Our savings account just lost $20,000.

Put up or shut up. 

I don’t know how many time’s I’ve written about short-term investing, specifically in taxable investment accounts. I just know it’s been too many considering I am yet to contribute a single penny to one.

I mean, one of my top referring blog posts of all time was titled “If you have more than $10,000 in the bank, I think you’re silly.” Yet here I am, being a big ol hypocrite, keeping much more than that in my own savings account.

It’s easy to tell other people what they should do. It’s hard to make those changes myself.

We’ve had a boat load of cash in savings for years now, at one point breaking $100,000. But now that we’ve bought a place, spent our down payment money, and have a good idea of what our monthly expenses are, it’s time to put my money where my mouth is. 

AND FINALLY DO IT.

A few days ago, we withdrew $20,000 from our savings account and plan on dropping it in our taxable investment account this week.

But Ninja, why would you do this when the dow is at an all time high? 

Because I can’t time the market, that’s why. Anyone that invests should understand that their goal is for the markets to always trend towards an all-time high. Yes, they are at an all time high right now, but ten years from now they should theoretically be at a NEW all time high.

How will I be investing this money? 

Probably in this vanguard fund, VTTVX. It’s a target retirement fund for people looking to retire in 2025, ten-ish years from now. It’s split between 70% stocks and 30% bonds. I like this because it is equity heavy, and I’m aggressive, but still provides a little relief in the event the markets plummet.

Target retirement funds are not the most efficient taxable investments.

Who freakin’ cares. Wanna know what isn’t efficient?

Wasting hours of my life trying to figure out what is the most efficient means of investing.

Or how about having $100,000 in a savings account earning 0.7%, when the markets shoot up 30%. I’m not trying to beat the market. I’m simply trying to earn a reasonable 3% to 6% return with minimal effort on my part. This account should do just that.

You look really sexy. 

Thanks.

Don’t you have a baby on the way? This seems risky. 

Yes, Baby Ninja is coming in June. And he is exactly the motivation I needed to finally get this taxable investing thing going.  Girl Ninja and I racked our brains, trying to think of what major expenses are on the horizon, and couldn’t come up with anything in the next five to ten years. Since we don’t envision needing this $20,000 at any point in the near future, the only logical thing to do was put it in some type of investment so it hopefully grows faster than inflation.

What if the markets tank? 

Even if the markets drop 50% in one year, which is almost unheard of, we’d still have $10,000 of our original $20,000 investment. It’s not like I’m putting all my chips on black okay. Is this a risk? Sure, but a calculated one.

If that doesn’t answer all of your questions about why now is finally the right time for the Ninja household to start short-term investing, feel free to ask them below and I’ll do my best to get back to ya.

Remember, it’s not about working harder, but working smarter 🙂

25 thoughts on “Our savings account just lost $20,000.

  1. I’m still bewildered with investment choices. I think I will be going the dividend paying stocks route myself. In regards to investing in something that carries bonds in it, I keep hearing Suze Orman saying to stay away from them because interest rates have nowhere to go but up which will cause bonds to fall in value. Is this not true?

    • I don’t pay attention to Suze Orman, but the answer to your question is yes. If you are holding bonds to maturity, the changes in value as interest rates change won’t matter as you will just get the stated coupon rate (provided you purchased the bond at par value). If the bond is not being held to maturity, the changes in interest rate will affect the bond price & in general, as interest rates go up, bond prices go down. It’s why there were high withdrawals from bond funds in 2013.

    • Well, yes, but that oversimplifies the issue considerably. If you are holding a well-diversified bond fund, you will have pieces of numerous bonds purchased at various maturities and interest rates. In addition you can reduce risk by purchasing bonds that have short maturities (like short-term treasuries) as well as bonds like I Bonds and TIPS that have some protection against inflation. Besides, holding bonds in a portfolio gives you the benefit of diversification, as asset classes like stocks and bonds often do not correlate in value, and thus holding a well-diversified set of assets (including possibly real estate, cash, even commodities) helps reduce the overall volatility of your portfolio. A simple and highly effective way to achieve this result is simply to buy into a target fund such as Ninja describes, and since he’s using Vanguard, he’s keeping his fees low. As for Suze Orman, I think she’s all right when talking about debt reduction, but her investment advice seems to me simplistic and unreliable.

      • “Well, yes, but that oversimplifies the issue considerably.”

        The editor failed me. That sentence was in reply to SC’s “Is this not true?” and not MelissaZ’s comment.

  2. From what I recall you may only have one ROTH account and already contributed your 5500 annual limit. Since Girl Ninja is an income earner why not drop 5500 into a ROTH for her and the remaining 14500 into the taxable account?

    • Correct we only have one ROTH. We have been putting plenty away for retirement over the years and have no desire to increase contributions even more. I only benefit from my retirement accounts when I’m 65.

      It’s time for me to start thinking about ways I can benefit from my investing when I’m 40. Hence the reason for a taxable account.

