Too much in savings?

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02nz
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Re: Too much in savings?

Post by 02nz »

Others have already raised the FDIC issue. While Ally (like any other major bank) is unlikely to fail, it's also not something you should totally discount. I think there was a thread here earlier about Ally's financial health - it's certainly not as good as some other banks. I would make very sure of staying under FDIC limits.
HomeStretch
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Re: Too much in savings?

Post by HomeStretch »

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%?
No/low risk options would be savings/CD accounts, treasuries and brokerage money market funds. The latter two are yielding very little.

Consider purchasing I-Bonds. Also consider EE Bonds if you hold to maturity.
Topic Author
roccodean
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Re: Too much in savings?

Post by roccodean »

02nz wrote: Sun Jul 12, 2020 9:58 am Others have already raised the FDIC issue. While Ally (like any other major bank) is unlikely to fail, it's also not something you should totally discount. I think there was a thread here earlier about Ally's financial health - it's certainly not as good as some other banks. I would make very sure of staying under FDIC limits.
It’s a joint account so it’s fdic Insured to 500k. I was never really concerned with going over that but it’s something to contemplate now. I see citi and capital one offer online savings at 1%...does anyone have input on these institutions?
02nz
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Re: Too much in savings?

Post by 02nz »

roccodean wrote: Sun Jul 12, 2020 12:27 pm
02nz wrote: Sun Jul 12, 2020 9:58 am Others have already raised the FDIC issue. While Ally (like any other major bank) is unlikely to fail, it's also not something you should totally discount. I think there was a thread here earlier about Ally's financial health - it's certainly not as good as some other banks. I would make very sure of staying under FDIC limits.
It’s a joint account so it’s fdic Insured to 500k. I was never really concerned with going over that but it’s something to contemplate now. I see citi and capital one offer online savings at 1%...does anyone have input on these institutions?
Marcus (by Goldman Sachs) would be a better choice, competitive rates and good service. Of the big banks, Citi has the worst service in my experience. Glitchy website. You probably cannot get 1% if you live WITHIN their service area (they want to capture new customers). And Capital One has a nasty habit of creating a new account type, and dropping existing customers to an uncompetitive rate; some threads here on that. Website is also glitchy. I'd stay clear unless there's a promotional bonus.

Discover Bank and American Express both offer decent savings rates as well. Discover has run promos in the past but I don't see anything current.
LeftCoastIV
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Re: Too much in savings?

Post by LeftCoastIV »

rterickson wrote: Sun Jul 12, 2020 9:55 am
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.
My understanding is that you'll need to mix up the ownership (joint, single, etc.) or beneficiaries in order to ensure FDIC insurance, rather than just break up into multiple accounts at the same financial institution
bltn
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Re: Too much in savings?

Post by bltn »

goodenyou wrote: Sat Jul 11, 2020 11:46 am 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.
Well.

After reading the posts in this thread up until this one from goodenyou, I believe you have gotten useful information from most. But if you could have only one post to answer your question, this is the one.
It s worth rereading now and later.

Based on goodenyou s suggestions and my experience I would do the following in your position.
1. Pay off the mortgage rather than refinancing. Then make my monthly house payments back into my savings.
2. Take an additional 500,000 dollars and put it into a fund account , in a asset allocation of 50-70 stocks/30-50 bonds. If I had good job security, I would choose 70% equities.
3. With the 400,000 cash left in the bank, I would still have 2-3 years of expenses in a pinch. I am personally very cautious about keeping a big contingency fund, but the chances that I would need more than several years of expenses during a down market with a secure job are extremely small.
The chances that the cumulative effects of inflation are a destroyer of savings value are 100%.
4. I would increase the 529 funding. I feel that the most important legacy to leave my children is their education. The 529 plan provides the most efficient way to cover these costs. The chances of one of the children getting a merit based scholarship are very small.

Congratulations on your income ,savings, and most importantly your disciplined spending. If you can possibly get comfortable with less in your contingency fund you ll achieve financial independence much sooner, even if you decide you would like to keep working.
iamblessed
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Re: Too much in savings?

Post by iamblessed »

I would pay off the home mortgage to start with. An easy 2% profit on that one. How much you want to put in the market is up to you.
New Providence
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Re: Too much in savings?

Post by New Providence »

$500K in annual income and your house is worth $300K?

You need to buy a house.
HomeStretch
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Re: Too much in savings?

