The Intersection of FIRE and Disney

QueenIsabella

DIS Veteran
Joined
Jan 17, 2016
Thanks! We do something similar with our mad money as we like to call it. It’s easily accessible (have it split between Amex and Discover high yield savings) and secure. I mostly use it to trigger new account bonuses by bouncing funds around for a few months as needed. I just feel like we’re potentially missing out on higher returns (with some risk of course) and feel comfortable putting $20-$30k into a low/moderate risk account. We’re 10 years (minimum) away from early retirement (I’m 42, DH 47, DD 8) and also DD’s college but we have plans in place for both of those things (and likely one of us will continue working past 10 years but hopefully with less stress and more flexibility).

VTSAX (Vanguard Total Stock Market Index Fund) has 10.95% for an average 5 year return but of course I understand past performance is not indicative of future results.

Curious to hear what others in this situation do with their “excess” emergency funds.
We're also at kind of a dicey place in life--DD16 is finishing her sophomore year, so college isn't too far away. She has a 529, but it won't cover everything, and the money we have mentally earmarked for college is in individual stocks. The general plan is to directly pay her tuition bill, then "pay ourselves back" by selling some stock. Since it's only 2 years out, we don't want to rock the boat, investment-wise. She hasn't done a lot of serious college investigating yet. We're hoping she picks the flagship State U--in this case, UNC-Chapel Hill, which is one of the top bargain schools for in-staters. Naturally, she's also considering Pricey Private U, which I think is the wrong choice for many reasons, money being only one of them. We can pay for Pricey U, or we can pay for law school after State U--we are not made of money.
 

SouthFayetteFan

Saving Money on Disney Vacations since 2006
Joined
Sep 6, 2014
Happy Sunday all!

DH and I are debating about where to invest a portion of our liquid savings.

Both of us max out our 401K, Roth IRA, DH maxes out and invests our HSA, and we’re both contributing members to our respective employers pension plans.

We have a 4% interest rate on our mortgage and have about 8 years left of the fixed 15 year term. (~$165k balance remaining)

Our liquid emergency fund consists of about $60k in high yield (2%) savings accounts. We also have another $60k available to us via a low interest rate HELOC. Of course our plan is never to pull from that but it’s there if needed.

We’re looking at investing $20-$30k of our liquid emergency fund. Any suggestions for a safeish investment vehicle? Neither of us is really interested in playing the stock market (directly). I was thinking maybe VTSAX? Are there any other investment vehicles I should be researching?
If you ask me, the answer is always VTSAX ;) HAHA!
 
  • SouthFayetteFan

    Saving Money on Disney Vacations since 2006
    Joined
    Sep 6, 2014
    If @SouthFayetteFan approves it has to be good!:thumbsup2
    Do you recall these comments from me awhile back...
    I just watched a very interesting video of a talk JL Collins gave: https://www.youtube.com/watch?v=T71ibcZAX3I

    I've always liked his blog (especially the stock series). I had never actually heard him talk - his voice is smooth and soothing. It's actually an hour long video...and I literally just listened to the entire thing (a great way to pass an hour at work, haha!). He just sounds like a SUPER intelligent human being and just a very positive individual.

    I think I need to make this my vacation book this summer: The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life
    A few highlights from the video...

    Check out the 13 minute mark...just a funny comment about VTSAX

    Check out the 29 minute mark...and listen about market timing for 3 minutes or so
    My favorite part here: The group of investors that performed best within an individual fund was DEAD PEOPLE (because they didn't try to "time the market") :rotfl:
    I also like his phrase "Time IN the market is more important than trying to time the market" :)
    Some of this recent investment discussion is way more complex than the primary tenet of the FIRE investment strategy.

    I think JL Collins said it best: Buy VTSAX, Buy as much as you can, Buy it whenever you can, and hold it forever...

    And so that's what I do, and it works...
    And here’s the video:
     

    runwad

    Dis Veteran
    Joined
    Jan 18, 2006
    @bernina what about CD's. On another financial forum I frequent some members invest in I-Bonds from Treasury Direct. It's an instrument I don't really know a lot about and always say I'm going to learn because I have heard some other acquaintances touting their benefits. Maybe someone here has some knowledge?
     

