When it comes to financial goals, define short term, medium term and long term?

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BogleMelon
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When it comes to financial goals, define short term, medium term and long term?

Post by BogleMelon » Wed Mar 21, 2018 8:48 am

I am having some kind of dilemma these days. I use the bucket system to save and invest for each goal separately (YNAB user). But I am considering to simplify things by "combining" all of the buckets and use other ways (general investing) to do so (Except for Retirement goal, that bucket I won't combine with general saving/investing).

I am curious to know what everyone is doing, and I apologize if the topic was discussed before.

So basically...
- How would personally you define (in terms of years) short, medium and long term?
- How would you save and invest for each of these goals?
- And if you are not dealing separately with each financial goals, what is then your threshold rule to start shifting from saving cash, to CD's to bonds to stocks+bonds portfolio?

Thanks!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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DaftInvestor
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by DaftInvestor » Wed Mar 21, 2018 8:54 am

I don't define "Short", "Medium" and "Long".
I define my goals then decide how to save/invest for them depending upon number of years.
The two big ones for me have always been:
1) Retirement
2) College Savings

Thus - I set up allocations for each of these two goals and invest accordingly. Someone here once suggested I should combine these two goals together into a single AA but I never saw the need (nor a strong advantage) to doing so - easier for me to keep these two buckets separate.
Short term things come out of an emergency account (using High-Yield Savings Account) which I overfund and then draw down when I need to replace an appliance or something. Vacations come out of cash-flow. I don't have any other large savings goal (e.g. no interest in boat, vacation home, etc.) so nothing else to consider. When its time to replace a car I start to over-build my emergency account the year+ prior so I am prepared to pay cash (although if there is a 0% finance option at the time of purchase I will take it).

alex_686
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by alex_686 » Wed Mar 21, 2018 8:58 am

Short term is 2 years or less. Long term is anything longer than 10. Anything else is medium term.

You don't save differently for the different goals. The goals just determine when a cash flow is required. You intergate all goals into a holistic cash flow schedule then create the best asset allocation to meet that. Some liner algebra is involved.

Hillview
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by Hillview » Wed Mar 21, 2018 9:04 am

BogleMelon wrote:
Wed Mar 21, 2018 8:48 am
I am having some kind of dilemma these days. I use the bucket system to save and invest for each goal separately (YNAB user). But I am considering to simplify things by "combining" all of the buckets and use other ways (general investing) to do so (Except for Retirement goal, that bucket I won't combine with general saving/investing).

I am curious to know what everyone is doing, and I apologize if the topic was discussed before.

So basically...
- How would personally you define (in terms of years) short, medium and long term?
- How would you save and invest for each of these goals?
- And if you are not dealing separately with each financial goals, what is then your threshold rule to start shifting from saving cash, to CD's to bonds to stocks+bonds portfolio?

Thanks!
Short term -- next 1-2 years -- all set as have Emergency Fund (EF). Savings here is in cash in a savings account (at 1.5%). Focused on managing monthly expenses (also use YNAB) and making sure we keep on top of retirement savings goals (save xx $ per month). Also set aside money for house work etc. here. I have all my YNAB buckets for vacations, insurance etc.
Medium term -- 2-10 years -- have college funds set aside already, managing Asset Allocation (AA) for those (my AA is different for 529s vs for retirement). Also have a taxable investment account should we need some significant cash.
Long term -- 10+ years -- all about retirement. Short term budget includes $ for 401k, IRA (taxable for husband), IRA (backdoor roth for me), and post tax dollars. Also starting some iBonds funds for retirement (or as a back up for 529 but really shouldn't need that).

ThriftyPhD
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by ThriftyPhD » Wed Mar 21, 2018 9:05 am

I think just as important as length of time is the idea of concreteness.

For example, if you're saving for your 10 year old kid's college, you know you're going to have to write a check in 8 years. That's a set time, and so you need to choose a strategy that lets you write that check on that day. You would probably be more conservative, and have a glide to stable funds.

If you're saving for that boat you've always wanted, the deadline is fluid. You can take a bit more risk, for example save only in equities. If the market is down, don't buy. When the market is up, then you buy that boat. You can take more risk, and get a better potential return, since you won't be forced to sell at a low point. Plus, if after 5 years you decide that boat isn't what you want, you have all these wonderful equity funds to add to your retirement pool.

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DaftInvestor
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by DaftInvestor » Wed Mar 21, 2018 9:09 am

alex_686 wrote:
Wed Mar 21, 2018 8:58 am
Short term is 2 years or less. Long term is anything longer than 10. Anything else is medium term.

You don't save differently for the different goals. The goals just determine when a cash flow is required. You intergate all goals into a holistic cash flow schedule then create the best asset allocation to meet that. Some liner algebra is involved.
As I stated below I do NOT do this and don't believe others need to either. The cons outweigh the pros in my opinion. As I stated above I keep each of my two big goals separate and have set up AAs and cash-flow plans separately for each. Its way easier than going through a complex linear algebra exercise just to have a single integrated portfolio. (Most people can't even spell linear algebra - you appear to have this issue :)).