Post by HomeStretch »

roccodean wrote: Sun Jul 12, 2020 12:27 pm
02nz wrote: Sun Jul 12, 2020 9:58 am Others have already raised the FDIC issue. While Ally (like any other major bank) is unlikely to fail, it's also not something you should totally discount. I think there was a thread here earlier about Ally's financial health - it's certainly not as good as some other banks. I would make very sure of staying under FDIC limits.
It’s a joint account so it’s fdic Insured to 500k. I was never really concerned with going over that but it’s something to contemplate now. I see citi and capital one offer online savings at 1%...does anyone have input on these institutions?
Your Ally account balance is far over the FDIC limit. Consider adding POD beneficiaries to increase the account coverage limit or moving balance > $500k to another bank(s). Soon. CapitalOne, Marcus, CIT and Ally have all been good in my experience. I let the interest rate and CD terms dictate which one(s) I use.
Grt2bOutdoors
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Re: Too much in savings?

Post by Grt2bOutdoors »

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.
Pay it off. You have $1.1M in cash earning what? 1%, so you earn 1% and you pay the bank a spread of 1.375 -1.500%. Why? Earning 2.5% risk free is to pay off the mortgage. You have the cash flow to do it, if you really need the $175K later on, you can save it easily from your income.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Wanderingwheelz
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Re: Too much in savings?

Post by Wanderingwheelz »

roccodean wrote: Sun Jul 12, 2020 8:37 am
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.
I use Vanguard Total Bond (BND) for all but $100,000. I keep the smaller amount in Vanguard Short Term Bond Fund (BSV).

Hope that helps.
bb
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Re: Too much in savings?

Post by bb »

I don't follow all the fuss about heavy cash allocation and people making a distinction between investing it vs it not being invested. It is part of someone's net worth. At 1% money doubles in ~ 72 yrs, 2%~36yrs, 3%~24yrs. At today's historical low interest rates I don't really see the big difference in cash vs high quality bonds. Are these just motherhood statements or does someone really think the difference between cash and other fixed income investments such as bonds is really something to get worked up about?
Topic Author
roccodean
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Re: Too much in savings?

Post by roccodean »

New Providence wrote: Sun Jul 12, 2020 1:48 pm $500K in annual income and your house is worth $300K?

You need to buy a house.
Haha. Part of my plan to financial freedom...living cheap.
Topic Author
roccodean
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Re: Too much in savings?

Post by roccodean »

Thank you all for the input. I was having a hard time pulling the trigger on paying off mortgage in one lump sum, but I think I am convinced.
gowest
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Re: Too much in savings?

Post by gowest »

roccodean wrote: Mon Jul 13, 2020 7:28 am Thank you all for the input. I was having a hard time pulling the trigger on paying off mortgage in one lump sum, but I think I am convinced.
Hmm, maybe yet another nudge can help, since after all of these responses you only "think" you are convinced to pay off the mortgage.

I would 100%, without hesitation, today, right now, quit reading this post and go do it, pay off the mortgage. You're paying a bank 3% or so for your mortgage loan, and a different bank is paying you 1.1% on your cash. Even if you refi at 2.5% (a great rate), you'd be paying a bank 2.5% for your loan, and a bank would be paying you 1.1%.

As for what to do with the rest of the cash, that's more easily debatable. Personally, I wouldn't be able to sleep at night knowing that my money is in cash and being eroded by inflation. So having that much in cash would keep me up at night. I keep a few months' worth of expenses in cash at Ally, and beyond that every penny gets put to work (according to our asset allocation). But this is a much more personal decision.

Pay off the mortgage. Good luck to you! :sharebeer
RocketShipTech
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Re: Too much in savings?

Post by RocketShipTech »

Ally is now paying only 1% interest. At your tax bracket you’re only keeping about 0.6% interest.

The latest 5-Year Forward Inflation Expectation Rate is 1.6%, making your real return -1%.

How do you feel about paying an annual account fee of $11k/yr for your savings stash?

Because that’s what your effectively doing by keeping that much in cash.
JackoC
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Re: Too much in savings?