    SouthFayetteFan

    Saving Money on Disney Vacations since 2006
    Joined
    Sep 6, 2014
    If @SouthFayetteFan approves it has to be good!:thumbsup2
    Ok - upon reading your comment again, VTSAX is decidedly NOT safe or even safe-ish. If you’re looking to invest a portion of your savings LONG TERM then yes, it’s a great choice and safe. If this is emergency fund money or funds you may want to access in the near-ish future you need to look to bonds, CDs, Money Markets, etc. Sorry if I got excited when you mentioned VTSAX but JL’s advice is for long term investments:
    Buy VTSAX, Buy as much as you can, Buy it whenever you can, and hold it forever...
    (Emphasis on hold it forever) :)
     
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    bernina

    DIS Veteran
    Joined
    Jan 25, 2014
    Ok - upon reading your comment again, VTSAX is decidedly NOT safe or even safe-ish. If you’re looming to invest a portion of your savings LONG TERM then yes, it’s a great choice and safe. If this is emergency fund money or funds you may want to access in the near-ish future you need to look to bonds, CDs, Money Markets, etc. Sorry if I got excited when you mentioned VTSAX but JL’s advice is for long term investments:
    Buy VTSAX, Buy as much as you can, Buy it whenever you can, and hold it forever...
    (Emphasis on hold it forever) :)
    I know long term can be very subjective, but would folks here consider 10 years to be long term? We have other emergency funds so this would just be investing the funds that have accumulated in excess of the amount we need to deal with the unexpected (job loss, health issues, etc. )
     
  • bernina

    DIS Veteran
    Joined
    Jan 25, 2014
    @bernina what about CD's. On another financial forum I frequent some members invest in I-Bonds from Treasury Direct. It's an instrument I don't really know a lot about and always say I'm going to learn because I have heard some other acquaintances touting their benefits. Maybe someone here has some knowledge?
    Thanks! I read up on these and municipal bonds a few years back but honestly didn’t retain much of what I read :upsidedow I’ll add them to my research list and report back here if I learn anything good.

    I also need to look at my 401k portfolio and rebalance. My employer matching goes into my company stock fund but I have way too much in there since I always forget to go in and move it around.
     

    bernina

    DIS Veteran
    Joined
    Jan 25, 2014
    Do you recall these comments from me awhile back...



    And here’s the video:
    I totally missed all of these posts but will be reading up on them now, thank you!!

    When I found this thread I think mid May (it feels like it’s been way longer) I started from the beginning with the intent of reading every post (way easier on this thread than I love credit cards!) and made pretty good progress. Then I jumped in and started posting and looks like I missed the posts from March and April of this year.

    I noticed some posts between you and @speedyfishy about balancing 401k’s (or in your case VTSAX all the way) which is super helpful too. We still have at a minimum 10 years in the wealth building stage so i think I should revise my requirements for this $20-$30K from safeish to moderateish. I’ll probably invest only the $20k and then maybe throw the remaining $10k into a safer investment vehicle.

    Thanks again!
     

    georgina

    DIS Veteran
    Joined
    Apr 21, 2003
    @bernina what about CD's. On another financial forum I frequent some members invest in I-Bonds from Treasury Direct. It's an instrument I don't really know a lot about and always say I'm going to learn because I have heard some other acquaintances touting their benefits. Maybe someone here has some knowledge?
    I bonds - unlike the more popular series EE bonds, you pay the full value up front. The interest rate is made up of 2 parts - a fixed interest rate good for the life of the bond, plus another variable rate based on inflation which is adjusted every 6 months. I think they currently are paying a little less than 2%. Federal tax will be due upon redemption, but not state tax.

    I was fortunate to buy some in the year 2000 which are still paying 6% interest. They have tripled in value, but current ones are not paying that much.
     

    runwad

    Dis Veteran
    Joined
    Jan 18, 2006
    I bonds - unlike the more popular series EE bonds, you pay the full value up front. The interest rate is made up of 2 parts - a fixed interest rate good for the life of the bond, plus another variable rate based on inflation which is adjusted every 6 months. I think they currently are paying a little less than 2%. Federal tax will be due upon redemption, but not state tax.

