help with medium term investment

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bigern
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Joined: Tue Jun 12, 2018 2:31 pm

help with medium term investment

Post by bigern » Tue Jun 12, 2018 3:27 pm

i'm offering up my situation for review. i've searched the site and just can't seem to find specific, actionable info. here's my status:

married, early 40s, no kids
80k annual income

debt
small student loan [5k]. low interest rate and it should qualify for forgiveness soon, so not paying it off
small auto loans, but interest is less than 1%. not paying those off. if that money can make more than 1% elsewhere i'm coming out ahead.
own our home. small mortgage [about 75k], low interest 3.5%. we absolutely stole it during the down market. fair market rent is probably three or four times what we're paying for mortgage/insurance/taxes. house is worth at least 200k right now.
$40k heloc available, if needed, but we've never taken a dime from it

retirement
we max out iras every year, i max out an hsa, i also have a simple ira with match at work that i take advantage of. i know where we need to be each year for our target retirement date [20 years from now]. we are several years ahead of schedule.
wife will receive 50% of her salary as pension when she retires

savings
12 months emergency fund in cash sitting in a high interest savings account.
taxable account has almost 100k. about 60% is in VTI. 40% is cash
we sold a rental house last year, which i started legging into existing vti position. my cost basis is around $120.

here's my dilemma... i hate the idea of that cash sitting in the taxable acct. and want to put it to work. we'd also like to eventually sell our house and buy our "final" home. we are in absolutely no hurry, and frankly, at these prices i'm not a buyer. we are happy and comfortable with the possibility of being in our current place for twenty years or more but the ideal would be to wait for the next down turn [whenever that may be] and take advantage. this could be anywhere from 1, 3, 5, or 10 years from now.

i've thought about a couple scenarios:
go all in on vti. at today's price that would put my cost basis roughly at $136. more than a 5% draw down and i'm under water. if i'm looking for the type of event that will cool housing market down the market's going to see it first. not the end of the world, but maybe not ideal.

keep legging into vti. might be six of one/half dozen the other

bond exposure. i have no idea how bonds work, let alone how they will perform in a rising rate environment. if you're going to suggest this please offer some fund names and why. bnd? bsv? etc..

vwinx seems like a decent blend. could i, however, achieve it with a bond etf or mutual fund along with my existing vti position?

i know there will be a lot of calls for savings, cds, money market, etc. but i'm not interested in those. like i said, we're not looking to beat the market or make some out of line return, but we don't mind a little conservative risk [i know that's an oxymoron]. we're in a position where we don't HAVE to liquidate shares or buy a house. whenever a down turn comes, though, we'd like to be able to take advantage. we'd also like our cash working in the mean time. any help is appreciated!

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Tyler Aspect
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Re: help with medium term investment

Post by Tyler Aspect » Tue Jun 12, 2018 6:46 pm

Welcome to Bogleheads.

For your taxable account the easiest thing to do is simply continue to add to your Total Stock Market Index ETF.

Bonds are easy to understand. Each bond pays a fixed dividend periodically, and the principle amount is paid back at the bond's maturity date. A traditional IRA account is a fine location to hold US Treasury Notes; 2 year maturity is a good starting point.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

bigern
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Joined: Tue Jun 12, 2018 2:31 pm

Re: help with medium term investment

Post by bigern » Wed Jun 13, 2018 9:12 am

thanks for the reply Tyler. i probably should have been more clear about bonds. i understand how they work. what i don't understand is price action in relation to interest rates, economy, etc. generally speaking, at this point in the bull market/business cycle, with interest rates rising, would this be a good time to buy a bond fund for my purposes above? if this was a buy and hold for 20+ years and i was under allocated in bonds, i understand the logic would be "don't try to time the market". i have zero bond exposure and am ok with that. i know some will disagree, but i look at social security and wife's pension as "bond substitutes". the only reason i would consider bonds in taxable is because i'd like a little more risk than a savings account offers with an eye towards capitalizing on the next down turn. trying to figure out what will give me the best odds of threading that needle.

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Sandtrap
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Re: help with medium term investment

Post by Sandtrap » Wed Jun 13, 2018 9:35 am

Welcome.
You seem committed to be fully vested in VTI ( total stock ETF).
And, bond funds, CD's, etc, are out of the picture.

Question to ponder:
If you find a new home in 3-5 years, and your funds are already committed to VTI, and VTI has dropped 30% . . . .
. . . where would you get the funds for the new home?

This is why many might suggest investing in things with relative security of principal for short and medium term horizon expenditures.

aloha
j

dbr
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Re: help with medium term investment

Post by dbr » Wed Jun 13, 2018 9:57 am

You either want to take risk for a chance at more return or you want less volatilty at the expense of less chance for return. Somewhere along that spectrum of mixing stocks and bonds you have to make your own choice.

Stop worrying about the effect of interest rates on bond pricing and just recognize that bonds are less volatile and return less than stocks and you can mix the two for a compromise regarding your objectives.

The post just above suggests the magnitude of the issue.

bigern
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Re: help with medium term investment

Post by bigern » Wed Jun 13, 2018 10:26 am

You seem committed to be fully vested in VTI ( total stock ETF).
negative. if i was committed to vti i wouldn't have posted. i'm 100% equities in our retirement accounts. i gave that info for the complete picture of our situation i.e: this money isn't better used funding retirement accounts or paying off crushing debt. for the purposes of this forum, i'm talking strictly about our taxable account. i have been investing in vti in the taxable account for several years, and i did put some of the rental proceeds into vti, but i'm sitting on the rest of the proceeds because i'm not sure vti is the right vehicle for what i'm trying to do. read my potential scenarios again:

1] more vti
i know what i'm getting into here. i'm unsure if this might be a little too much risk, though

2] bond exposure
i don't know enough about them. that's why i'm here. do you think bonds are a good idea for this situation? why? what type of bonds? short term? long term? total market? why?