Post by JackoC »

roccodean wrote: Sun Jul 12, 2020 12:27 pm
02nz wrote: Sun Jul 12, 2020 9:58 am Others have already raised the FDIC issue. While Ally (like any other major bank) is unlikely to fail, it's also not something you should totally discount. I think there was a thread here earlier about Ally's financial health - it's certainly not as good as some other banks. I would make very sure of staying under FDIC limits.
It’s a joint account so it’s fdic Insured to 500k. I was never really concerned with going over that but it’s something to contemplate now. I see citi and capital one offer online savings at 1%...does anyone have input on these institutions?
Having more than the FDIC limit in a bank account is a mistake. It's taking uncompensated risk you could easily avoid.

And paying off the mortgage is nearly as obvious if you plan to maintain nearly that conservative an asset allocation. Not 100% though if you live in a non-recourse state in area with a big uninsurable risk, in which case a mortgage is also a risk downside protection tool: you can only lose the equity if the uninsurable flood, earthquake, etc disaster wipes out the value. If you own outright you can lose it all. Doesn't apply though in a recourse state where the lender will just target your big pile of cash to get full repayment of mortgage on a zero value house, in the extreme worst case.

I'm not saying either is a grave error (though still: correct the first one ASAP) but just contrasting to the asset allocation question which is a matter of personal preference. This forum is quite pro stock generally, and with a tendency to implicitly assume future returns will be drawn from the same statistical distribution as past returns. Otherwise why would a color chart of past 60/40 return distribution be relevant? I don't think it is. A belief that expected returns now are as high as the average of past returns is very questionable IMO, obviously wrong in case of bonds at least. If that's part of the reason for a high risk allocation then it's a problem. Although a person could have a more realistic view of expected returns and still come out at very high % stocks: personal preference.

My stock allocation is much higher than yours (~55%) though I'm much older and our asset levels dissimilar. One of my kids' age, income, assets and allocation are not as radically different from yours. He asks me for advice, and I don't push him to get rid of his also big cushion (not as big as yours and mainly in VMLUX limited term muni) to increase his stock allocation (which is much less than '100-age'). He has a high potential, insecure job. People with more secure jobs are perhaps in a better position to take the boatloads of stock risk popular here (though again, people with high pay insecure jobs can still be 200% in stocks, via leverage, if they want to).

If you plan to keep that much money in safe assets awhile I'd suggest looking for best 5 yr CD for the some of the excess you need to remove from Ally. You might get 2% or even more if you can find a top paying Credit Union deal you qualify for, though mid 1's with a 'usual suspect' online bank. And perhaps evaluate a fund like VMLUX as part of the mix (understanding there's limited but real risk there) at that high an income.
JackoC
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Re: Too much in savings?

Post by JackoC »

RocketShipTech wrote: Mon Jul 13, 2020 8:30 am Ally is now paying only 1% interest. At your tax bracket you’re only keeping about 0.6% interest.

The latest 5-Year Forward Inflation Expectation Rate is 1.6%, making your real return -1%.

How do you feel about paying an annual account fee of $11k/yr for your savings stash?

Because that’s what your effectively doing by keeping that much in cash.
General point I agree, safe assets earn below current market based inflation expectations, after tax, with few exceptions (namely, *absolute* best 5 yr CD's in moderate tax brackets). And not nearly as much as past seat-of-pants estimate 'inflation is 2%'.

However it's apples and oranges to compare the 5X10 TIPS forward yield (proxy of market's expectation of inflation between 5 and 10 yrs from now aka '5 fwd inflation') with a spot deposit rate. Right now inflation is basically zero and you're earning perhaps 0.6% depending on particular account and tax bracket. If you stretch it out to 5 yrs from *now*, a top CD will yield probably less but fairly close after tax to the 5 yr (again from spot) pre tax TIPS breakeven which is around 1.24%*, a proxy for the market's inflation expectation for 5 yrs starting now.

As cash investors we're investing from now. Forward rates in general are not directly applicable to our investments. The 5 yr fwd inflation is watched as an economic/market indicator because thought to filter out a certain amount of noise.

*TIPS ~-.94%, 5 yr note ~+0.30%. 1.24%/.6=2.07%. A very few top Credit Union 5 yr CD's still yield more than that, if you happen to qualify for membership. In general the best options would be somewhat lower, but nothing like 1% after tax below the TIPS breakeven.
majiaknight
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Re: Too much in savings?

Post by majiaknight »

roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
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.

Bogleheads, do I have too much in savings or should I keep it there?
Everyone's risk tolerance level is different so no argue about which saving amount should help you sleep well at night.