    I was fortunate to buy some in the year 2000 which are still paying 6% interest. They have tripled in value, but current ones are not paying that much.
    Georgina, how long do you hold I Bonds?
     
  • SouthFayetteFan

    Saving Money on Disney Vacations since 2006
    Joined
    Sep 6, 2014
    I know long term can be very subjective, but would folks here consider 10 years to be long term? We have other emergency funds so this would just be investing the funds that have accumulated in excess of the amount we need to deal with the unexpected (job loss, health issues, etc. )
    I definitely consider 10 years long term. I will say that the transition from all investments being in retirement advantaged accounts (401k, IRA, HSA, etc.) to liquid investing is a difficult one. For some reason, I've seen many speak to how maxing out their 401k, IRA, HSA, etc. was easy but once all of those were maxed each year and there was still money left over it's slightly harder to invest that next chunk. I can't really explain why, but I'd agree. That's why I'm eradicating our mortgage now vs. going into stocks. Once the mortgage is gone, I'll have no other option though but to start it on the liquid side too - I think there's just a psychological component to it.
     

    bernina

    DIS Veteran
    Joined
    Jan 25, 2014
    I definitely consider 10 years long term. I will say that the transition from all investments being in retirement advantaged accounts (401k, IRA, HSA, etc.) to liquid investing is a difficult one. For some reason, I've seen many speak to how maxing out their 401k, IRA, HSA, etc. was easy but once all of those were maxed each year and there was still money left over it's slightly harder to invest that next chunk. I can't really explain why, but I'd agree. That's why I'm eradicating our mortgage now vs. going into stocks. Once the mortgage is gone, I'll have no other option though but to start it on the liquid side too - I think there's just a psychological component to it.
    I completely agree!! It's so much easier when there's a relatively clear "formula" that most folks agree on. DH and I have had the never ending debate over throw a lot of extra money at the mortgage or invest. We can't really agree (he's in the camp of all debt is bad, pay it off as early as possible and I'm in the camp of our money is worth more invested wisely than the 4% interest we're paying on the mortgage). The result has been about 2 years of letting excess money accumulate without a real plan. We were able to divert some to maxing out our HSA (and investing rather than cashing out for claims) but we really need to make a decision. Over the past year we've slowly moved closer to the investment route vs. the mortgage payoff route, but as you can see, we haven't made an actual move yet!

    So I think our plan will be start out with $10K in VTSAX (this will get admiral shares and the lowest expense ratios), throw an extra payment or two on our mortgage ($2-$4K), and perhaps look at another $10K in some type of bond (doing some reading up on I-Bonds at the moment, thank you @runwad and @georgina).

    Now to deal with the fun of adjusting my 401k to better diversify the amount that's sitting in company stock...
     

    bernina

    DIS Veteran
    Joined
    Jan 25, 2014
    Georgina, how long do you hold I Bonds?
    From my very quick read on the subject you must hold a minimum of a year, and you pay a penalty of 3 months interest if you redeem between years 1 and 5. So basically you hold 5 years to avoid any sort of penalty (although in an emergency the 3 months interest after year 1 isn't awful). So not a candidate for a true emergency fund, however with enough prior planning it could be a good longer term liquid fund (assuming you have something else to cover the first 1-5 years depending on your appetite for paying a small penalty).

    I bonds - unlike the more popular series EE bonds, you pay the full value up front. The interest rate is made up of 2 parts - a fixed interest rate good for the life of the bond, plus another variable rate based on inflation which is adjusted every 6 months. I think they currently are paying a little less than 2%. Federal tax will be due upon redemption, but not state tax.

    I was fortunate to buy some in the year 2000 which are still paying 6% interest. They have tripled in value, but current ones are not paying that much.
    As @georgina posted above, whatever fixed rate you buy in at (say 0.5% which is the rate from May-Oct of this year), you're guaranteed to beat inflation by the amount of the fixed rate. The inflation indexed rate is calculated every 6 months and right now is at 1.4%. So the current 1.9% (0.5% + 1.4%) isn't any better than most high yield savings accounts, however, that 1.4% could increase. It's something that's worth evaluating after year 1 (even with the penalty) if the fixed rate has increased significantly. You could also set it and forget it and know that you're beating inflation by a fixed percentage (in this case 0.5%).

