Short Term Taxable Account Emergency Fund for post 6 Month expenses

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Topic Author
NabSh
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Joined: Fri Dec 25, 2020 12:09 pm

Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by NabSh »

What is the advise to "park and let is grow" for money that I dont need and is considered outside of 6 months emergency funds?
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Duckie
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by Duckie »

NabSh wrote:What is the advise to "park and let is grow" for money that I don't need and is considered outside of 6 months emergency funds?
How far outside? In general, money needed in fewer than five years should be in cash or equivalents (savings accounts, CDs, money market accounts). Money needed in five to ten years can be in bonds. Money not needed for more than ten years can be in stocks.
Topic Author
NabSh
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by NabSh »

This is part of emergency fund beyond the 6 month recommended period. However I do not have planned use for it at this time. So technically I could put in stocks or bond or Tax Free?. I have a stable job and I am 45 year old. Already maxing my 401 and IRA.
drumboy256
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by drumboy256 »

We have around $2-$5k in a taxable for vacations, large life purchases and anything else “need” associated. The trick is to always wait for a year to pull the money out for long term capital gains.

For reference, either lump sum or DCA into is fine, all preference.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
dbr
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by dbr »

There isn't any "park and grow" for money. If you want growth you have to invest at some amount of risk.

But the practical advice after you have money in an emergency fund is to invest in a portfolio of stocks and bonds allocated to meet your need, ability, and willingness to take risk. At one extreme there are people who have an emergency fund and the rest in stocks (or even no emergency fund and everything in stocks) and at the opposite extreme are people with everything in T bills (which produce a lot of income if you have enough of them).

In practice younger investors with a prospect to save money consistently for the future probably hold fairly large stock allocations, but that is not parking money. Actually parking money means savings accounts and CDs and maybe short term bonds, such as just mentioned T bills.
Spirit Rider
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by Spirit Rider »

I Bonds are a good choice for less immediate contingency needs.
  • Pros:
    • Are by default, tax-deferred until redeemed or maturity.
    • State and local tax exempt.
    • Almost always have returns > money market funds/accounts.
    • Typically have returns exceeding short-term CDs, sometimes even exceeding >= 5 year CDs.
    Cons:
    • Can not be redeemed prior to one (1) year.
    • If redeemed prior to five (5) years, there is a three (3) month interest penalty.
dbr
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by dbr »

Spirit Rider wrote: Fri Jan 01, 2021 11:11 am I Bonds are a good choice for less immediate contingency needs.
  • Pros:
    • Are by default, tax-deferred until redeemed or maturity.
    • State and local tax exempt.
    • Almost always have returns > money market funds/accounts.
    • Typically have returns exceeding short-term CDs, sometimes even exceeding >= 5 year CDs.
    Cons:
    • Can not be redeemed prior to one (1) year.
    • If redeemed prior to five (5) years, there is a three (3) month interest penalty.
Yes, I bonds could be a place to start building up an allocation. Due to the annual purchase limit a person who wants to do this has to start ahead of time. Note that I bond yields are low now along with anything else, and unlike some assets such as CDs, you can't just sell all the low yield bonds and replace them with high yield bonds if yields go up.
Spirit Rider
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by Spirit Rider »

dbr wrote: Fri Jan 01, 2021 11:28 am Note that I bond yields are low now along with anything else, and unlike some assets such as CDs, you can't just sell all the low yield bonds and replace them with high yield bonds if yields go up.
True, but fixed income securities coupon rates generally tend to move in relation to inflation. I Bonds already have that protection.