As someone may have already mentioned, I'd suggest you look into annually maximizing the purchase of EE savings and iBond for your family to optimize the savings for better return and taxes compared to Ally savings. You could at least put $10K*2*4=$80K/year into EE and iBond for your family of four (IIUC you may buy another $10*2K under your family trust but I haven't done that). I'm about your age with a little less asset and income but much larger mortgage (in the Bay Area), and my family of three have been maximizing the EE and iBond since 2016. I created the minor account at Treasury Direct for my kid manged by myself. I've also setup a more flexible UTMA under Vanguard for my kid to avoid over-funding 529 as we only have one kid.

Below is an excellent article on EE savings by Boglehead Mel Lindauer:
A Simple Way To Build Your Own Annuity
https://www.forbes.com/sites/theboglehe ... f0c36f7ba3

When comparing the tax-equivalent yield b/t online savings (or CDs) vs. treasury (or muni), you could use the "Tax-Equivalent Yield Calculator" by Fidelity:
https://www.fidelity.com/fixed-income-b ... s/overview
bltn
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Re: Too much in savings?

Post by bltn »

roccodean wrote: Mon Jul 13, 2020 7:27 am
New Providence wrote: Sun Jul 12, 2020 1:48 pm $500K in annual income and your house is worth $300K?

You need to buy a house.
Haha. Part of my plan to financial freedom...living cheap.
This puts you ahead of most on this forum and the large majority of people in the world.
Spending money just because you have it is a poor motivation for spending.
bltn
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Re: Too much in savings?

Post by bltn »

roccodean wrote: Mon Jul 13, 2020 7:28 am Thank you all for the input. I was having a hard time pulling the trigger on paying off mortgage in one lump sum, but I think I am convinced.
Good going.
RocketShipTech
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Re: Too much in savings?

Post by RocketShipTech »

bltn wrote: Mon Jul 13, 2020 8:30 pm
roccodean wrote: Mon Jul 13, 2020 7:27 am
New Providence wrote: Sun Jul 12, 2020 1:48 pm $500K in annual income and your house is worth $300K?

You need to buy a house.
Haha. Part of my plan to financial freedom...living cheap.
This puts you ahead of most on this forum and the large majority of people in the world.
Spending money just because you have it is a poor motivation for spending.
What is money for if not to spend?
flaccidsteele
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Re: Too much in savings?

Post by flaccidsteele »

RocketShipTech wrote: Mon Jul 13, 2020 8:46 pm
bltn wrote: Mon Jul 13, 2020 8:30 pm
roccodean wrote: Mon Jul 13, 2020 7:27 am
New Providence wrote: Sun Jul 12, 2020 1:48 pm $500K in annual income and your house is worth $300K?

You need to buy a house.
Haha. Part of my plan to financial freedom...living cheap.
This puts you ahead of most on this forum and the large majority of people in the world.
Spending money just because you have it is a poor motivation for spending.
What is money for if not to spend?
Money only has 2 uses: to be spent or to be invested
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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JoeRetire
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Re: Too much in savings?

Post by JoeRetire »

roccodean wrote: Sat Jul 11, 2020 6:24 am 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.
Why do you have so much in savings?
How much do you value sleeping at night?

Consider those questions, then decide what to do.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
CycloRista
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Re: Too much in savings?

Post by CycloRista »

jvini wrote: Sat Jul 11, 2020 7:34 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:)
+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.
+1 - I'm in the same age bracket and have both kids through (out of state college) debt free and do not owe anything other than mortgage on the primary residence. Definitely wise not to max 529's - so many of our colleagues and friends ended up with excess funds; we were very close to "right on the mark" when the last one graduated.

Your rule of thumb/formula for holding bonds: Age-15 up to 49 and age-10 (or -5) at 50 and beyond is brilliant and simple.

The only things we do different than some:

2 years of cash or readily accessible equivalent reserves (my wife is definitely more fiscally/financially conservative and it makes her feel better)

Ultra aggressive in one taxable trading account that has grown nicely and remained in single-digit percentage territory of our holdings as I've shifted funds out over time.
JackoC
Posts: 1729
Joined: Sun Aug 12, 2018 11:14 am

Re: Too much in savings?

Post by JackoC »

flaccidsteele wrote: Mon Jul 13, 2020 11:43 pm
RocketShipTech wrote: Mon Jul 13, 2020 8:46 pm
bltn wrote: Mon Jul 13, 2020 8:30 pm
roccodean wrote: Mon Jul 13, 2020 7:27 am
New Providence wrote: Sun Jul 12, 2020 1:48 pm $500K in annual income and your house is worth $300K?

