Emergency Funds and VCADX or CD etc

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Topic Author
Abk911
Posts: 56
Joined: Thu Aug 09, 2018 1:22 pm

Emergency Funds and VCADX or CD etc

Post by Abk911 » Thu Mar 28, 2019 11:18 am

Dear Friends,

I am a CA resident. I have saved about 50k as emergency funds due to extreme high cost here. They are in my Savings account (very low interest). I intend to create or am working towards an additional 50k as Tier 2 Emergency Funds.However I am confused on where to keep them.

For instance if i am able to keep 5-10k aside every few months do i wait for it to reach 50k before i start moving them to a CD or to a fund like VCADX etc? or can i do that in phases for instance do VCADX for 5k and then add another 5k as money becomes available. Also any pitfalls for VCADX or similar ones for tier 2 emergency savings?

I am not hung up on VCADX but heard its a non taxable fund for CA (?) and hence it garnered my interest. I am open to other ideas.

Basically dont see merit in keeping 50k as well as additional funds in just savings acts. I explored vanguard Money market but that seems to be not protected by Govt (?).

any guidance will be helpful.

carmonkie
Posts: 149
Joined: Fri Jun 29, 2018 4:31 pm

Re: Emergency Funds and VCADX or CD etc

Post by carmonkie » Thu Mar 28, 2019 12:06 pm

VCADX has a minumum investment of $50,000 so you'd need to be looking at the Investor Shares with 3K min @0.19 ER vs 0.09 of VCADX.

Are your other tax advantaged accounts maxed out? Would this second tier be part of your overall asset allocation?
Prime Money market is not backed-up by the goverment, but neither is VCADX or the Investor Shares.

We funded our EM, which is parked in Prime MM with new money and added money monthly, no need to do all at once.

You can not add money to a CD once it is opened. You need to wait until maturity to take the money, renew, or add money.

Maybe a ladder CD would be an option for you?

Topic Author
Abk911
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Joined: Thu Aug 09, 2018 1:22 pm

Re: Emergency Funds and VCADX or CD etc

Post by Abk911 » Thu Mar 28, 2019 12:19 pm

carmonkie wrote:
Thu Mar 28, 2019 12:06 pm
VCADX has a minumum investment of $50,000 so you'd need to be looking at the Investor Shares with 3K min @0.19 ER vs 0.09 of VCADX.

Are your other tax advantaged accounts maxed out? Would this second tier be part of your overall asset allocation?
Prime Money market is not backed-up by the goverment, but neither is VCADX or the Investor Shares.

We funded our EM, which is parked in Prime MM with new money and added money monthly, no need to do all at once.

You can not add money to a CD once it is opened. You need to wait until maturity to take the money, renew, or add money.

Maybe a ladder CD would be an option for you?
401k we are maxing out. and can do only roth ira... which also we just started but intend to max out. That leaves no other window or so i believe.
VCADX i believe or their investor counter part has higher returns compared to money market and no tax for CA is why i thought about it.

mega317
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Re: Emergency Funds and VCADX or CD etc

Post by mega317 » Thu Mar 28, 2019 2:31 pm

What is your federal and state tax bracket?

I'm not a huge fan of tiered emergency funds but I guess it's harmless. You just need to understand that VCADX could drop ~5% or more at any time. I don't think that's a big deal--I have taxable money in VCADX which I count towards my asset allocation, and would also be used for emergencies, and if it dropped 5 or 10 or 20 percent I'd still have enough money to feel comfortable with an emergency.

I also noticed that you have multiple threads going. I might be helpful to consolidate and ask all your questions together.
viewtopic.php?t=6212

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Clever_Username
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Location: Southern California

Re: Emergency Funds and VCADX or CD etc

Post by Clever_Username » Thu Mar 28, 2019 3:28 pm

If I were forced to list some portion of my assets as emergency funds, the first few tiers would be as follows

1. Month and a half or so worth of expenses in the bank.

2. VCADX, about a year's expenses.

3. Series I Savings Bonds.

I might switch 2 & 3 depending what day you ask me. I should think it through, commit, and write it down before I have to decide in a worse circumstance.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

Topic Author
Abk911
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Re: Emergency Funds and VCADX or CD etc

Post by Abk911 » Fri Mar 29, 2019 1:16 pm

mega317 wrote:
Thu Mar 28, 2019 2:31 pm
What is your federal and state tax bracket?