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Nestegg_User
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by Nestegg_User » Wed Mar 21, 2018 9:00 pm

Nah Daft ..

it’s just a differential equation :P

.... or maybe an Eigenfunction ... I know, for most it’s abstract algebra!

KlangFool
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by KlangFool » Wed Mar 21, 2018 9:09 pm

OP,

1) I have only one goal. Get rich as soon as possible. Then, I can do anything. So, I have no idea what do you mean short-term, medium-term, and long-term goal.

2) The only money that I separated from my main portfolio is my 1-year emergency fund.

KlangFool

Tommy
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by Tommy » Wed Mar 21, 2018 9:44 pm

On long term we all dead. So, real long term could be funeral expenses but do you really care? :)

kaudrey
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by kaudrey » Thu Mar 22, 2018 11:29 am

Money to me is fungible and I just have my AA spread across everything. So, for example, my money market account (cash) fluctuates depending on need. It serves as EF, car fund, vacation fund, whatever. Right now it is fairly high, but I'll use some next week when my roof gets replaced (due to the high winds in the mid-atlantic a few weeks ago. I consider this S/T money, but is still counted as part of my AA.

Everything else is either in retirement accounts or brokerage account. If I ever need it, I can sell something in my brokerage account to get more cash. The brokerage account is intended as funds available after I retire before I get to 59 1/2, so I guess that is medium term (I am 49, planning to retire in about 3 years). But, all the accounts are considered together for my AA.

This may be different than other people's situations, who may have kids, houses to buy, etc. YMMV.

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Sandtrap
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by Sandtrap » Thu Mar 22, 2018 11:35 am

Whether:
Tier 1, 2, 3, 4
or
Bucket 1, 2, 3, 4
Using, High Yield accounts, MM, CD's, Equities, Fixed, and so forth.
A comprehensive portfolio that includes the entire range from the present and thru retirement, without compartmentalization, seems to be the best approach for me because it is "Bogle Simple", "Bogle Efficient" and "Bogle Elegant".

j :D

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Pajamas
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by Pajamas » Thu Mar 22, 2018 11:37 am

Depends on how old you are. Long-term at age 20 might be 75 years. At age 65 it is probably somewhat less than that.

BogleMelon
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by BogleMelon » Thu Mar 22, 2018 11:40 am

Sandtrap wrote:
Thu Mar 22, 2018 11:35 am
Whether:
Tier 1, 2, 3, 4
or
Bucket 1, 2, 3, 4
Using, High Yield accounts, MM, CD's, Equities, Fixed, and so forth.
A comprehensive portfolio that includes the entire range from the present and thru retirement, without compartmentalization, seems to be the best approach for me because it is "Bogle Simple", "Bogle Efficient" and "Bogle Elegant".

j :D
Would you please elaborate more?
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

gotester2000
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by gotester2000 » Thu Mar 22, 2018 12:44 pm

BogleMelon wrote:
Wed Mar 21, 2018 8:48 am
I am having some kind of dilemma these days. I use the bucket system to save and invest for each goal separately (YNAB user). But I am considering to simplify things by "combining" all of the buckets and use other ways (general investing) to do so (Except for Retirement goal, that bucket I won't combine with general saving/investing).

I am curious to know what everyone is doing, and I apologize if the topic was discussed before.

So basically...
- How would personally you define (in terms of years) short, medium and long term?
- How would you save and invest for each of these goals?
- And if you are not dealing separately with each financial goals, what is then your threshold rule to start shifting from saving cash, to CD's to bonds to stocks+bonds portfolio?

Thanks!
I have simple two bucket strategy -

1.Short term - anything less than 5 years goes to fixed income instruments.Active income goes here if bucket not filled.
2.Long term - more than 5 years goes to variable. Active income goes here if bucket 1 filled.

Replenish 1 from 2/active income when it drops below 5 years - no crazy plans,goals,software,over analysis blah blah blah...

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Sandtrap
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by Sandtrap » Thu Mar 22, 2018 1:25 pm

BogleMelon wrote:
Thu Mar 22, 2018 11:40 am
Sandtrap wrote:
Thu Mar 22, 2018 11:35 am
Whether:
Tier 1, 2, 3, 4
or
Bucket 1, 2, 3, 4
Using, High Yield accounts, MM, CD's, Equities, Fixed, and so forth.
A comprehensive portfolio that includes the entire range from the present and thru retirement, without compartmentalization, seems to be the best approach for me because it is "Bogle Simple", "Bogle Efficient" and "Bogle Elegant".

j :D
Would you please elaborate more?
"dratkinson" posted an excellent write up on "tiers" several times on his "Tier Strategy".
It went something like this (but not exactly like this) . Various blends and overlaps of any of the following in %'s to taste.
TIER STRATEGIES

The larger your lower EF tiers, the less likely you'll need the later tiers. So the more risk you can take with the later EF tiers.
EMERGENCY FUND
*Lower tiers can be smaller if Tier-3 is large and/or job and/or other income streams are secure and large compared to debt.

