Wiser Heads, Please Prevail: Taxable Account Positions?

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crozet
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Joined: Wed Dec 08, 2021 1:49 pm

Wiser Heads, Please Prevail: Taxable Account Positions?

Post by crozet »

Hi All,

Given my current scenario, what should I consider re: parking vs. investing 375k (now in cash and VMRXX) in a taxable Vanguard account?

S/O and I, DINKS, early 50s, are self-employed. We will work into our early 70s. No debt, good emergency fund. We don't have a company 401k (another story).

We thought we were going to buy a house in 2021 (~400k, in cash, hate debt, perhaps a foolish attitude) but recent events (inflated home prices, family issues) put us in a holding pattern, could be 2 years out could be 5.

My immediate priority —with inflation, opportunity loss— is the approx $375k now in cash and VMRXX. I'm comfortable with some risk. If this dropped to 300k in an index fund and I was forced to pull it I would be unhappy, but not devastated. I'm also open to being conservative and trying to keep up with inflation and accept a modest return.

What do you think? (I've left business assets out of the equation; no debt there, either.)

200k (Home to sell, paid off)
100k (Cash)
500k (Taxable) About 275k in VMRXX, rest in VTSAX, VTIAX, VBTLX

25k Trad IRA VTSAX
100k SEP IRA VTSAX, VTIAX, VBTLX
100k Roth VTSAX, VTIAX, VBTLX

(I'm cognizant that the non-retirement to retirement scenario is back***wards, which is another dilemma.) Please be kind.
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CyclingDuo
Posts: 6009
Joined: Fri Jan 06, 2017 8:07 am

Re: Wiser Heads, Please Prevail: Taxable Account Positions?

Post by CyclingDuo »

crozet wrote: Wed Dec 08, 2021 2:11 pm Hi All,

Given my current scenario, what should I consider re: parking vs. investing 375k (now in cash and VMRXX) in a taxable Vanguard account?

S/O and I, DINKS, early 50s, are self-employed. We will work into our early 70s. No debt, good emergency fund. We don't have a company 401k (another story).

We thought we were going to buy a house in 2021 (~400k, in cash, hate debt, perhaps a foolish attitude) but recent events (inflated home prices, family issues) put us in a holding pattern, could be 2 years out could be 5.

My immediate priority —with inflation, opportunity loss— is the approx $375k now in cash and VMRXX. I'm comfortable with some risk. If this dropped to 300k in an index fund and I was forced to pull it I would be unhappy, but not devastated. I'm also open to being conservative and trying to keep up with inflation and accept a modest return.

What do you think? (I've left business assets out of the equation; no debt there, either.)

200k (Home to sell, paid off)
100k (Cash)
500k (Taxable) About 275k in VMRXX, rest in VTSAX, VTIAX, VBTLX

25k Trad IRA VTSAX
100k SEP IRA VTSAX, VTIAX, VBTLX
100k Roth VTSAX, VTIAX, VBTLX

(I'm cognizant that the non-retirement to retirement scenario is back***wards, which is another dilemma.) Please be kind.
I would suggest you read this article first before considering advice on your retirement savings, potential new home purchase, etc...

https://humbledollar.com/2021/12/everyo ... H299MYeC3w

That being said, take any advice from my post or others with large grains of salt as we don't know your entire situation. I would just ask some questions below to have you think through some things.

Your time frame of 2 to 5 years for what to do with the money while waiting for a new home purchase should be considered short term and the $375K in cash should be leanings towards low risk, conservative place(s) to park the money. On the other hand, if you sold your current home you would be selling at the same high prices as buying a new home - so that's a wash. Why wait? Sell high, buy high. 8-)

Have you considered taking out a mortgage for a new home? Yes, you can put down a healthy down payment so that your cash could be divided up between the new home and other investments for the longer haul? Outside of what you listed in your IRA accounts, will there be a business sale upon retirement to add to your retirement funds? Do you seriously think that real estate will be less expensive in 2-5 years in your location? Why is it a requirement that you pay cash for the home and not take out a mortgage? Final question, what happens if you cannot work into your 70's (that goes for both of you)?