I'm not a huge fan of tiered emergency funds but I guess it's harmless. You just need to understand that VCADX could drop ~5% or more at any time. I don't think that's a big deal--I have taxable money in VCADX which I count towards my asset allocation, and would also be used for emergencies, and if it dropped 5 or 10 or 20 percent I'd still have enough money to feel comfortable with an emergency.

I also noticed that you have multiple threads going. I might be helpful to consolidate and ask all your questions together.
viewtopic.php?t=6212
yes sorry. going forward will consolidate and ask. thanks

Topic Author
Abk911
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Joined: Thu Aug 09, 2018 1:22 pm

Re: Emergency Funds and VCADX or CD etc

Post by Abk911 » Tue Dec 03, 2019 2:04 am

Hi... sorry to trigger a old thread. Can VCADX be sold at any time? without penalty. or is there a duration these must be held for?

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Wiggums
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Re: Emergency Funds and VCADX or CD etc

Post by Wiggums » Tue Dec 03, 2019 2:34 am

Abk911 wrote:
Tue Dec 03, 2019 2:04 am
Hi... sorry to trigger a old thread. Can VCADX be sold at any time? without penalty. or is there a duration these must be held for?
Can be sold at anytime.

Although the fund has no limitations on the maturities of individual securities, its dollar-weighted average maturity is expected to be between 6 and 12 years. The fund is non-diversified.

Topic Author
Abk911
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Joined: Thu Aug 09, 2018 1:22 pm

Re: Emergency Funds and VCADX or CD etc

Post by Abk911 » Tue Dec 03, 2019 2:37 am

hmmm... sorry for my lack of intelligence.. what does the dollar weighted maturity mean. Just as an example it says on vanguard... its one year gain was 7 pct and 3 year gain some 2 pct... so in that context 6-12 years as in? once again thanking in advance, I am still weighing this between my CDs that give 1.7 pct.

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Wiggums
Posts: 1922
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Re: Emergency Funds and VCADX or CD etc

Post by Wiggums » Tue Dec 03, 2019 2:49 am

bond funds invest in many different securities.
When you sell shares in a fund, you receive the fund’s current net asset value (NAV), which is the value of all the fund’s holdings divided by the number of fund shares, less any redemption fee, if applicable. It’s important to remember that bond funds buy and sell securities frequently, and rarely hold bonds to maturity. That means you can lose some or all of your initial investment in a bond fund.

As bonds are added and removed from the fund, the NAV is adjusted to reflect the value. As interest rates rise, the NAV falls, because the bonds inside the fund are worth less than a new bond. conversely, when the interest rate falls, the NAV will rise because the bonds inside the fund have better rates.

https://www.bogleheads.org/wiki/Bond_basics

Blue456
Posts: 106
Joined: Tue Jun 04, 2019 5:46 am

Re: Emergency Funds and VCADX or CD etc

Post by Blue456 » Tue Dec 03, 2019 7:41 am

Abk911 wrote:
Thu Mar 28, 2019 11:18 am
Dear Friends,

I am a CA resident. I have saved about 50k as emergency funds due to extreme high cost here. They are in my Savings account (very low interest). I intend to create or am working towards an additional 50k as Tier 2 Emergency Funds.However I am confused on where to keep them.

For instance if i am able to keep 5-10k aside every few months do i wait for it to reach 50k before i start moving them to a CD or to a fund like VCADX etc? or can i do that in phases for instance do VCADX for 5k and then add another 5k as money becomes available. Also any pitfalls for VCADX or similar ones for tier 2 emergency savings?

I am not hung up on VCADX but heard its a non taxable fund for CA (?) and hence it garnered my interest. I am open to other ideas.

