Where to put money aside for car fund?

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crossbow
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Where to put money aside for car fund?

Post by crossbow »

We are looking to purchase a new car within the next 1-5 years (depending on how much longer our 6yo/70K mile vehicle lasts us). This may or may not be a new/used vehicle, and we are unsure how much we want to spend. For now, we plan to put vested RSUs, ESPP and tax return $ aside in anticipation of this purchase.

Where would Bogleheads recommend we put these periodic few-thousand-dollar deposits ? Ally Savings? Money market fund? Bond fund?
sport
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Re: Where to put money aside for car fund?

Post by sport »

I use a Vanguard MM fund. You never know when you will want to use a car fund. Someone could run into your car tomorrow and total it. So, I keep it very short duration.
The Wizard
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Re: Where to put money aside for car fund?

Post by The Wizard »

I use total stock market VTSAX.
I buy a car every six or seven years.
I like the long term capital gains rate compared to ordinary income tax rate...
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ninjafirepants
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Re: Where to put money aside for car fund?

Post by ninjafirepants »

Where would a Boglehead put it? Probably either a high-yield savings account or a money-market fund, as you suggested, focused primarily on the loss-avoidance. It's really all just a determination of how much risk you might want to take, and how flexible you are with the purchase date. Just remember - this is a good problem to have, and don't stress out about it.

With rising interest rates, bonds are iffy (even though the Fed has suggested they're going to chill out a bit), so I'd probably just park it in an Ally account and stop thinking about it; we actually went through a similar process a few years ago when saving up to buy a new house (moving), slowly divesting and moving money over to savings. We might have had more money taking on a little more risk, but I slept like a baby.
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Cycle
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Re: Where to put money aside for car fund?

Post by Cycle »

emergency fund for my wifes car, which earns 2% (checking account). we would never spend more than like 5-8k tho, well she would but i would veto
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Thecallofduty
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Re: Where to put money aside for car fund?

Post by Thecallofduty »

Personally i would choose Vanguard money market or high yield savings.
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260chrisb
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Re: Where to put money aside for car fund?

Post by 260chrisb »

In your checking account generally as you get closer or VG MM fund for a longer span. I keep enough in the MM fund to at least partially buy bigger ticket items but also have sold investments to buy cars. Seems to me a 6 year 70,000 mile vehicle has more than a few more years left in it.
mortfree
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Re: Where to put money aside for car fund?

Post by mortfree »

I take the loan that the car manufacturer offers.

Targeted Car payment is $250-$300 (Accord type)

Targeted SUV payment is $450.

I will put a few thousand down to help get my payments where I want them.

It’s really not that much interest (0.9 or 1.9%) for me to make a concerted effort to pay cash for these vehicles.
mega317
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Re: Where to put money aside for car fund?

Post by mega317 »

To be clear here, you are talking about a small amount of money. The difference in returns among the "safe" things will be at most like a few hundred dollars over 5 years.

If I felt the need for a dedicated pot I might go treasuries because I live in a high tax state. I wouldn't use a bank savings account paying less than a money market fund.

Final comment, a 6 year 70k car should last more than 5 years.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
MikeG62
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Re: Where to put money aside for car fund?

Post by MikeG62 »

Another vote for online savings or MM fund.

Another option would be a shorter-term Treasury bill ladder (which can be set to auto-roll if purchased through Fidelity), especially if you live in a state with a relatively high tax rate.
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The Wizard
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Re: Where to put money aside for car fund?

Post by The Wizard »

Problem with using savings account, MM fund, or ST bond fund is that interest and bond dividends are taxed as additional Ordinary Income, taxed at 24% for me. This is no fun.

Accumulate funds in a stock index fund like VTSAX or VFIAX instead and your Qualified Dividends and eventual LT Capital Gain is taxed at 15%. This is lots more fun.

And if the stock market is down around the time you wanted to buy that new car, you still have options, from delaying a while to doing a car loan...
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Trader Joe
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Re: Where to put money aside for car fund?

Post by Trader Joe »

crossbow wrote: Tue Feb 12, 2019 7:33 pm We are looking to purchase a new car within the next 1-5 years (depending on how much longer our 6yo/70K mile vehicle lasts us). This may or may not be a new/used vehicle, and we are unsure how much we want to spend. For now, we plan to put vested RSUs, ESPP and tax return $ aside in anticipation of this purchase.

Where would Bogleheads recommend we put these periodic few-thousand-dollar deposits ? Ally Savings? Money market fund? Bond fund?
Vanguard Prime Money Market Fund (VMMXX).
UpperNwGuy
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Re: Where to put money aside for car fund?

Post by UpperNwGuy »

Vanguard Prime Money Market Fund.
guyesmith
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Re: Where to put money aside for car fund?

Post by guyesmith »

I'm using VBIAX for my long-term car savings. Each month I make a car payment to myself. When I need a car I withdraw what I need for the car. Over time I expect it to be a size-able car fund I only pull from every 3-5 years.
m@ver1ck
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Re: Where to put money aside for car fund?

Post by m@ver1ck »

Would you invest in a California MUNI instead of Vanguard Prime Money Market? It's 2% vs. 2.5%, but after taxes it would be slightly more...
MotoTrojan
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Re: Where to put money aside for car fund?

Post by MotoTrojan »

MikeG62 wrote: Wed Feb 13, 2019 7:58 am Another vote for online savings or MM fund.

Another option would be a shorter-term Treasury bill ladder (which can be set to auto-roll if purchased through Fidelity), especially if you live in a state with a relatively high tax rate.
I’d go with auto rolled t-bills as well. Should beat most other risk-free rates even before the state tax waiver.
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lthenderson
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Re: Where to put money aside for car fund?

Post by lthenderson »

mega317 wrote: Wed Feb 13, 2019 12:08 am Final comment, a 6 year 70k car should last more than 5 years.
+1

At a little over 11,000 miles per year and assuming 200,000 miles, you still have a good 11 years left unless you just want to get another car just because.

Personally I don't worry about this amount of money and the small opportunity costs and just keep the money in my savings account where I can transfer it via smart phone into my checking account as I'm writing the check for the next vehicle.
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