Plenty of options to consider, but most of us would consider 2-5 years too short term for investing money that is earmarked for a new home.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
chassis
Posts: 2183
Joined: Tue Mar 24, 2020 4:28 pm

Re: Wiser Heads, Please Prevail: Taxable Account Positions?

Post by chassis »

Invest it in equities. They go up in the long term.

I like stocks. Others prefer etfs or mutual funds.

Position yourself with 3-4 years of living expenses in liquidity and the rest with the highest growth you are comfortable with from a volatility point of view.

Liquidity = bank or money market cash plus assets that can be converted to cash (taxable brokerage account).
EfficientInvestor
Posts: 580
Joined: Thu Nov 01, 2018 7:02 pm
Location: Alabama

Re: Wiser Heads, Please Prevail: Taxable Account Positions?

Post by EfficientInvestor »

Looks like there is plenty of assets between current home, cash, and taxable to buy a house now or later. I would personally get a mortgage just to have more liquidity, but I can understand the preference to have a paid off house. Maybe a good middle ground would be to use the 200k equity in current house as down payment on new house and then get a 15 year mortgage for the remainder. You should be able to get a 15 year rate under 2.5%. If you want to pay cash for it when the time arises, I don't see why you need to set aside the full 400k now in a safe space when you have the equity of the house you are selling. Therefore, should it really be 200k of the cash that you need to set aside now since that will supplement the 200k of current home equity to make a total of the 400k you are looking for?

To the question about where to invest money earmarked for the house...if you don't have I bonds already, you could do 10k for each of you in 2021 and then 10k for each of you in 2022. So that would be 40k that would be earning a risk free return and will be hedged against inflation.

My bigger question in all of this is what is your plan to move more of your assets to tax-advantaged space. I see you have a SEP IRA balance listed out. Are you each eligible to make SEP IRA contributions? If so, can you start shuffling a lot of your taxable account into the SEP?
RyeBourbon
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Joined: Tue Sep 01, 2020 12:20 pm
Location: Delaware/Philly

Re: Wiser Heads, Please Prevail: Taxable Account Positions?

Post by RyeBourbon »

It's hard to give advice without seeing the whole picture but one thing to consider is to max out your retirement accounts even if you have to spend some of the nest egg to make up the income. You didn't say your tax bracket, but assuming it's high, use tax-deferred accounts if possible.
Retired June 2023. AA = 55/35/10
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iceport
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Re: Wiser Heads, Please Prevail: Taxable Account Positions?

Post by iceport »

crozet wrote: Wed Dec 08, 2021 2:11 pm We thought we were going to buy a house in 2021 (~400k, in cash, hate debt, perhaps a foolish attitude) but recent events (inflated home prices, family issues) put us in a holding pattern, could be 2 years out could be 5.

My immediate priority —with inflation, opportunity loss— is the approx $375k now in cash and VMRXX. I'm comfortable with some risk. If this dropped to 300k in an index fund and I was forced to pull it I would be unhappy, but not devastated. I'm also open to being conservative and trying to keep up with inflation and accept a modest return.

What do you think? (I've left business assets out of the equation; no debt there, either.)
Given the purpose and time horizon for the house funds, I would be inclined to accept the slightly greater risk of a good short term investment grade bond fund over the money market fund. But I'd be hesitant to reach out further on the risk/return spectrum.

The two funds I've used for savings with a similar purpose/time frame are Vanguard Short-Term Corporate Bond Index Fund (VSCSX) and Vanguard Short-Term Investment-Grade Fund (VFSUX), currently yielding 1.24% and 1.30%, respectively,.

Those funds can still lose value in a rising interest rate environment (as you can see by their YTD returns), but with an average duration of ~2.7/2.8 years, any loss of value will generally be recouped within 3 years, and then the fund returns will benefit from the higher rates.

(They also make a great TLH pair.)
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
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