Basically dont see merit in keeping 50k as well as additional funds in just savings acts. I explored vanguard Money market but that seems to be not protected by Govt (?).

any guidance will be helpful.
I am in the same boat. Although cost of living where we live is lower so we are set at a goal of $70,000 emergency fund total for various career reasons. I have read bogleheads wiki (https://www.bogleheads.org/wiki/Emergency_fund) on various emergency funds. What we decided on is as follows:
30% in high yield savings
30% in 12 month CDs
30% in intermediate term muni ETF
The first 2 offer FDIC insurance. Which is important to us. The last one can be expect to drop 5-10% which would be only a loss of $1,000 or so which is only 1.2% of total fund. The likelihood that we would use that fund during drop is also low. In the long term however you lose less money on inflation.
We wound use our fund as follows:
1. Cash in monthly CDs for $2,000 per month. 2. Use high yield savings to fill in whatever other money is needed. 3. After high yield savings is gone decide to either break other CDs or cash out on the intermediate term muni depending which one makes more sense.

stan1
Posts: 7704
Joined: Mon Oct 08, 2007 4:35 pm

Re: Emergency Funds and VCADX or CD etc

Post by stan1 » Tue Dec 03, 2019 7:50 am

Abk911 wrote:
Tue Dec 03, 2019 2:04 am
Hi... sorry to trigger a old thread. Can VCADX be sold at any time? without penalty. or is there a duration these must be held for?
Short answer: Yes it can be sold at any time. There is no back end load like some mutual funds have and there is no penalty for early withdrawal like some CDs have.

It will probably have a small capital gain or loss. Federal taxes have a preferential rate for long term capital gains (over a year) so if you are close to a year you might want to wait to get a long term gain instead of a short term gain. California taxes capital gains as ordinary income.

Topic Author
Abk911
Posts: 56
Joined: Thu Aug 09, 2018 1:22 pm

Re: Emergency Funds and VCADX or CD etc

Post by Abk911 » Tue Dec 03, 2019 10:24 am

stan1 wrote:
Tue Dec 03, 2019 7:50 am
Abk911 wrote:
Tue Dec 03, 2019 2:04 am
Hi... sorry to trigger a old thread. Can VCADX be sold at any time? without penalty. or is there a duration these must be held for?
Short answer: Yes it can be sold at any time. There is no back end load like some mutual funds have and there is no penalty for early withdrawal like some CDs have.

It will probably have a small capital gain or loss. Federal taxes have a preferential rate for long term capital gains (over a year) so if you are close to a year you might want to wait to get a long term gain instead of a short term gain. California taxes capital gains as ordinary income.
and if I do a 50k in it. later if I want to sell only 25k worth or 5k worth etc. that's possible without a penalty correct?

Blue456
Posts: 106
Joined: Tue Jun 04, 2019 5:46 am

Re: Emergency Funds and VCADX or CD etc

Post by Blue456 » Tue Dec 03, 2019 11:00 am

Blue456 wrote:
Tue Dec 03, 2019 7:41 am
Abk911 wrote:
Thu Mar 28, 2019 11:18 am
Dear Friends,

I am a CA resident. I have saved about 50k as emergency funds due to extreme high cost here. They are in my Savings account (very low interest). I intend to create or am working towards an additional 50k as Tier 2 Emergency Funds.However I am confused on where to keep them.

For instance if i am able to keep 5-10k aside every few months do i wait for it to reach 50k before i start moving them to a CD or to a fund like VCADX etc? or can i do that in phases for instance do VCADX for 5k and then add another 5k as money becomes available. Also any pitfalls for VCADX or similar ones for tier 2 emergency savings?

I am not hung up on VCADX but heard its a non taxable fund for CA (?) and hence it garnered my interest. I am open to other ideas.