You need to buy a house.
Haha. Part of my plan to financial freedom...living cheap.
This puts you ahead of most on this forum and the large majority of people in the world.
Spending money just because you have it is a poor motivation for spending.
What is money for if not to spend?
Money only has 2 uses: to be spent or to be invested
1 use: to spend. But 4 ways to do it: 1. you spend it now 2. you spend it later 3. somebody else spends it now (you give it away now and/or your taxes now) 4. somebody else spends it later (heirs or charities you leave it to, any taxes at death).

We all know there's a possibility (no gtee with real riskless rates below zero real even pre tax) of real growth in investments so the amounts in 1/3 v 2/4 could be significantly different, but that doesn't amount to an alternative to those 4 ways.

None of which is to say people shouldn't save early and often and live below their means as part of a plan... but that recognizes the money will be spent by somebody eventually. The latter fact probably mainly goes without saying, but reading some posts here I wonder sometimes if everyone truly realizes that, or instead the goal gradually becomes to accumulate a big pile of money...to have it. In which case it will be still be spent, via method 4, but the purpose of the person accumulating it morphed at some point into, just accumulating it. :happy
Raraculus
Posts: 40
Joined: Sat Jul 20, 2019 10:43 am

Re: Too much in savings?

Post by Raraculus »

RocketShipTech wrote: Mon Jul 13, 2020 8:46 pmWhat is money for if not to spend?
Money buys you time. Having a lot of money now will free your time for you to pursue your life's interests. There is a good book called, "Your Money or Your Life" by Vick Robin and Joe Dominguez. Worth a read.
RocketShipTech
Posts: 679
Joined: Sat Jun 13, 2020 10:08 pm

Re: Too much in savings?

Post by RocketShipTech »

Raraculus wrote: Tue Jul 14, 2020 9:19 am
RocketShipTech wrote: Mon Jul 13, 2020 8:46 pmWhat is money for if not to spend?
Money buys you time. Having a lot of money now will free your time for you to pursue your life's interests. There is a good book called, "Your Money or Your Life" by Vick Robin and Joe Dominguez. Worth a read.
Hey you dont have to convince me. Plenty of other Bogleheads around here who have no conception of money as time.
Grt2bOutdoors
Posts: 23051
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Too much in savings?

Post by Grt2bOutdoors »

majiaknight wrote: Mon Jul 13, 2020 6:20 pm
roccodean wrote: Sat Jul 11, 2020 6:24 am Background (my wife and I combined):
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.

Bogleheads, do I have too much in savings or should I keep it there?
Everyone's risk tolerance level is different so no argue about which saving amount should help you sleep well at night.

As someone may have already mentioned, I'd suggest you look into annually maximizing the purchase of EE savings and iBond for your family to optimize the savings for better return and taxes compared to Ally savings. You could at least put $10K*2*4=$80K/year into EE and iBond for your family of four (IIUC you may buy another $10*2K under your family trust but I haven't done that). I'm about your age with a little less asset and income but much larger mortgage (in the Bay Area), and my family of three have been maximizing the EE and iBond since 2016. I created the minor account at Treasury Direct for my kid manged by myself. I've also setup a more flexible UTMA under Vanguard for my kid to avoid over-funding 529 as we only have one kid.

Below is an excellent article on EE savings by Boglehead Mel Lindauer:
A Simple Way To Build Your Own Annuity
https://www.forbes.com/sites/theboglehe ... f0c36f7ba3

When comparing the tax-equivalent yield b/t online savings (or CDs) vs. treasury (or muni), you could use the "Tax-Equivalent Yield Calculator" by Fidelity:
https://www.fidelity.com/fixed-income-b ... s/overview
Just so you are aware - the minors account reverts to the minor at age 18 and the money is there’s as in a completed gift. You are just the custodian.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
hudson
Posts: 3240
Joined: Fri Apr 06, 2007 9:15 am

Re: Too much in savings?

Post by hudson »

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.
I agree. I don't have a problem with a high amount of safe fixed income.
I don't have a problem if someone goes with 100% stocks or 100% bonds as long as they done enough research. All of charts and studies about the correct path to take are all about past history. The future might look different.
I would recommend that the OP read Larry Swedroe's bond book and William Bernstein's Ages of the Investor and Four Pillars before making any large moves.
Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Re: Too much in savings?

