Let me explain.
We are a mid-career household with two college age children. We bank at a credit union, where a good chunk of our Emergency Fund resides, we contribute regularly to our 401(k)s (which are on Boglehead Target Date autopilot), and we then conduct the rest of our savings and investing (outside of our Treasury Direct purchases) via Schwab.
Having a brokerage account was new to us as we had previously lived our lives in a "pre-Boglehead" world where anything beyond our 401(k)'s revolved around whittling down student loans and consumer debt.
Speaking for myself, I came into taxable savings and investing with a fundamental misperception about what a Schwab account would mean for us. To sum it up simply, I saw our taxable account as a "place where we would buy equities while aiming at maximizing return."
I was so wrong.
Instead, I now see the taxable accounts as the fulcrum point for mid-career couples like us to build and manage wealth, maintain flexibility, create targeted savings for multiple goals, and to help us make better financial decisions and ultimately plan and execute our long term financial future. Each of the smaller uses of the taxable account adds up to a sum that is very much greater than its parts. Here's some examples:
- We now save for Vacations, Home Improvements, and other life goals well in advance. That money lives in Money Funds in taxable. As those funds grow, we can expand where we put them and how we put them to use.
- We track a separate account for our college age children where we've created multi-tiered funds to support them (ex. Future year's tuition, Emergency Fund for College Years, Long-Term Emergency Fund/Gift planning.)
- We take windfalls that go above our Investing/Savings goal for the year (tax returns, one time gifts/bonuses, rebates) and drive them into longer term interest earning vehicles and investments that support our overall goals.
- We research and experiment with Equity and Bond investments to hone our asset allocation and investment strategy. (The research and tracking functions at Schwab are fantastic.) This has allowed us to try on for size two social good funds we would not have considered otherwise. It's also caused us to want to keep things simpler after being burned by complexity.
- We can park/save an appropriate (ie. small) portion of company stock grants within our taxable creating additional opportunities for one-time expenditures or gifting/donating.
That being said, these funds do have an "emergency/well-being" component. Take the current pandemic and market downturn. Since our brokerage account funds are roughly 50/50, we were able to rebalance into equities all the way through the downturn without significantly impacting our college funds or long term emergency funds. As we're not taking a typical vacation for the foreseeable future, we have been able to slow the contributions to that fund and amp up our reserves while we rebalance. Shifting the contributions makes sense, and, so far, it's worked.
In sum, for myself, I care less about "maxing" the return in taxable equity investments now than I ever thought that I would. Instead, I see this account as a lever that will grow increasingly powerful as we save and invest more. There's more things we can do, and more productive financial conversations we can have, when we are working out of the context of a growing and diversified taxable account.
It's not where I thought we would end up when we started with Schwab, but I'll take it as it is a much better outcome holistically. In fact, I wish there were more discussions of ways to leverage brokerage accounts here on these forums since they are much more powerful than the typical discussion of where to hold Bond funds or taxation. They truly are Swiss Army Knives for those interested in maxing their utility. Thank you for reading.