Basically dont see merit in keeping 50k as well as additional funds in just savings acts. I explored vanguard Money market but that seems to be not protected by Govt (?).

any guidance will be helpful.
I am in the same boat. Although cost of living where we live is lower so we are set at a goal of $70,000 emergency fund total for various career reasons. I have read bogleheads wiki (https://www.bogleheads.org/wiki/Emergency_fund) on various emergency funds. What we decided on is as follows:
30% in high yield savings
30% in 12 month CDs
30% in intermediate term muni ETF
The first 2 offer FDIC insurance. Which is important to us. The last one can be expect to drop 5-10% which would be only a loss of $1,000 or so which is only 1.2% of total fund. The likelihood that we would use that fund during drop is also low. In the long term however you lose less money on inflation.
We would use our fund as follows:
1. Cash in monthly CDs for $2,000 per month. 2. Use high yield savings to fill in whatever other money is needed. 3. After high yield savings is gone decide to either break other CDs or cash out on the intermediate term muni depending which one makes more sense.

stan1
Posts: 7704
Joined: Mon Oct 08, 2007 4:35 pm

Re: Emergency Funds and VCADX or CD etc

Post by stan1 » Tue Dec 03, 2019 1:07 pm

Abk911 wrote:
Tue Dec 03, 2019 10:24 am
stan1 wrote:
Tue Dec 03, 2019 7:50 am
Abk911 wrote:
Tue Dec 03, 2019 2:04 am
Hi... sorry to trigger a old thread. Can VCADX be sold at any time? without penalty. or is there a duration these must be held for?
Short answer: Yes it can be sold at any time. There is no back end load like some mutual funds have and there is no penalty for early withdrawal like some CDs have.

It will probably have a small capital gain or loss. Federal taxes have a preferential rate for long term capital gains (over a year) so if you are close to a year you might want to wait to get a long term gain instead of a short term gain. California taxes capital gains as ordinary income.
and if I do a 50k in it. later if I want to sell only 25k worth or 5k worth etc. that's possible without a penalty correct?
There is no penalty, but again you may have a realized loss or a gain since the price of a mutual fund varies daily. If you do not want to accept the risk of a loss you should not be investing in a municipal bond fund. Use a money market fund or an FDIC savings account instead.

Blue456
Posts: 106
Joined: Tue Jun 04, 2019 5:46 am

Re: Emergency Funds and VCADX or CD etc

Post by Blue456 » Tue Dec 03, 2019 7:45 pm

stan1 wrote:
Tue Dec 03, 2019 1:07 pm
Abk911 wrote:
Tue Dec 03, 2019 10:24 am
stan1 wrote:
Tue Dec 03, 2019 7:50 am
Abk911 wrote:
Tue Dec 03, 2019 2:04 am
Hi... sorry to trigger a old thread. Can VCADX be sold at any time? without penalty. or is there a duration these must be held for?
Short answer: Yes it can be sold at any time. There is no back end load like some mutual funds have and there is no penalty for early withdrawal like some CDs have.

It will probably have a small capital gain or loss. Federal taxes have a preferential rate for long term capital gains (over a year) so if you are close to a year you might want to wait to get a long term gain instead of a short term gain. California taxes capital gains as ordinary income.
and if I do a 50k in it. later if I want to sell only 25k worth or 5k worth etc. that's possible without a penalty correct?
There is no penalty, but again you may have a realized loss or a gain since the price of a mutual fund varies daily. If you do not want to accept the risk of a loss you should not be investing in a municipal bond fund. Use a money market fund or an FDIC savings account instead.
He is likely realizing a loss by keeping funds in FDIC insured savings account and not keeping up with inflation.

Topic Author
Abk911
Posts: 56
Joined: Thu Aug 09, 2018 1:22 pm

Re: Emergency Funds and VCADX or CD etc

Post by Abk911 » Wed Dec 04, 2019 12:36 am

yes... i want to make sure i have a tiered plan...Savings + CD + VCADX if thats a better play?

Blue456
Posts: 106
Joined: Tue Jun 04, 2019 5:46 am

Re: Emergency Funds and VCADX or CD etc

Post by Blue456 » Wed Dec 04, 2019 7:46 am

Abk911 wrote:
Wed Dec 04, 2019 12:36 am
yes... i want to make sure i have a tiered plan...Savings + CD + VCADX if thats a better play?
The idea is that you are less likely to touch VCADX when market is down and you use your money market and CDs first.

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