What should I do with my savings?

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Topic Author
z91
Posts: 790
Joined: Fri Mar 07, 2014 12:19 pm

What should I do with my savings?

Post by z91 »

I started working in 2008, so right when the recession hit. I also lost a job in 2013 for a couple of months. Needless to say, I've grown up being extremely risk averse. I'm currently mid-30s, married, two young (<10) kids. Live in HCOL area (California).

My current situation is:
200k liquid savings (I'd say this should cover 2 years of expenses)
200k gross/annually (includes bonus/stock etc..)
400k mortgage (2k/month)
175k Roth (Backdoor + Megabackdoor)
500k 401k
All retirement investments are in VFIFX (or similar) via Vanguard.
Have adequate life/property/umbrella insurance.

I always max out 401k, always do backdoor Roth, when I feel spicy I put in more money to mega backdoor. I typically save 5k net a month. Current vehicles are paid off, but I think I'll have to replace one of them in the next 3-5 years (30k give or take).

Right now I'm trying to figure out what to do with my liquid savings. It's all in CDs/savings accounts varying from 1-2%, but I know it's probably better to put it into the market, I just have no idea how much. I guess this has to do with how much risk I'm willing to take, but I'm considering just keeping a maximum of 100-150k in liquid, and the rest will just go straight to a mega backdoor, and continue to leave it in VFIFX to keep things simple. I don't think I need any of the money any time soon, but if I did, I could pull out the basis (since it's after tax funds).

I'd just basically treat my Roth IRA as a second emergency savings account. If/when my kids go to college I'd hope I have some savings elsewhere (or maybe I should be finding other funds that are targeted for this?). Am I missing anything? Given how risk averse I am, I'm not really interested in individual stocks or setting up a portfolio to rebalance (simple is better), I'd rather just leave it in VFIFX, but open to reading other opinions. I have a small Robinhood account I use for fun; if I lost it all there I wouldn't care.

Any thoughts/feedback?
olyveoil
Posts: 243
Joined: Thu Feb 04, 2021 7:47 am

Re: What should I do with my savings?

Post by olyveoil »

Maybe an extra $1-2k/month towards your mortgage?
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BolderBoy
Posts: 6753
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: What should I do with my savings?

Post by BolderBoy »

z91 wrote: Tue Feb 09, 2021 12:59 pmRight now I'm trying to figure out what to do with my liquid savings. It's all in CDs/savings accounts varying from 1-2%, but I know it's probably better to put it into the market, I just have no idea how much. I guess this has to do with how much risk I'm willing to take, but I'm considering just keeping a maximum of 100-150k in liquid, and the rest will just go straight to a mega backdoor, and continue to leave it in VFIFX to keep things simple. I don't think I need any of the money any time soon, but if I did, I could pull out the basis (since it's after tax funds).
Just to make sure I understand your use of the terms...

VFIFX is presently at 90/10 for an AA. That is the amount of risk you are willing to take.

Insofar as your liquid savings, are you talking about the $200k that you listed ("2 years of expenses")? So you are saying that you don't think you need 2 yrs of expenses saved in an emergency fund - that 1-1.5 years may be enough? Only you can know that.

Otherwise I don't see anything wrong with boosting your mega backdoor contribution.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: What should I do with my savings?

Post by tashnewbie »

I agree with user above that your TDF is pretty heavy in stocks right now, so you may be more risk tolerant than you realize.

Might be worth reducing your liquid cash to just 1 year of expenses and investing the other $100k. You'll have to decide what you're comfortable with. Only you know your unique circumstances and possible risks/emergencies.

Do you have individual long-term disability insurance?
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FelixTheCat
Posts: 2035
Joined: Sat Sep 24, 2011 12:39 am

Re: What should I do with my savings?

Post by FelixTheCat »

z91 wrote: Tue Feb 09, 2021 12:59 pm Right now I'm trying to figure out what to do with my liquid savings. It's all in CDs/savings accounts varying from 1-2%, but I know it's probably better to put it into the market, I just have no idea how much. I guess this has to do with how much risk I'm willing to take, but I'm considering just keeping a maximum of 100-150k in liquid, and the rest will just go straight to a mega backdoor, and continue to leave it in VFIFX to keep things simple. I don't think I need any of the money any time soon, but if I did, I could pull out the basis (since it's after tax funds).
Let's say is 2008. The market crashed 40%. Everyone is losing their jobs. Homeowners are constantly defaulting. The next six years will be a recession. Is your 2 years worth of expenses too little, just right or too much? Your savings are there to protect you when the sky is falling.

Most money markets are paying 1/10th of a percent. You are doing better than most.
Felix is a wonderful, wonderful cat.
Topic Author
z91
Posts: 790
Joined: Fri Mar 07, 2014 12:19 pm

Re: What should I do with my savings?

Post by z91 »

BolderBoy wrote: Tue Feb 09, 2021 1:15 pm
z91 wrote: Tue Feb 09, 2021 12:59 pmRight now I'm trying to figure out what to do with my liquid savings. It's all in CDs/savings accounts varying from 1-2%, but I know it's probably better to put it into the market, I just have no idea how much. I guess this has to do with how much risk I'm willing to take, but I'm considering just keeping a maximum of 100-150k in liquid, and the rest will just go straight to a mega backdoor, and continue to leave it in VFIFX to keep things simple. I don't think I need any of the money any time soon, but if I did, I could pull out the basis (since it's after tax funds).
Just to make sure I understand your use of the terms...

VFIFX is presently at 90/10 for an AA. That is the amount of risk you are willing to take.

Insofar as your liquid savings, are you talking about the $200k that you listed ("2 years of expenses")? So you are saying that you don't think you need 2 yrs of expenses saved in an emergency fund - that 1-1.5 years may be enough? Only you can know that.

Otherwise I don't see anything wrong with boosting your mega backdoor contribution.
Sorry I guess my answer to your risk question is..I don't really know, and would rather defer that to the VG fund to dictate it (as they rebalance the portfolio every few years depending on when I plan to retire). I honestly haven't even paid that much attention to the AA, just assume they are "doing their best"
tashnewbie wrote: Tue Feb 09, 2021 1:25 pm I agree with user above that your TDF is pretty heavy in stocks right now, so you may be more risk tolerant than you realize.

Might be worth reducing your liquid cash to just 1 year of expenses and investing the other $100k. You'll have to decide what you're comfortable with. Only you know your unique circumstances and possible risks/emergencies.

Do you have individual long-term disability insurance?
Got it, thanks for that. Yes I think I can probably reduce my savings a bit as it's a bit silly to be saving for 2 years of zero income. No LTD at this time other than what I have from Megacorp which is fairly generous. I have thought about getting a portable plan, but I've had sticker shock getting quotes (fully understood it's more likely to have an LTD claim versus term, which is why it's more expensive).
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