 90%/STB 10% and anything we have that comes in after that goes immediately into TSM 80%/TISM 20%, where we have about $1.6mm more.

Having $1mm in safe/low risk investments makes perfectly good sense to me, since that’s exactly what we do. We own our home and our college expenses are over.

We feel like we’ve won the game so we don’t feel like we need to take the kind of risks we did when we were heavily in the accumulation phase. It’s our plan to be 60/40 for life.

I’m seriously considering retiring at the end of this year. My wife will then work until she’s 50 and that will be that.
You are not 60/40 for life, you are 60/40 once you’ve saved up enough money. You are hardly even 40% equities in your 40s... OP is in their 30s... Anything less than 60% equities should be highly questioned and suspect in your 30s... especially for two income families, not to mention high income.

The truth is, long-term risk ends up being portfolio depletion, so unless the OP is willing to save up much more than they need to (ie less than 3% WR), they should keep equities to help sustain a portfolio long-term:

Image

In some sense, investing is about sticking with the program and doing what makes you feel comfortable and allows you to sleep at night. The OP was seeking feedback, and the feedback overwhelmingly from someone like Jack Bogle would be to have a 38-year-old high income professional in more equities than not, and he would also say to stick with an asset allocation and seek the long term preservation and growth.

FYI, I sleep well at night with almost 100% equities at age 30. I will sleep well in retirement with 80% equities.
At age 30 you don’t know what you’ll fell like in 25+ years. Right now you’re feeling pretty good about things since you’re just starting out, but there are many of us on here who know what a real bear market feels like.

For a reasonably high earner there’s no reason to be any more than 80% equites other than just seeking wealth at the expense of all else. 50% to 70% equities will make a rich person richer, although maybe his kids or grandkids would want him 100% equities, but it ain’t their money. Yet.
You made a few assumptions in your post. Careful with those. Also, nothing I said conflicts with what you said.

I know what a real bear feels like (2008 couldn’t find a career job for a year, worked various jobs, lost half my portfolio when I was just starting out). I am halfway saved up for retirement (have a little more than 13x living expenses invested around ~$850k when I checked on Friday), and will be retiring from corporate America in 5 to 10 years with 80/20 with 25-28x living expenses invested. With a long time horizon, I need the equities to carry me through a 50 to 60 year retirement.
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Re: Too much in savings?

Post by abuss368 »

It is a highly individual decision. The right answer is whatever amount let’s you sleep well at night.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Too much in savings?

Post by geerhardusvos »

abuss368 wrote: Sat Jul 11, 2020 7:41 pm It is a highly individual decision. The right answer is whatever amount let’s you sleep well at night.
Definitely agree with that! There are very experienced and knowledgeable investors who have been successful with many different asset allocations. Continued investing and sticking with the program no matter what is most the battle!
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Re: Too much in savings?

Post by abuss368 »

geerhardusvos wrote: Sat Jul 11, 2020 8:07 pm
abuss368 wrote: Sat Jul 11, 2020 7:41 pm It is a highly individual decision. The right answer is whatever amount let’s you sleep well at night.
Definitely agree with that! There are very experienced and knowledgeable investors who have been successful with many different asset allocations. Continued investing and sticking with the program no matter what is most the battle!
Exactly. :sharebeer
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Re: Too much in savings?

Post by smitcat »

geerhardusvos wrote: Sat Jul 11, 2020 6:54 pm
Wanderingwheelz wrote: Sat Jul 11, 2020 6:39 pm
geerhardusvos wrote: Sat Jul 11, 2020 4:03 pm
Wanderingwheelz wrote: Sat Jul 11, 2020 3:32 pm
roccodean wrote: Sat Jul 11, 2020 7:07 am

We wanted to have 1m with no risk. Why is this a magic number...no specific reason but it feels comfortable.

Goal to be financially independent at age 50.

Low expenses. After all expenses (retirement , 529, living expenses ), we save 170k/year.
I just turned 49 and my wife (45) and I keep $1mm in TBM 90%/STB 10% and anything we have that comes in after that goes immediately into TSM 80%/TISM 20%, where we have about $1.6mm more.

Having $1mm in safe/low risk investments makes perfectly good sense to me, since that’s exactly what we do. We own our home and our college expenses are over.

We feel like we’ve won the game so we don’t feel like we need to take the kind of risks we did when we were heavily in the accumulation phase. It’s our plan to be 60/40 for life.

I’m seriously considering retiring at the end of this year. My wife will then work until she’s 50 and that will be that.
You are not 60/40 for life, you are 60/40 once you’ve saved up enough money. You are hardly even 40% equities in your 40s... OP is in their 30s... Anything less than 60% equities should be highly questioned and suspect in your 30s... especially for two income families, not to mention high income.

The truth is, long-term risk ends up being portfolio depletion, so unless the OP is willing to save up much more than they need to (ie less than 3% WR), they should keep equities to help sustain a portfolio long-term:

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In some sense, investing is about sticking with the program and doing what makes you feel comfortable and allows you to sleep at night. The OP was seeking feedback, and the feedback overwhelmingly from someone like Jack Bogle would be to have a 38-year-old high income professional in more equities than not, and he would also say to stick with an asset allocation and seek the long term preservation and growth.

FYI, I sleep well at night with almost 100% equities at age 30. I will sleep well in retirement with 80% equities.
At age 30 you don’t know what you’ll fell like in 25+ years. Right now you’re feeling pretty good about things since you’re just starting out, but there are many of us on here who know what a real bear market feels like.

