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Hi all. I’ve had a larger than necessary EF for several years, but I’m about to start a new job and I’m feeling more financially confident, so I’m thinking of keeping 3-6 months in regular savings and putting the rest away in something that can earn more interest. I’ll also finally have access to a 401k through work, so I’ll be able to fund that in addition to my IRA. I’m not sure if ladder CDs make sense given the low rate of return, or if I should open up a taxable investment account with Vanguard (I use them for my IRA). Any thoughts/opinions? Thanks in advance!
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Welcome to the site.
Do you have a desired asset allocation? How much in stocks? How much in bonds? How much in cash?
What is your goal for the money in question? Is it for short or mid-term needs or is it intended as additional retirement money? You mentioned that you have an IRA. Are you maxing it out every year? What percentage of income are you currently saving for retirement? What percentage do you plan to put in the 401k?
Without any of those answers, I'd say that a CD ladder probably doesn't make much sense at this point due to low rates. It might be fine as part of your EF but not beyond that. 5-year CDs are only paying around 1.0%. It's not worth tying up your money that long to earn so little.Steve
* Despite the high cost of living, it remains very popular.
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A lot of praise by financial experts for Vanguard for taxable investment accounts. VTSAX is their index fund. Recommend checking out The Simple Path to Wealth by JL Colins if you're interested in why they come recommended over other options.Comment
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I’ve always been rather conservative with investments, so I’ll stick with that. I’ll keep out enough to easily cover 3-6 months of expenses. I typically max my IRA in January so I don’t have to think about it again, but it’s been several years since I had access to a 401k. I’ll max it out since this income will be in addition to my typical monthly budget. That will still leave me some extra play money for traveling etc..
I don’t have plans for the extra money I’ve already accumulated, which is why I’m thinking a taxable retirement account makes sense. Retirement is my primary focus at this point.Comment
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If you're relatively new to investing, an S&P 500 index fund (like Vanguard's VFIAX) is generally a very good option to start with. I'd say that any cash above what you need for your EF and any other short-term needs (within the next year or three), especially if you have no particular plans for it, you can probably just send it into your taxable investments to sit & grow.
I'd not bother with CD's right now, they're earning basically nothing.Comment
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If retirement accounts are being maxed out, I agree with a 6-month EF and the rest into taxable investments like index mutual funds or ETFs. I do the same thing.Originally posted by Smilinggirl View PostSteve
* Despite the high cost of living, it remains very popular.
* Why should I pay for my daughter's education when she already knows everything?
* There are no shortcuts to anywhere worth going.Comment
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Age?
6k to Roth?
19.5k to 401k?
homeowner?
what funds are in your retirement accounts?
when opening a taxable investment account you want to be able to tax loss harvest so you shouldn’t have the same funds in taxable and retirement accountsComment
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Age: 55
7k to traditional IRA (I don’t qualify for Roth at this time)
25k to 401k
Homeowner, no mortgage
I have a Target fund
I don’t even know what that last paragraph means. Can you explain that in basic terms? Thanks!Comment
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Although not purely tax efficient, based on your age and risk tolerance I would consider the following funds for your taxable account
Vanguard Balanced Index Fund (VBIAX)
Vanguard Wellesley (VWINX or VWIAX)
Vanguard Wellington (VWELX)
Vanguard LifeStrategy fund (Conservative Growth VSCGX)
or another Target fund.
they have slightly higher expense ratios but still lower than a lot of other funds.
pay attention to the minimum amount required for the first investment. It might be $3000 or so to get started.
tax loss harvesting allows you to take losses in your taxable account (sell shares when the investment goes lower) and deduct that on your taxes.Last edited by Jluke; 08-16-2020, 03:00 PM.Comment
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If you have a target fund, then some portion of your portfolio is invested in foreign stocks. A low turnover foreign stock fund is ideal for a taxable account. The mutual fund or etf pays income tax in various foreign countries. If you own the mutual fund or etf in a tax-sheltered account, you cannot take a credit for the taxes paid. If you own it in a taxable account, you can. A dollar for dollar reduction in your US income tax liability, for taxes you were already paying anyway, is a pretty sweet deal.Originally posted by Smilinggirl View Post
Keep in mind, if you start plowing money in to a foreign stock fund in your taxable account without making any other changes, your portfolio will soon be overweight in foreign stock. You would want to change the allocation in your tax-advantaged accounts as your taxable account grows.
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