If you have a bond mutual fund in an inflationary period, the underlying securities and thus the NAV will decline. If distributions are < the duration (distinct implied possibility), you quite likely will have a lower return than I Bonds.
stan1
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by stan1 »

Spirit Rider wrote: Fri Jan 01, 2021 11:11 am I Bonds are a good choice for less immediate contingency needs.
  • Pros:
    • Are by default, tax-deferred until redeemed or maturity.
    • State and local tax exempt.
    • Almost always have returns > money market funds/accounts.
    • Typically have returns exceeding short-term CDs, sometimes even exceeding >= 5 year CDs.
    Cons:
    • Can not be redeemed prior to one (1) year.
    • If redeemed prior to five (5) years, there is a three (3) month interest penalty.
Con:
- Treasury Direct website (e.g. avoiding pain has some value so there needs to be greater than minimal benefit)
L82GAME
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by L82GAME »

stan1 wrote: Fri Jan 01, 2021 11:53 am Con:
- Treasury Direct website (e.g. avoiding pain has some value so there needs to be greater than minimal benefit)
+1. What has prevented me from buying IBonds is the hassle factor for my DW should something happen to me vs. centralized investing at VG and cash at online Discover bank and local CU. For her, it would be miserable to deal with...
“Simplicity is the ultimate sophistication.” - Lao Tzu
Spirit Rider
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by Spirit Rider »

I think these TD objections are overblown.

Myself and the vast majority of TD users have had little to no problems with TD. I myself have had a TD (or predecessor) account for >= 20 years.

I Bonds have and will continue to be a valuable option given the facts and circumstances. Even if some people experience temporary problems.

"Into each life a little rain must fall." (HWL)
Topic Author
NabSh
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Joined: Fri Dec 25, 2020 12:09 pm

Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by NabSh »

>>
by dbr » Fri Jan 01, 2021 10:43 am

There isn't any "park and grow" for money. If you want growth you have to invest at some amount of risk.

But the practical advice after you have money in an emergency fund is to invest in a portfolio of stocks and bonds allocated to meet your need, ability, and willingness to take risk. At one extreme there are people who have an emergency fund and the rest in stocks (or even no emergency fund and everything in stocks) and at the opposite extreme are people with everything in T bills (which produce a lot of income if you have enough of them).

In practice younger investors with a prospect to save money consistently for the future probably hold fairly large stock allocations, but that is not parking money. Actually parking money means savings accounts and CDs and maybe short term bonds, such as just mentioned T bills.
>>
Thank you. So with low Bond rates perhaps I want to try 50% Total Stock / 50% Total Bond. As I think I prefer low volatility due to high valuations.
Topic Author
NabSh
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Joined: Fri Dec 25, 2020 12:09 pm

Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by NabSh »

Spirit Rider wrote: Fri Jan 01, 2021 12:20 pm I think these TD objections are overblown.

Myself and the vast majority of TD users have had little to no problems with TD. I myself have had a TD (or predecessor) account for >= 20 years.

I Bonds have and will continue to be a valuable option given the facts and circumstances. Even if some people experience temporary problems.

"Into each life a little rain must fall." (HWL)
Thank you. Does Treasury Direct allows one to have beneficiaries like for bank or brokerage ?
Gill
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Location: Florida

Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by Gill »

NabSh wrote: Fri Jan 01, 2021 12:35 pm Does Treasury Direct allows one to have beneficiaries like for bank or brokerage ?
Yes, absolutely.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
dbr
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Re: Short Term Taxable Account Emergency Fund for post 6 Month expenses

Post by dbr »

NabSh wrote: Fri Jan 01, 2021 12:32 pm >>
by dbr » Fri Jan 01, 2021 10:43 am

There isn't any "park and grow" for money. If you want growth you have to invest at some amount of risk.

But the practical advice after you have money in an emergency fund is to invest in a portfolio of stocks and bonds allocated to meet your need, ability, and willingness to take risk. At one extreme there are people who have an emergency fund and the rest in stocks (or even no emergency fund and everything in stocks) and at the opposite extreme are people with everything in T bills (which produce a lot of income if you have enough of them).

In practice younger investors with a prospect to save money consistently for the future probably hold fairly large stock allocations, but that is not parking money. Actually parking money means savings accounts and CDs and maybe short term bonds, such as just mentioned T bills.
>>
Thank you. So with low Bond rates perhaps I want to try 50% Total Stock / 50% Total Bond. As I think I prefer low volatility due to high valuations.
You should look at your financial situation as a whole for the long run and assess how much risk you want to take to expect what range of possible future returns. The operational word there is "range."
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