Thoughts on This Personal Investment Strategy?

[aureliusroot]

Hello, All.

I've been sitting on a relatively large amount (for me!) of cash for the past few years with the thought that I might use it on a large house downpayment in the next few years, and also because I've been relatively risk-averse regarding the idea of putting all of cash beyond my emergency fund in the market. That said, I've come to the point where I've realized that I need to get it into a brokerage account sooner than later to avoid ultimately having it lose value to inflation, and to better grow it since I don't own any property that is accruing equity.

My numbers and details are below.

1) Does the proposed plan below make sense to everyone?

2) I know it's best to put bonds in the 401k, but the only bond options I have available in my employer's plan are:
American Funds US Government Sec R6 Government Bond (RGVGX) – 0.22% ER
PGIM Total Return Bond R4 Diversified Bond (PDBSX) – 0.66% ER
So, I'm thinking instead of using either of those, of just putting all of my bonds in the new taxable brokerage account in VBTLX (0.05% ER).

2) Also, I'm not certain if I'll try and buy a home in the near future, but I'm thinking that I could be in the market to potentially buy in the next 12-24 months. Based on what's affordable for my income, I'd be looking at a 20% downpayment on something in the $250k range, meaning $50k as the down payment. When ready, I would likely need to pull this from my brokerage account. Or, should I keep this downpayment money in my HYSA? It seems that I have enough going into my brokerage account that any significant drop would still allow me to pull money as needed for the downpayment.

I'd love to get folk's thoughts on this approach if I'm missing anything.

Thank you in advance for any thoughts/advice!

- - - -

CURRENT
Cash – $197,000 (currently earning 4.5% in a HYSA)
Investments – $254,264.61 (all in ROTH or 401k)


PROPOSED
Cash – $48,000 (earning 4.5% in HYSA) – made up of $18k for emergency fund (6 months expenses) & $30k for a potential car purchase in cash
Investments – $403,264.20

[mhalley]

There is nothing wrong with those 401k bond funds. Don’t let the small difference in ER overshadow the fact that you will be paying your tax bracket on bond income in the taxable account.
Money needed within 5 years should not be invested. Hi yield savings, cds, ibond, money market, etc.

[aureliusroot]

Those are good points to consider! Thank you. I should probably run the numbers to see if it makes more sense to put those bonds in the 401k versus the taxable account.

I'm not sure why the images didn't go through, so trying this again:

HERE ARE MY CURRENT INVESTMENTS (all retirement):
https://imgur.com/FdqDBNe
Roth IRA - Vanguard (Tax-Free)
Total US Stock VTSAX $21,011.77
Total Int'l Stock VTIAX $42,963.89
Total Bond VBTLX $34,943.36

401(k) – Ascensus (Tax-Deferred)
500 Index Stock VFIAX $155,345.18


HERE IS MY PROPOSED UPDATE WITH TAXABLE ACCOUNT:
https://imgur.com/LNokYmU
Taxable Account - Vanguard (Taxed)
Total US Stock VTSAX $18,832.00
Total Int'l Stock VTIAX $70,168.00
Total Bond VBTLX $60,000.00

Roth IRA - Vanguard (Tax-Free)
Total US Stock VTSAX $98,919.02

401(k) – Ascensus (Tax-Deferred)
500 Index Stock VFIAX $155,345.18

[the_wiki]

1) You are going to pay a lot more in taxes on bond yields than the cost of a few tenths of a percent in ER. I'd just pick one of those funds at your employer for sure.

2) I would keep the $50k you need for down payment in something very safe like treasuries or Money market funds. Invest the rest as you see fit.

[aureliusroot]

Good advice!

Based on what I'm hearing, I'll keep in cash in my HYSA the $50k for the potential down payment in the next 12 months (at least), and invest the rest ($129k) in my taxable account in VTSAX and VTIAX. Then, I'll only have bonds ($60k) in my 401k.

Regarding the bonds, ideally I could have invested in VBTLX, but of the two bond funds that my 401k currently offers, do you guys have any recommendation between the two? I'm a relative novice in this space and don't know if one of these seems better. I'm inclined to go with the lower ER, but maybe the other performs better?

American Funds US Government Sec R6 Government Bond 0.22% (RGVGX)
PGIM Total Return Bond R4 Diversified Bond 0.66% (PDBSX)

I'll be looking at about $60k in bonds to start out with.