      Would you rather have $5 million waiting for you when you are 60, or $1 million when you turn 40 and another $2.5 million when you turn 60?

      I’m taking the second option every time.

      • Totally with you there Ninja, but just to be clear, you absolutely can take money out of your ROTH when you are 40 without penalty. In fact, you can take everything you put into your ROTH out anytime you want, just not the earnings. Depending on just how early you plan on retiring, it’s something to think about.

  3. Hey Ninja – so after this move how much will you have in cash liquidity available at your finger tips (wo pressure to sell at a bad time in the short term fund)? I too would like to have a short term investment option, but am thinking we should wait until our savings hits 6 months of emergency expenses (in the scenario we both lose our jobs). Thoughts?

    • We will be left with $10k to $15k in our savings account. But remember in the event we lost our jobs and ran out of savings I could liquidate either my Roth or this taxable account. Consider then second tier emergency funds with the potential to grow faster than my savings.

  4. You can achieve the basically the same allocation for cheaper if you were to go with admiral shares. The expense ratio on VTTVX is .17% (no admiral option available for target retirement funds), if you went with $30k instead of $20k, you could do $20k in VTSAX (Total US Stock Index – Admiral) at .05% and $10k in VBTLX (Total US Bond Index – Admiral) at .10%. Your weighted expense ratio would be .067% instead of .17%, and you’d be 67% stock / 33% bonds.

    Even if you still only went with $20k, you could do $14k in VTSAX at .05% and $6k in VBMFX (Total US Bond Index – Investor) at .20%, your weighted E/R would be .095%, still cheaper than the target retirement fund for the same 70/30 split — except there’s no international equity/bond exposure.

    • Lose out on some of the diversification VTTVX gives me as well as the automatically redistribution as 2025 approaches. I like your style but for this account I want to keep things really simple and not have to spread things out and track my allocations. Even at .17% it’s still a rather small fee compared to non vanguard funds.

      • I just read an article “Are Target-Date Retirement Funds Doing Things Backward?” that was pretty interesting. Although it was on yahoo finance, it made some interesting points.

        • I read the article. It offers what it now fairly standard information. But notice that although Ninja is about 30, he’s looking at a fund for 2025 rather than 2050, when he’ll reach normal retirement time. You don’t have to choose a target fund based on your expected retirement age, but rather based on the allocation you now prefer. And this fund is only one component of his portfolio; to see his total allocation you’d have to add in any other investments he now holds. Maybe the 30% bonds in this target fund amounts to only 5-10% of his total holdings. As for the eventual glide path, it used to be common wisdom that one should hold one’s age in bonds. But as people are growing older and need more assets in retirement, this conventional wisdom has come under question as being too conservative. I myself am just past 65 and plan to hold a 50-50 stock/bond split until I die. If I had held my age in bonds I would have lost out on the huge stock rally of 2013; as it is, I didn’t make as much as a more aggressive investor who was holding 80-90% in stocks, but I didn’t lose out either.

    • I’ll be using Wells Fargo because I have PMA benefits which waive trading fees. If I didn’t have PMA status I would likely open a vanguard account since they also waive many of the fees.

  5. Great minds think alike – I finally pulled the trigger and moved half (10k) of my e-fund from a money market account into stocks – VTSAX specifically (based on the blog posts at jcollinsnh). I sure wish I’d made this move a year or three ago, but I wasn’t in the right mental or financial spot for it!

    I had planned to pay ahead on my mortgage rather than invest, but my rate is 3.35% so it seems very clear that over any length of time, I’m better off investing. I’ve decided this investment account is my pay-off-the-house fund. If all things stay the same in my life (ha!) I should be good for payoff in about 19 years – and that’s assuming a very conservative (5%) return.

  6. When will you have a name for your baby? Also, when did you design the new blog header? Why didn’t you consider buying a burrito shop and putting it closer to us than Seattle? 🙂 That would make you MOULA!

  7. For some reason my name for the baby can’t be posted on that blog. Hope this works:
    Pierson (or Pearson if you prefer that spelling)

  8. Interesting that you want it to automatically rebalance to a more conservative (i.e. more bonds, less stock) allocation by 2025, given your young age, the fact that your future ninja kiddo won’t be college age by then, etc. I would have gone with a fund that doesn’t auto-adjust down the allocation more conservatively, since this is long-term growth money.

    If I were you, I would have gone with a Vanguard LifeStrategy Balanced Fund, which is very similar to the VTTVX, but just remains at the same allocation forever. LifeStrategy Growth, for instance, maintains a permant 80-20 stocks-bonds split (including international). LifeStrategy Moderate Growth is 60-40, LifeStrategy Conservative Growth is 40-60, and LifeStrategy Income is 20-80.

    But, your mileage varies, and it’s still a GREAT fund. Congrats on making the move!

    • Ah I’ll have to check out that fund you recommended. Sounds appealing.

      I should clarify though, these funds are for shorter term use. Would like to be able to tap them in 10 yrs if we decide, hence the reason we are being a little more conservative.

      My retirement funds are 100% equities.

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