1st-Tier EF (6 mos to 1yr of living expenses)
(protection of principal and liquidity)
--Checking, savings, mmkt accounts, are insured.
--Short term CD's

2nd-Tier EF (1-3yrs of living expenses <> overlap to 3rd Tier
--Longer term CDs, CD Ladder, Treasury Bonds/Ibonds,etc.
--Shorter duration bond funds, muni-bond funds, etc. (overlap to 3rd-Tier)

3rd-Tier EF <> overlap to 4rth-Tier
-- Short Term Bond Funds (low cost) (VFSUX, etc)
--Muni Bond Funds (low cost)

4rth-Tier Long Term Retirement Portfolio
-- Bogle 3 fund portfolio consisting of low cost index funds (or equive.)
Whether Tiers, Buckets, etc. all are a method to strategize assets from Short to Forever Term. Yet, each component in itself can do the same thing, IE: "3 fund portfolio". IMHO it works best for me to view it all comprehensively without compartmentalization. It's simpler.
j
Last edited by Sandtrap on Thu Mar 22, 2018 1:41 pm, edited 1 time in total.

feh
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by feh » Thu Mar 22, 2018 1:32 pm

alex_686 wrote:
Wed Mar 21, 2018 8:58 am
Short term is 2 years or less. Long term is anything longer than 10. Anything else is medium term.
+1

Those are the numbers that came to mind when I read the OP. I'll also go out on a limb and say:

short term: CDs, savings accounts
medium: total bond, CDs
long: equities

BogleMelon
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by BogleMelon » Thu Mar 22, 2018 1:43 pm

Sandtrap wrote:
Thu Mar 22, 2018 1:25 pm
TIER STRATEGIES

The larger your lower EF tiers, the less likely you'll need the later tiers. So the more risk you can take with the later EF tiers.
EMERGENCY FUND
*Lower tiers can be smaller if Tier-3 is large and/or job and/or other income streams are secure and large compared to debt.

1st-Tier EF (6 mos to 1yr of living expenses)
(protection of principal and liquidity)
--Checking, savings, mmkt accounts, are insured.
--Short term CD's

2nd-Tier EF (1-3yrs of living expenses <> overlap to 3rd Tier
--Longer term CDs, CD Ladder, Treasury Bonds/Ibonds,etc.
--Shorter duration bond funds, muni-bond funds, etc. (overlap to 3rd-Tier)

3rd-Tier EF <> overlap to 4rth-Tier
-- Short Term Bond Funds (low cost) (VFSUX, etc)
--Muni Bond Funds (low cost)

4rth-Tier Long Term Retirement Portfolio
-- Bogle 3 fund portfolio consisting of low cost index funds (or equive.)
Thanks! So I-bonds would be considered tier 1 or tier 2 in this case?
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Sandtrap
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by Sandtrap » Thu Mar 22, 2018 1:50 pm

BogleMelon wrote:
Thu Mar 22, 2018 1:43 pm
Sandtrap wrote:
Thu Mar 22, 2018 1:25 pm
TIER STRATEGIES

The larger your lower EF tiers, the less likely you'll need the later tiers. So the more risk you can take with the later EF tiers.
EMERGENCY FUND
*Lower tiers can be smaller if Tier-3 is large and/or job and/or other income streams are secure and large compared to debt.

1st-Tier EF (6 mos to 1yr of living expenses)
(protection of principal and liquidity)
--Checking, savings, mmkt accounts, are insured.
--Short term CD's

2nd-Tier EF (1-3yrs of living expenses <> overlap to 3rd Tier
--Longer term CDs, CD Ladder, Treasury Bonds/Ibonds,etc.
--Shorter duration bond funds, muni-bond funds, etc. (overlap to 3rd-Tier)

3rd-Tier EF <> overlap to 4rth-Tier
-- Short Term Bond Funds (low cost) (VFSUX, etc)
--Muni Bond Funds (low cost)

4rth-Tier Long Term Retirement Portfolio
-- Bogle 3 fund portfolio consisting of low cost index funds (or equive.)
Thanks! So I-bonds would be considered tier 1 or tier 2 in this case?
Dependent on duration of the I-Bond. And when you expect to redeem it.
Here's a discussion.
viewtopic.php?t=115452

investorpeter
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by investorpeter » Thu Mar 22, 2018 2:12 pm

Short: 1 year or less
Medium: 1 to 10 years
Long term: 10+ years

I like the idea of having short term needs funded with cash, medium term needs funded with bonds, and long term needs funded with equity.

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Phineas J. Whoopee
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by Phineas J. Whoopee » Thu Mar 22, 2018 3:36 pm

Ain't none.

I designed my portfolio to work under most foreseeable conditions. Naturally risks still exist, foreseen and unforeseen.

PJW

jalbert
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Re: When it comes to financial goals, define short term, medium term and long term?

Post by jalbert » Thu Mar 22, 2018 10:35 pm

Bucketing is useful to establish an asset allocation when different goals have different time horizons. Once the allocation for each bucket is determined, they can be combined into a single allocation that is a weighted average of the bucket allocations.
Risk is not a guarantor of return.

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