For a reasonably high earner there’s no reason to be any more than 80% equites other than just seeking wealth at the expense of all else. 50% to 70% equities will make a rich person richer, although maybe his kids or grandkids would want him 100% equities, but it ain’t their money. Yet.
You made a few assumptions in your post. Careful with those. Also, nothing I said conflicts with what you said.

I know what a real bear feels like (2008 couldn’t find a career job for a year, worked various jobs, lost half my portfolio when I was just starting out). I am halfway saved up for retirement (have a little more than 13x living expenses invested around ~$850k when I checked on Friday), and will be retiring from corporate America in 5 to 10 years with 80/20 with 25-28x living expenses invested. With a long time horizon, I need the equities to carry me through a 50 to 60 year retirement.
"I am halfway saved up for retirement (have a little more than 13x living expenses invested around ~$850k when I checked on Friday), and will be retiring from corporate America in 5 to 10 years with 80/20 with 25-28x living expenses invested. With a long time horizon, I need the equities to carry me through a 50 to 60 year retirement.'
Are you saying that the $850K (13X expenses) will be about $1.75 million when you retire (27X) and that will be the only source of income in your planned retirement?
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goodenyou
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Re: Too much in savings?

Post by goodenyou »

You will unlikely have lost opportunity regret when you make and save a lot of money. If you are able to save several millions with the current strategy of cash-drag investing, you will likely have little regret if you could backtest a fully invested portfolio that would have delivered a few more millions in investment return. It probably wouldn’t materially change the way you would have lived your life and you would probably discount it for all the better sleep that you had over the years by keeping a high percentage of cash. The excess portfolio gains for the risk may have a low utility for you.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.
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roccodean
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Re: Too much in savings?

Post by roccodean »

Thanks for all the feedback. Just confirmed that I get no tax benefit from my mortgage interest paid. As of now, I am leaning toward paying off 170k mortgage in lump sum, keeping whatever I feel comfortable with in savings (or other low risk vehicle), and investing rest in 60/40 portfolio thereafter.
What are my options for low/no risk as opposed to the ALLY savings account where I am getting 1.1%?
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roccodean
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Re: Too much in savings?

Post by roccodean »

roccodean wrote: Sun Jul 12, 2020 8:31 am Thanks for all the feedback. Just confirmed that I get no tax benefit from my mortgage interest paid. As of now, I am leaning toward paying off 170k mortgage in lump sum, keeping whatever I feel comfortable with in savings (or other low risk vehicle), and investing rest in 60/40 portfolio thereafter.
What are my options for low/no risk as opposed to the ALLY savings account where I am getting 1.1%?
Also, I prefer vanguard as that‘a where our account is.
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roccodean
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Re: Too much in savings?

Post by roccodean »

Wanderingwheelz wrote: Sat Jul 11, 2020 3:32 pm
roccodean wrote: Sat Jul 11, 2020 7:07 am
Olemiss540 wrote: Sat Jul 11, 2020 7:00 am You are 38 and make a half a million a year. You could mess up royally and still retire successfully. What is it that's special about 1.1M that made you decide to stop there? When do you want to be financially independent? When do you want to retire? What's your current level of expenses and current level of savings per year?

You need to asses your personal NEED, ABILITY, AND WILLINGNESS to take risk by investing in equities. You may have no need to invest a large portion of your assets in equities and a cash pile with low current/future returns may be perfectly acceptable depending on your answers to the above.
We wanted to have 1m with no risk. Why is this a magic number...no specific reason but it feels comfortable.

Goal to be financially independent at age 50.

Low expenses. After all expenses (retirement , 529, living expenses ), we save 170k/year.
I just turned 49 and my wife (45) and I keep $1mm in TBM 90%/STB 10% and anything we have that comes in after that goes immediately into TSM 80%/TISM 20%, where we have about $1.6mm more.

Having $1mm in safe/low risk investments makes perfectly good sense to me, since that’s exactly what we do. We own our home and our college expenses are over.

We feel like we’ve won the game so we don’t feel like we need to take the kind of risks we did when we were heavily in the accumulation phase. It’s our plan to be 60/40 for life.

I’m seriously considering retiring at the end of this year. My wife will then work until she’s 50 and that will be that.
Thanks. I like your strategy on the 1m you have in low risk. Can you be more specific on the bond funds.
jvini
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Re: Too much in savings?

Post by jvini »

roccodean wrote: Sun Jul 12, 2020 8:31 am Thanks for all the feedback. Just confirmed that I get no tax benefit from my mortgage interest paid. As of now, I am leaning toward paying off 170k mortgage in lump sum, keeping whatever I feel comfortable with in savings (or other low risk vehicle), and investing rest in 60/40 portfolio thereafter.
What are my options for low/no risk as opposed to the ALLY savings account where I am getting 1.1%?
That sounds like a good plan. Not a lot of other options for the fixed portion of your portfolio. I have a stable value fund in my 401k that pays more, so I max that. Otherwise I have an Ally savings account at 1%, an older Ally CD at 1.75%, and then a couple total bond ETFs, one being just 3-10yr. treasuries. As I said before I look at this portion as protection and for rebalancing.
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rterickson
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Re: Too much in savings?

Post by rterickson »

roccodean wrote: Sun Jul 12, 2020 8:31 am What are my options for low/no risk as opposed to the ALLY savings account where I am getting 1.1%?
Check out online bank rates at bankrate.com

Marcus is currently paying 1.04%.

If all of your cash is in one single account (didn't see your response to this question asked by several posters) you should break it up into multiples below $250,000 in order to maintain FDIC protection for the full amount.
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