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Started By
Message
Recent College Grad looking to invest in Rainy Day Fund
Posted on 2/15/18 at 2:37 pm
Posted on 2/15/18 at 2:37 pm
Long story short, I graduated from University in May 2017 and recently started an accounting job. My company beneifts are solid and I have maxed out contributions to my 401k Target date 2055.
I want to start setting aside 10%-12% of my net pay to build a 6-8 month emergency reserve fund in case things go sideways.
What type of investment vehicle would this board suggest? I've read Mutual Funds have lower expense fees than ETFs and Money Market Funds are a good option.
Any suggestions? Thanks in advance.
I want to start setting aside 10%-12% of my net pay to build a 6-8 month emergency reserve fund in case things go sideways.
What type of investment vehicle would this board suggest? I've read Mutual Funds have lower expense fees than ETFs and Money Market Funds are a good option.
Any suggestions? Thanks in advance.
Posted on 2/15/18 at 2:41 pm to sonicsam
I have mine sitting in an Ally Savings Account. I think their rate just bumped up again to 1.45. Transfers are done in 1 or 2 business days which makes for getting the emergency fund easily accessible.
Posted on 2/15/18 at 2:43 pm to sonicsam
quote:
I want to start setting aside 10%-12% of my net pay to build a 6-8 month emergency reserve fund in case things go sideways
Savings account
Posted on 2/15/18 at 2:47 pm to sonicsam
Low risk accounts for Emergency funds. find a savings acct and make 1%+. Last thing you want, if you were to get in a bind and needed to pull money out, is for the market to take a 2,000 point dip like it did a couple weeks ago.
Posted on 2/15/18 at 2:48 pm to ATLdawg25
I'll look into some High Yield Savings Accounts, thanks!
Considering another one of my financial goals is to own my own house, what investment vehicle would you suggest?
High Growth Mutual Fund?
Considering another one of my financial goals is to own my own house, what investment vehicle would you suggest?
High Growth Mutual Fund?
Posted on 2/15/18 at 2:49 pm to ATLdawg25
I have a savings account at Barclays with a 1.5% rate at the moment. I've been happy with them
Posted on 2/15/18 at 2:51 pm to sonicsam
quote:
Considering another one of my financial goals is to own my own house, what investment vehicle would you suggest?
Savings account.
You're overthinking here. Mutual fund makes sense for money that you won't be touching for years. If you want to buy a house in 2 years, you're leaving yourself exposed to short-term market movements. Even if it trends up, the gains won't materially change what you are able to buy.
Just save up cash.
eta: this assumes you want to buy a house soon. If it won't be for another 15 years, then yeah go find a mutual fund.
This post was edited on 2/15/18 at 2:52 pm
Posted on 2/15/18 at 3:12 pm to sonicsam
Going to offer you an alternative to the possibilities listed here, which in my mind dogmatically ignores the considerable opportunity costs of such a significant sum.
I would have at minimum 1k, ideally 1 month expenses wholly liquid.
Pay off this months bills with last month’s income.
Get that done first, and maintain it.
Then open a Roth account and use that as your rainy day fund. I like the Wellington/Wellingsy (sp?) from Vanguard.
You get tax free growth, while you can withdraw contributions (and ONLY contributions) at any time with no taxes and penalties. If allowed to “season” for just a few years, it will have grown in excess of value of even a major recession. And the difference compounds each year it is allowed to.
The key is you need to keep some constant free cash flow, and seem some liquid, and don’t raid the account for every last thing.
And DCA it in, and build with time.
I would have at minimum 1k, ideally 1 month expenses wholly liquid.
Pay off this months bills with last month’s income.
Get that done first, and maintain it.
Then open a Roth account and use that as your rainy day fund. I like the Wellington/Wellingsy (sp?) from Vanguard.
You get tax free growth, while you can withdraw contributions (and ONLY contributions) at any time with no taxes and penalties. If allowed to “season” for just a few years, it will have grown in excess of value of even a major recession. And the difference compounds each year it is allowed to.
The key is you need to keep some constant free cash flow, and seem some liquid, and don’t raid the account for every last thing.
And DCA it in, and build with time.