    Apparently there's also a small trick (sorry, it's the churner in me) where if you purchase towards the end of the month, you still get a full month of interest.

    There's a limit of $10K per SSN per year that you can purchase online (including for minors).

    As with US Treasury bonds, the interest is not taxable at the State level (you pay Federal taxes on redemption). You can hold up to 30 years which mean you could time your withdrawal during a year with a low tax rate.

    I haven't really read up on this next part, but apparently you can possibly avoid even Federal taxes on the interest if used for a qualifying higher education expense. There are income limitations (as of 2017 around $150K for married filing jointly) and the bond has to be in the name of a parent if intended to be used for a child (cannot be in the child's name). More here. It looks like it’s also possible to roll into a 529 and avoid taxes under certain conditions.
     
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    georgina

    DIS Veteran
    Joined
    Apr 21, 2003
    Very good summary! I'm holding mine for the full 30 years since my fixed rate is so good. They must have lowered the amount you can buy since I got mine because I bought more than $10,000 (still holding paper bonds!)

    60 minutes just re-ran the interview with Jerome Powell where he said they are working to keep inflation around 2%.
     

    QueenIsabella

    DIS Veteran
    Joined
    Jan 17, 2016
    We consider long-range to be 10+ years, and mid-range to be 3-7 years. Other people might have different definitions. In our scenario that I described above, we could use CDs instead of having so much in a money market account, but it's personal preference.

    Up until my MIL died and DH inherited, the vast majority of our investments were in retirement accounts, so very long-term and in mutual funds. It's been much more recently that we've had non-retirement assets to be actively managed, individual stocks, and college obligations--my MIL paid all college bills for her grandchildren while she was alive (wonderful gift!), so we inherited both the money and, of course, the responsibility. So, while we've been playing the retirement savings game for decades, we're fairly new to managing non-retirement assets. I'm still learning! Which reminds me, I need to steal back "The New Millionaire Next Door" from DH--I got it for him for Christmas, and he's not done with it yet. Grrrr!
     

    coast2coastmickey

    Mouseketeer
    Joined
    Apr 13, 2018
    Happy Sunday all!

    DH and I are debating about where to invest a portion of our liquid savings.

    Both of us max out our 401K, Roth IRA, DH maxes out and invests our HSA, and we’re both contributing members to our respective employers pension plans.

    We have a 4% interest rate on our mortgage and have about 8 years left of the fixed 15 year term. (~$165k balance remaining)

    Our liquid emergency fund consists of about $60k in high yield (2%) savings accounts. We also have another $60k available to us via a low interest rate HELOC. Of course our plan is never to pull from that but it’s there if needed.

    We’re looking at investing $20-$30k of our liquid emergency fund. Any suggestions for a safeish investment vehicle? Neither of us is really interested in playing the stock market (directly). I was thinking maybe VTSAX? Are there any other investment vehicles I should be researching?
    VTSAX is a stock market index fund. So if the stock market goes down 50%, you have lost half of the amount invested. That's possible, but fairly rare. Do you consider that "safe?" Personally I don't when you're talking about emergency fund money.

    I personally am weighted 100% stock funds in my retirement account. But my emergency fund? A silly boring savings account at the credit union. I don't care how much the interest is, because I'm not getting rich off of my emergency fund. It's there for emergencies, so I keep it there because it's easy to access, and it doesn't complicate my life.

    So in a round about way, I'm saying that maybe keeping your 60k where it's at is probably fine. It's doing its job, which is providing peace of mind for emergencies.
     

    MickeyMouseCD524

    DIS Veteran
    Joined
    Jan 26, 2010
    I would probably leave your emergency fund where it is. I currently have mine in a high yield savings account at another bank, and then I have an account with $1,000 in it at my regular bank. Just in case I need to pull out money immediately I know I have $1k ready to go and I don't need to wait the 2 days for it to transfer.
     


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