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Suggestions for mid term savings/investments?
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Guest
PostPosted: Sat May 10, 2008 2:04 am    Post subject: Suggestions for mid term savings/investments? Reply with quote
I know the majority of the discussion in this group is about short
term (emergency savings) or long term (retirement) investing. Are
there any recommendations for investing on a mid term horizon, maybe 3
to 5 years? My wife and I both contribute well over matching to our
401ks. We've maxed out our roth for 2008. We have 40k which is our
emergency/home improvement/car fund in a high interest savings account
earning 4%.

After reading a few of Jim's posts, I started to wonder if I should
consider moving a portion of that money into a moderate mutual fund of
some type. Something that is relatively low volatility while still
being worthwhile by beating my 4% rate. The added benefit is it still
being liquid so that I could tap it "just in case". Would this be a
viable strategy? If so, are there any funds that I should take a look
at? I know that Jim was using PRPFX. Also, since the investment would
be held in a non-retirement account, I assume there are some tax
implications in play?

While I understand cds and savings accounts are safe investments, I
feel like I might be leaving some money on the table. I like the idea
of keeping enough for my actual emergency fund in the safe online
investment while having the opportunity to earn a little bit more than
the standard short term instruments. Your advice is appreciated.

Josh

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Ron Peterson
Guest
PostPosted: Sat May 10, 2008 9:40 am    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
On May 9, 4:04 pm, jdbs...@gmail.com wrote:

Quote:
After reading a few of Jim's posts, I started to wonder if I should
consider moving a portion of that money into a moderate mutual fund of
some type.  Something that is relatively low volatility while still
being worthwhile by beating my 4% rate.  The added benefit is it still
being liquid so that I could tap it "just in case".  Would this be a
viable strategy?  If so, are there any funds that I should take a look
at?  I know that Jim was using PRPFX. Also, since the investment would
be held in a non-retirement account, I assume there are some tax
implications in play?

Utility stocks or funds that specialize in them would probably have a
lower risk of severe loss, but still have a reasonable return. Oil and
gas pipeline stocks would also fall in that category.

--
Ron

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Sandra Loosemore
Guest
PostPosted: Sat May 10, 2008 6:44 pm    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
Ron Peterson <ron@shell.core.com> writes:

Quote:
On May 9, 4:04 pm, jdbs...@gmail.com wrote:

After reading a few of Jim's posts, I started to wonder if I should
consider moving a portion of that money into a moderate mutual fund of
some type.  Something that is relatively low volatility while still
being worthwhile by beating my 4% rate.  The added benefit is it still
being liquid so that I could tap it "just in case".  Would this be a
viable strategy?  If so, are there any funds that I should take a look
at?  I know that Jim was using PRPFX. Also, since the investment would
be held in a non-retirement account, I assume there are some tax
implications in play?

Utility stocks or funds that specialize in them would probably have a
lower risk of severe loss, but still have a reasonable return. Oil and
gas pipeline stocks would also fall in that category.

OP said 3-5 year time horizon.... I don't think equities, especially
individual stocks, are an appropriate investment for that short of a period.

I suggest the OP look at muni bond funds, which are an exceptionally good
deal right now. VMATX is currently yielding 4.19%; since that's exempt
from both federal (28%) and state (5.3%) tax for me, that's equivalent to
a 6.28% taxable yield.

-Sandra the cynic

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kastnna
Guest
PostPosted: Sat May 10, 2008 11:40 pm    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
On May 9, 4:04 pm, jdbs...@gmail.com wrote:
Quote:
I know the majority of the discussion in this group is about short
term (emergency savings) or long term (retirement) investing.  Are
there any recommendations for investing on a mid term horizon, maybe 3
to 5 years?  My wife and I both contribute well over matching to our
401ks.  We've maxed out our roth for 2008.  We have 40k which is our
emergency/home improvement/car fund in a high interest savings account
earning 4%.

Based on your posts, I would not consider most of your $40k to be
"midterm". You could need the "emergency" fund tomorrow, right? Is it
the same story for the "car" fund? Is there a risk that your
transmission could go out 6 months from now and cost $1500? Are you
under warranty for the next 5 years? It sounds like the only part of
your fund that is truly "midterm" MIGHT be the home improvement
portion.

