What sort of fund for saving for sabbatical?

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burntoacrisp
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Joined: Mon Aug 12, 2019 7:39 pm

What sort of fund for saving for sabbatical?

Post by burntoacrisp » Mon Aug 12, 2019 7:49 pm

I'm saving money to take a six-month sabbatical from work. Unfortunately, it's somewhat slow going and could take a few years. To speed up the process, I'd like to get the best return on my money possible. But because I'm a contractor and technically considered self-employed and don't have unemployment insurance, the fund is also doubling as a rainy-day fund in case I'm laid off from my job, so I don't want to put it into anything too risky/volatile, nor do I want to tie it up in CDs. Right now the majority of what I've saved so far is in a savings account that gets around 2 percent interest (better than any money market I've been able to find), a chunk of it is in a Vanguard STAR account, and a small amount of it is in an iShares REET index fund.

I'm wondering if there might be a better strategy here, such as a dividend index fund instead of the STAR account. Or perhaps I should keep it all in savings. Or maybe there's a better idea that I'm not even thinking of.

Thanks in advance!

retiredflyboy
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Joined: Sun Dec 02, 2018 10:02 pm

Re: What sort of fund for saving for sabbatical?

Post by retiredflyboy » Mon Aug 12, 2019 8:07 pm

Since the fund is for dollars earmarked for the relatively near future I think you stick with high yield savings.
Facts are stubborn things. Everything works until it doesn’t.

MrMatt2532
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Re: What sort of fund for saving for sabbatical?

Post by MrMatt2532 » Mon Aug 12, 2019 8:07 pm

Sounds like it’s still pretty short term, in which case you probably shouldn’t push it too far beyond a cash equivalent.

However, maybe something like
50% Cash/Savings/money market (VMMXX)
50% Short Term Investment Grade (VFSTX)
...may be a good acceptable approach with decent upside potential and minimal downside risk.

HawkeyePierce
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Location: Colorado

Re: What sort of fund for saving for sabbatical?

Post by HawkeyePierce » Mon Aug 12, 2019 8:25 pm

I'm in the middle of a five-month sabbatical from work.

I chose cash. Either high-yield savings or a good money market fund like Vanguard's. Maybe a muni fund depending on your tax status.

You could also look into no-penalty CD's at Ally and Marcus. I have some funds stashed in one at Ally at 2.3%.

Any of those four choices is going to be pretty close to a wash over the short-term anyways so just pick whichever is most convenient.

H-Town
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Joined: Sun Feb 26, 2017 2:08 pm

Re: What sort of fund for saving for sabbatical?

Post by H-Town » Mon Aug 12, 2019 8:40 pm

burntoacrisp wrote:
Mon Aug 12, 2019 7:49 pm
I'm saving money to take a six-month sabbatical from work. Unfortunately, it's somewhat slow going and could take a few years. To speed up the process, I'd like to get the best return on my money possible. But because I'm a contractor and technically considered self-employed and don't have unemployment insurance, the fund is also doubling as a rainy-day fund in case I'm laid off from my job, so I don't want to put it into anything too risky/volatile, nor do I want to tie it up in CDs. Right now the majority of what I've saved so far is in a savings account that gets around 2 percent interest (better than any money market I've been able to find), a chunk of it is in a Vanguard STAR account, and a small amount of it is in an iShares REET index fund.

I'm wondering if there might be a better strategy here, such as a dividend index fund instead of the STAR account. Or perhaps I should keep it all in savings. Or maybe there's a better idea that I'm not even thinking of.

Thanks in advance!
If you consider your wealth as a whole, I don't see the needs to allocate to buckets. Just use your normal AA and time your sabbatical to align with the market highs.

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GerryL
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Re: What sort of fund for saving for sabbatical?