This post was edited on 2/15/18 at 4:06 pm
Posted on 2/15/18 at 3:39 pm to Volvagia
quote:
Then open a Roth account and use that as your rainy day fund. I like the Wellington/Wellingsy (sp?) from Vanguard.
Interested to know more about this. Both of the names you mention are products with Vanguard, so not sure which one you're recommending. At any rate, I am about to have $40,000 that I need to put somewhere. About $17,000 of that will be needed by tax season next year. Probably less, but to be safe, I'm saying $17k. The remaining $23,000 can sit for another couple of years, at minimum. Likely a bit longer.
What's the best play in this scenario? Am I better off getting assistance from a financial advisor? I have little investment experience myself, so want to be sure it's directed properly.
Posted on 2/15/18 at 4:32 pm to S1C EM
quote:
Both of the names you mention are products with Vanguard, so not sure which one you're recommending.
I’m not. Both funds of a similar build with different levels of aggressiveness/bond allocation.
Dealer’s choice.
quote:
At any rate, I am about to have $40,000 that I need to put somewhere. About $17,000 of that will be needed by tax season next year. Probably less, but to be safe, I'm saying $17k. The remaining $23,000 can sit for another couple of years, at minimum. Likely a bit longer.
Saving account for anything with a defined use.
I just don’t like laying out tens of thousands of dollars sitting in an account getting eaten by inflation as a back up of what “might” happen.
Have conservatively invested assets, but don’t exit the game entirely with that.
Posted on 2/15/18 at 4:40 pm to ATLdawg25
quote:
Savings account
This. A 6-8 month 'rainy day' fund is supposed to be (or at least the way I look at it) readily available cash. Any sort of investment fund in the market will go up and down with the market; hence it's not very reliable as a 'rainy day fund'!
Posted on 2/15/18 at 4:49 pm to Volvagia
quote:
Saving account for anything with a defined use.
As of now, only the $17k will have a specific allocation. The rest will not.
So are you thinking the Roth is not a good choice here or is it due to contribution limits? I figured the fact you could pull the contribution funds at any time would make it a little better play than a standard savings account.
Posted on 2/15/18 at 4:56 pm to Roberteaux
quote:
Any sort of investment fund in the market will go up and down with the market; hence it's not very reliable as a 'rainy day fund'!
How many years do you plan to have it in play?
More than 10?
Because if so, you can suffer a “loss” of 50% of value and still come out ahead.
It’s all about risk tolerance.
But as far as the OP goes, a guy just starting out looking to park money for DECADES, an intelligently allocated Roth is the way to go.
You simply hold a relatively smaller amount of cash in accordance to your risk tolerance and transition as the Roth/taxable funds money “seasons” at a rate that is tolerable to you.
You just don’t go greedy and commit all of your liquid assets, and you don’t commit that designated amount to a more aggressive allocation.
Posted on 2/15/18 at 4:59 pm to S1C EM
Probably not due to the large volume.
The 5.5k/year limits help the scenario in the OP for a emergency fund both as a dollar cost averaging and a protection of overrcomitting your invested portion.
It’ll take a lot more creativeity to move the amount of money you are talking about.
But little stops you from starting Roth contributions now for your rainy day.
The 5.5k/year limits help the scenario in the OP for a emergency fund both as a dollar cost averaging and a protection of overrcomitting your invested portion.
It’ll take a lot more creativeity to move the amount of money you are talking about.
But little stops you from starting Roth contributions now for your rainy day.
Posted on 2/15/18 at 7:17 pm to sonicsam
Call me old school but I would never invest an emergency fund. When things go bad they go really bad and the last thing you need in an emergency is a fund that fell on hard times too.
I keep mine in 5 year CDs.
I keep mine in 5 year CDs.
This post was edited on 2/15/18 at 7:21 pm
Posted on 2/16/18 at 7:03 am to notsince98
You could spread the risk out.
8 months living expenses:
3 months in high yield savings account
3 months low risk mutual fund (or bond fund)
2 more moderate risk mutual fund (or dividend mutual fund)
8 months living expenses:
3 months in high yield savings account
3 months low risk mutual fund (or bond fund)
2 more moderate risk mutual fund (or dividend mutual fund)
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