Taxable/Quasi Emergency Fund Question

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Topic Author
mx711yam
Posts: 152
Joined: Thu Apr 11, 2013 9:51 am

Taxable/Quasi Emergency Fund Question

Post by mx711yam » Wed May 15, 2019 9:15 pm

Looking to park our very over funded emergency fund into a taxable account at Vanguard.

I know Wellesley is not tax efficient, but how much worse is it than just putting it in a savings account at CIT bank? I want a lower risk fund than making the taxable a mock of my IRA/401K which is why I'm thinking Wellesley.

Thanks in advance.

Grt2bOutdoors
Posts: 20475
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Taxable/Quasi Emergency Fund Question

Post by Grt2bOutdoors » Wed May 15, 2019 9:30 pm

mx711yam wrote:
Wed May 15, 2019 9:15 pm
Looking to park our very over funded emergency fund into a taxable account at Vanguard.

I know Wellesley is not tax efficient, but how much worse is it than just putting it in a savings account at CIT bank? I want a lower risk fund than making the taxable a mock of my IRA/401K which is why I'm thinking Wellesley.

Thanks in advance.
What is your tax bracket?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Topic Author
mx711yam
Posts: 152
Joined: Thu Apr 11, 2013 9:51 am

Re: Taxable/Quasi Emergency Fund Question

Post by mx711yam » Wed May 15, 2019 9:41 pm

Grt2bOutdoors wrote:
Wed May 15, 2019 9:30 pm
mx711yam wrote:
Wed May 15, 2019 9:15 pm
Looking to park our very over funded emergency fund into a taxable account at Vanguard.

I know Wellesley is not tax efficient, but how much worse is it than just putting it in a savings account at CIT bank? I want a lower risk fund than making the taxable a mock of my IRA/401K which is why I'm thinking Wellesley.

Thanks in advance.
What is your tax bracket?
22%

mega317
Posts: 3052
Joined: Tue Apr 19, 2016 10:55 am

Re: Taxable/Quasi Emergency Fund Question

Post by mega317 » Thu May 16, 2019 12:36 am

Instead of having an overfunded emergency fund, you can put an appropriately-sized emergency fund in a savings account or similar, and invest the difference in a tax-efficient manner.

You could also put your entire taxable account in very tax-efficient stock funds and adjust your tax advantaged holdings to meet your desired overall risk level. See https://www.bogleheads.org/wiki/Placing ... ed_account
I think that technique is recommended here too often.

Topic Author
mx711yam
Posts: 152
Joined: Thu Apr 11, 2013 9:51 am

Re: Taxable/Quasi Emergency Fund Question

Post by mx711yam » Thu May 16, 2019 7:36 am

mega317 wrote:
Thu May 16, 2019 12:36 am
Instead of having an overfunded emergency fund, you can put an appropriately-sized emergency fund in a savings account or similar, and invest the difference in a tax-efficient manner.

You could also put your entire taxable account in very tax-efficient stock funds and adjust your tax advantaged holdings to meet your desired overall risk level. See https://www.bogleheads.org/wiki/Placing ... ed_account
I think that technique is recommended here too often.
Yeah the goal is to have cash on hand if another investment property or something pops up, so im trying to avoid the volatility of going heavy into stocks which is why I was looking at Wellesley. I dont want the risk just trying to find a little better return than just sitting in cash unless it's more tax efficient to just leave it in cash.

Jack FFR1846
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Joined: Tue Dec 31, 2013 7:05 am

Re: Taxable/Quasi Emergency Fund Question

Post by Jack FFR1846 » Thu May 16, 2019 7:48 am

Buy some US Savings bonds with excess money. It will take a year to be available to you, so only put in so much that you won't miss it regardless of what happens. If next year comes around and you have this excess cash again, you can put more into bonds. An alternate plan (which I use) is to overpay federal income taxes so you can get paper bonds as a refund. (all my bonds are paper)
Bogle: Smart Beta is stupid

megabad
Posts: 1634
Joined: Fri Jun 01, 2018 4:00 pm

Re: Taxable/Quasi Emergency Fund Question

Post by megabad » Thu May 16, 2019 12:07 pm

mx711yam wrote:
Wed May 15, 2019 9:15 pm
Looking to park our very over funded emergency fund into a taxable account at Vanguard.

I know Wellesley is not tax efficient, but how much worse is it than just putting it in a savings account at CIT bank? I want a lower risk fund than making the taxable a mock of my IRA/401K which is why I'm thinking Wellesley.

Thanks in advance.
Wellesley is not very tax efficient. Something like a "Balanced Index" fund would be slightly more tax efficient and likely distribute less capital gains. Or you could just own a 40%/60% equity index and bond index separately. I am assuming you understand that there is no similarity in risk between a savings account and Wellesley. Wellesley is 40% equity and the fixed income portion is pretty long term as well. Basically, I would assume a loss of 25% before investing and make sure you are ok with that. As long as you are ok taking on several orders of magnitude more risk than I guess it is ok.

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