Post by roccodean »

Great discussion all. To answer some of the above questions...maybe it’s my upbringing growing up in a low/mid class lifestyle/home. A 350k house is plenty big (in a Midwest low cost of living town). Maybe it’s not all I “want”, but it’s definitely all I need. And why do I want so much in savings to help
Me sleep at night...probably the same reason (subconsciously).
zeal
Posts: 246
Joined: Tue Dec 11, 2018 4:28 pm

Re: Too much in savings?

Post by zeal »

I agree with you on paying off the mortgage. You probably wouldn't borrow money on your house at 2.5% in order to earn 1.1% in savings and liquidity. I'd pay it off today--especially if I'd still have 3-4 years'-worth of annual expenses saved in cash afterwards.

I'm also with you on the home price. I grew up in a home that today is valued at $80k. My parents still live there and we all still love it. It makes my $280k house (granted, in a more expensive market) feel like an absolute mansion.

Which brings me to my argument--I too grew up in a family where there was never any money. However, that's exactly why your cash holdings confuse me. Our family of 5 turned out just fine growing up making and living off of 35-40k/yr (about average HHI in the area at that time). I doubt my parents ever had more than a 3-months' expenses emergency fund. Holding a 6-months' emergency fund makes me feel rich. One sixth of your cash equals ~6 months' worth of expenses for you. Paying off the mortgage, holding a 6-month emergency fund, then investing the remainder of your cash into your AA today effectively doubles your retirement savings. That's major and could be a difference of a decade in terms of financial freedom timing, depending on your goals. I'm ballparking just to make a point, but again: that's major.

Another point: you make 550-600k/yr. In my mind, that means you and your wife are incredibly marketable. If you both lost your jobs tomorrow, I don't imagine it will take you 3 years to find new ones. Go-getters gonna go get. You guys are awesome!

I don't think you need that much cash, but I'm just a voice on the internet. You and your wife should spend some time really thinking about and discussing why you want so much cash--maybe you need it, but maybe you don't. I wager that you don't. Keep us updated!
Topic Author
roccodean
Posts: 79
Joined: Thu Mar 26, 2020 7:19 am

Re: Too much in savings?

Post by roccodean »

zeal wrote: Wed Jul 15, 2020 7:02 am I agree with you on paying off the mortgage. You probably wouldn't borrow money on your house at 2.5% in order to earn 1.1% in savings and liquidity. I'd pay it off today--especially if I'd still have 3-4 years'-worth of annual expenses saved in cash afterwards.

I'm also with you on the home price. I grew up in a home that today is valued at $80k. My parents still live there and we all still love it. It makes my $280k house (granted, in a more expensive market) feel like an absolute mansion.

Which brings me to my argument--I too grew up in a family where there was never any money. However, that's exactly why your cash holdings confuse me. Our family of 5 turned out just fine growing up making and living off of 35-40k/yr (about average HHI in the area at that time). I doubt my parents ever had more than a 3-months' expenses emergency fund. Holding a 6-months' emergency fund makes me feel rich. One sixth of your cash equals ~6 months' worth of expenses for you. Paying off the mortgage, holding a 6-month emergency fund, then investing the remainder of your cash into your AA today effectively doubles your retirement savings. That's major and could be a difference of a decade in terms of financial freedom timing, depending on your goals. I'm ballparking just to make a point, but again: that's major.

Another point: you make 550-600k/yr. In my mind, that means you and your wife are incredibly marketable. If you both lost your jobs tomorrow, I don't imagine it will take you 3 years to find new ones. Go-getters gonna go get. You guys are awesome!

I don't think you need that much cash, but I'm just a voice on the internet. You and your wife should spend some time really thinking about and discussing why you want so much cash--maybe you need it, but maybe you don't. I wager that you don't. Keep us updated!
I agree w your points and thank you for the kind words.
sandan
Posts: 52
Joined: Wed Apr 03, 2013 12:48 pm

Re: Too much in savings?

Post by sandan »

I could be wrong, but I think paying off the mortgage for your homestead is essentially free bankruptcy protection. Obviously as probably someone else mentioned, it also provides tax savings on interest earnings on savings. Peanuts, but still a couple hundred bucks even at the current low interest rates.
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