I'm all for making my dollars work as hard as possible, but remember
that emergency funds aren't about the highest return but rather the
lowest volatility. Admittedly, I don't know the specifics of your
situation, but I suggest you move no more than the amount you are
POSITIVE you will not need in the near future. IMO, squeezing out an
extra 1 or 2 percent just isn't worth the potential principal loss.

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Guest
PostPosted: Sun May 11, 2008 2:06 am    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
Quote:
I suggest the OP look at muni bond funds, which are an exceptionally good
deal right now.

Thanks for the insight. Since I live in PA, I suppose I should look
at something that would avoid state income tax. What's your thoughts
on VPAIX? Also, these funds that we are discussing right now are not
subject to AMT, correct?

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Guest
PostPosted: Sun May 11, 2008 2:06 am    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
Quote:
Based on your posts, I would not consider most of your $40k to be
"midterm". You could need the "emergency" fund tomorrow, right? Is it
the same story for the "car" fund? Is there a risk that your
transmission could go out 6 months from now and cost $1500? Are you
under warranty for the next 5 years? It sounds like the only part of
your fund that is truly "midterm" MIGHT be the home improvement
portion.

Thanks, my intent was not to move the entire 40k. That's why in my
initial post I said "consider moving a portion" of the 40k, perhaps
5-10k. Also when I mentioned car fund, I meant purchasing another car
in the future which I do not anticipate for several years. Both of my
vehicles right now are relatively new with one of them still under
warranty. I agree with your assessment that it would be foolish to
move a large majority of my "emergency fund" into a volatile
investment. My thinking here though is I can afford to take some risk
on a portion of those funds for the increased return. The fact that
the entire 40k is sitting in a savings account is really because of
convenience, not because I felt a need for 40k in an "emergency fund".
But I'm open to the opinions of the group. Maybe I shouldn't try to
get too greedy and just leave it all in the safe investment?

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Paul Michael Brown
Guest
PostPosted: Sun May 11, 2008 2:06 am    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
Sandra Loosemore <noreply@frogsonice.com> wrote:

Quote:
I suggest the OP look at muni bond funds, which are an exceptionally good
deal right now. VMATX is currently yielding 4.19%; since that's exempt
from both federal (28%) and state (5.3%) tax for me, that's equivalent to
a 6.28% taxable yield.

This is a good suggestion. But we don't know the original poster's
marginal rate. Assuming he pays enough taxes to benefit from the tax
exemption, another investment that's more aggressive than cash but less
so than equities is a closed end munibond fund. I own BYM, which yields
more than five percent at its current price. Beware, however, that most
closed end funds use leverage and that adds volatility that you don't
get with an unleveraged, open-end munibond fund.

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Elizabeth Richardson
Guest
PostPosted: Sun May 11, 2008 4:18 am    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
<jdbst56@gmail.com> wrote in message
news:0249a1a6-4e66-43f2-95c8-2dfa02b4c641@d1g2000hsg.googlegroups.com...
Quote:

Thanks, my intent was not to move the entire 40k. That's why in my
initial post I said "consider moving a portion" of the 40k, perhaps
5-10k.

Well, 1% of $10k is $100. I can't say that $100 is worth it to you to accept
some greater risk (risk that you'll lose money just when you can ill afford
it), but it wouldn't be to me.

Elizabeth Richardson

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Sandra Loosemore
Guest
PostPosted: Sun May 11, 2008 5:11 am    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
jdbst56@gmail.com writes:

Quote:
I suggest the OP look at muni bond funds, which are an exceptionally good
deal right now.

Thanks for the insight. Since I live in PA, I suppose I should look
at something that would avoid state income tax. What's your thoughts
on VPAIX? Also, these funds that we are discussing right now are not
subject to AMT, correct?

Well, if I lived in PA, I'd have my bond allocation in VPAIX instead
of VMATX. Smile

Re AMT, see Vanguard's web site:

https://personal.vanguard.com/us/planningeducation/taxcenter/PEdTaxAMTInfoContent.jsp

"Most Vanguard municipal bond fund managers sought to limit their
funds' investment in private-activity bonds in 2006 and 2007. However,
the funds are not, and likely will not, be completely AMT-free. By
prospectus, Vanguard municipal funds may invest up to 20% of assets in
private-activity bonds."