3] vwinx
seems like a good all around fund. could i accomplish this with my existing vti position and adding a bond etf? which one and why?

4] something else
here's your chance. open my mind to something you think is more appropriate.

i'll reiterate where we're at... we're in a pretty good position with this money. we don't HAVE to do anything with it [retirement ahead of schedule, savings are good, emergency fund is set, etc.] i'm looking to hold on to it for an undetermined time period so that we can take advantage of any opportunities that arise. i don't mind a little risk while it's sitting, and i don't want it not working while it's sitting, but i'm not looking to day trade bitcoin by any means. thanks for your help...

dbr
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Re: help with medium term investment

Post by dbr » Wed Jun 13, 2018 10:38 am

If you want to put numbers on the prospects go to www.firecalc.com , enter the portfolio amount, enter zero for spending, enter some number of years, go to the portfolio page and enter some choices of % stocks, etc., go to investigate and check the box to get spreadsheet, and then run the model. On the outcome page you can click to download the resulting spread sheet. What you will see there is a range of possible outcomes for value of the investment over time, a complete spreadsheet for each choice of asset allocation you run. The point of this is to understand in numbers what the range of possible outcomes might be and to evaluate for yourself what prospects you would find acceptable or optimal.

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Tyler Aspect
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Re: help with medium term investment

Post by Tyler Aspect » Wed Jun 13, 2018 6:32 pm

bigern wrote:
Wed Jun 13, 2018 9:12 am
thanks for the reply Tyler. i probably should have been more clear about bonds. i understand how they work. what i don't understand is price action in relation to interest rates, economy, etc. generally speaking, at this point in the bull market/business cycle, with interest rates rising, would this be a good time to buy a bond fund for my purposes above? if this was a buy and hold for 20+ years and i was under allocated in bonds, i understand the logic would be "don't try to time the market". i have zero bond exposure and am ok with that. i know some will disagree, but i look at social security and wife's pension as "bond substitutes". the only reason i would consider bonds in taxable is because i'd like a little more risk than a savings account offers with an eye towards capitalizing on the next down turn. trying to figure out what will give me the best odds of threading that needle.
Ok. You are thinking about holding bonds for the purpose of trading up to a bigger house in a few years. An intermediate term bond fund has a recommended holding period of 7 years or longer. You probably know about the initial loss of net asset value of bonds when market yield goes up. However, if you hold a bond to maturity then its net asset value recovers back to the par value.

2 year US Treasury Note should work. After it matures you can repurchase a 3 year Note or 5 year Note depending on what you would like to do at that time.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

bigern
Posts: 4
Joined: Tue Jun 12, 2018 2:31 pm

Re: help with medium term investment

Post by bigern » Thu Jun 14, 2018 8:44 am

You are thinking about holding bonds for the purpose of trading up to a bigger house in a few years
i'm really sorry, it's got to be me, but i must not be explaining myself clearly. if you'll take another look at the OP and my replies, we are perfectly ok if we're in our current house for 20 more years. we are looking to hold this money and take advantage of any screaming opportunities that come up, be it one year from now, five years from now, ten, or twenty. at some point, the stock market and/or the housing market is going to go to shit and when it does i want to be in a position to act. no one knows when that will happen, but it will happen. in the mean time, i'm looking for the money to work for me. if we don't get the timing/opportunity i am ok with that. the earmarked money puts us that much closer to retirement, but only if it's working for us.

i'm not shooting for unrealistic gains. that is not the purpose of this money. i am, however, looking for better than savings acct. return and am willing to take more than savings account risk, but not day trading bitcoin risk. i'm trying to find the best vehicle for "more than savings acct" risk to "100% vti" risk. i was hoping someone could offer actionable ideas and why they think they are good ideas. i gave a few of my own examples with the pros and cons. i'm not married to anything. open my eyes to your best ideas and why.

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Sandtrap
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Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: help with medium term investment

Post by Sandtrap » Thu Jun 14, 2018 9:26 am

"Tyler Aspect" and "dbr" have given great suggestions that hold true regardless of time horizons.

Some info that may be actionably helpful.

Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement

Asset Allocation (what is right for you?)
https://www.bogleheads.org/wiki/Asset_allocation

Outstanding write up on the 64/40 allocation by Bernstein.
http://web.archive.org/web/20061214061 ... in6040.pdf
R. Ferri on Bernstein's 60/40
http://www.etf.com/sections/index-inve ... nopaging=1

VANGUARD ALLOCATION RISK./RETURN CHART
https://personal.vanguard.com/us/Analy ... assetModel

ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
https://members.morningstar.com/Registe ... L100&vUrl=

TAYLOR LARIMORE ON “SIMPLICTY”
https://www.bogleheads.org/forum/viewt ... p?t=156505

Good luck.
j
Last edited by Sandtrap on Thu Jun 14, 2018 2:14 pm, edited 1 time in total.

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Tyler Aspect
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Re: help with medium term investment

Post by Tyler Aspect » Thu Jun 14, 2018 12:36 pm

If your holding period is uncertain but centering on the medium term, depending on specific conditions such as encountering a dream home, then still 2 year US Treasury Note remains the most flexible choice. If you need to sell in a flash you can sell close to its current market price, without having to deal with early withdrawal penalty of CDs.

3 year US Treasury Note could work also (slightly higher interest rate risk).
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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