Post by GerryL » Mon Aug 12, 2019 10:38 pm

I remember when I was planning my first 2-month sabbatical from my high-tech company. As I was working out the budget for my round-the-country road trip I suddenly realized that I would have my regular paycheck. I'd known that all along, but when that realization hit during the planning stage it was quite liberating. I wouldn't have to have an extra big pile of cash set aside. But if I had needed a pile of cash, I would have put it in a savings account as that was when I started arranging to have all my bills -- including credit card bills -- set to autopay.

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willthrill81
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Re: What sort of fund for saving for sabbatical?

Post by willthrill81 » Mon Aug 12, 2019 10:47 pm

retiredflyboy wrote:
Mon Aug 12, 2019 8:07 pm
Since the fund is for dollars earmarked for the relatively near future I think you stick with high yield savings.
Do this or VMMXX and call it a day.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

HockeyFan99
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Re: What sort of fund for saving for sabbatical?

Post by HockeyFan99 » Tue Aug 13, 2019 8:28 am

HawkeyePierce wrote:
Mon Aug 12, 2019 8:25 pm
I'm in the middle of a five-month sabbatical from work.

I chose cash. Either high-yield savings or a good money market fund like Vanguard's. Maybe a muni fund depending on your tax status.

You could also look into no-penalty CD's at Ally and Marcus. I have some funds stashed in one at Ally at 2.3%.

Any of those four choices is going to be pretty close to a wash over the short-term anyways so just pick whichever is most convenient.
+1

We used a mix of HYS and NP CDs, but the difference in rates is more or less negligible. We did allocate separate funds for the sabbatical though, since we didn’t want to have any uncertainty about how much the trip was costing or dip into any long-term savings.
"I'm spending a year dead for tax reasons." - Hotblack Desiato

lakpr
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Re: What sort of fund for saving for sabbatical?

Post by lakpr » Wed Aug 14, 2019 6:09 am

You might want to consider Vanguard Target Retirement Income fund, or Vanguard LifeStrategy Income fund. These are 30:70 and 20:80 blended funds. Remember that retired folks depend on these funds for their livelihood, you are pretty much in the same boat (principal safety paramount but also desire growth).

StandingRock
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Re: What sort of fund for saving for sabbatical?

Post by StandingRock » Wed Aug 14, 2019 6:25 am

H-Town wrote:
Mon Aug 12, 2019 8:40 pm
If you consider your wealth as a whole, I don't see the needs to allocate to buckets. Just use your normal AA and time your sabbatical to align with the market highs.

Right.... we all know exactly when the market is going to top out....

caprica
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Joined: Fri May 08, 2015 5:26 pm

Re: What sort of fund for saving for sabbatical?

Post by caprica » Wed Aug 14, 2019 7:08 am

I am in the middle of a sabbatical right now. I just saved via a high yield savings account. If I didn't have a firm start date, could be flexible with the timing, and was going to save for a couple of years, and I could do everything over again, I might have done a super conservative portfolio like 20% stock / 80% bonds (like the Vanguard Life Strategy Index fund - VASIX).

Stick5vw
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Re: What sort of fund for saving for sabbatical?

Post by Stick5vw » Wed Aug 14, 2019 10:59 am

I’m 2 months in to a 6 month sabbatical as well. Hoping to start working again in Q1 after a relocation back to USA from overseas, and getting family settled back into the USA etc.

We have about $100k in a high yield savings account (2.1%) and about $60k in a checking account. This is probably more than is required but we will have some unavoidable expenses as we get settled back in and I want to keep this period as stress free as possible.

We will not touch our savings portfolio which is about $1.1mn at 85% equity and 15% fixed income. If we end up dipping into this, either the world economy has totally collapsed and/or the job market is very tough! The FI allocation will gradually come up as we get settled back in but given the large cash holding at the moment I am comfortable riding some equity risk a bit longer. I mention all of this, because it may be tempting to dip into your retirement savings to enjoy your time off (I know people who did this), but don’t do it.

Anyway, the idea was keep our cash liquid and safe as possible - so no CDs with a lock up, or anything more risky than a money market fund. If you need the money in the next year or two, I would advise to do the same.

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