I know there are national muni bond funds that are AMT-free by prospectus
but it may be harder to find one specific to a given state. The Vanguard
funds have the advantage of very low fees, at least.

-Sandra the cynic

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Guest
PostPosted: Sun May 11, 2008 6:06 am    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
Quote:
This is a good suggestion. But we don't know the original poster's
marginal rate.

Combined income for 2007 was 105k. Taxable income was 83k.

Thanks

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anoop
Guest
PostPosted: Sun May 11, 2008 11:05 pm    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
On May 9, 2:04 pm, jdbs...@gmail.com wrote:
Quote:
I know the majority of the discussion in this group is about short
term (emergency savings) or long term (retirement) investing. Are
there any recommendations for investing on a mid term horizon, maybe 3
to 5 years?

If you are certain you won't need the money for 5 years,
you can look at buying I-bonds. The rate right now is
not that great, but is probably better than CDs. As an
added bonus the interest may be tax-deferred until the
bonds are cashed and is not subject to state income tax.
Also, there are some cases where the interest can be
completely tax-free if the bonds are used for education
and the AGI is within certain set limits for the year
in which they are redeemed.

Quote:
While I understand cds and savings accounts are safe investments, I
feel like I might be leaving some money on the table.

I don't think you're leaving money on the table. You are
leaving the potential for greater reward along with the
accompanying risk. There is nothing wrong with sitting
in safe investments for money that you might need 5 years
down the road if that is what helps you sleep better at night.

Anoop

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Guest
PostPosted: Mon May 12, 2008 8:13 am    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
anoop <ghanwani@gmail.com> writes:

Quote:
If you are certain you won't need the money for 5 years,
you can look at buying I-bonds. The rate right now is
not that great, but is probably better than CDs. As an

Only because inflation has kicked up for the moment.

US Treasury Series I bonds are paying the lowest fixed-rate
since they were introduced. Since the first of this month,
the fixed rate portion of I-bond interest is now ZERO percent.

The current overall earnings rate is an annualized 4.84% -
a combination of the ZERO fixed rate and the inflation
rate as measured by the CPI-U.

Six months from now, that inflation portion may go down,
but any I bonds purchased now will keep their zero fixed
rate.

By comparison, when they were first introduced, the fixed
portion started at about 3%. Folks who bought them anytime
from '98 to 2000 are earning as much as 8+% now, given the
currently high inflation and fixed rate portions of 3.3 to
3.6%.

I'm not sure I'd want to lock in that zero percent fixed
rate, even with the (temporary) nominal 4.84% rate. If
one does want that inflation protection, it may be worth
putting the I-bonds off until November (or later) when
(hopefully) the gov't will give a more generous fixed rate.
In the meantime, the money may be parked in 6-month CDs
or in funds invested in short-term bonds.

Here's the info on historical rates on the I-bonds:
<http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm>

In fact, in general, in response to the OP's original
question, a short or short-mid term investment grade bond
fund might be just what he's looking for anyway.

By way of example, the Vanguard short-term investment grade
bond fund is currently yielding 4.87%, is rated 5 stars by
MStar, and hasn't had a negative year in at least 10 years,
has only had two negative quarters in that time, and has had
a 10 year annualized total return of nearly 5%. (in '94,
it actually had a total return of -0.08%, the only down year
since it started, and that was sandwiched between two years
of +12.74% and +7.07%). That fund is VFSTX.

For a taxable account, there are very similarly good short
to mid term muni bond fund worth looking at, too, especially
for folks in high tax brackets and in high tax states.

These will all likely do better than CDs or I bonds, at
least over periods of more than a couple of years, with vastly
less risk than even the most conservative equity funds.

If anyone out there was lucky/smart enough to load up on
I-bonds in 98-00, hang on to those! I bought some and wish
I'd bought a lot more. Of course, it was very hard to
convince people to buy such conservative things during that
particular period of time, give what was happening in certain
very well advertised parts of the stock market...

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

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Rich Carreiro
Guest
PostPosted: Mon May 12, 2008 8:36 am    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
BreadWithSpam@fractious.net writes:

Quote:
If anyone out there was lucky/smart enough to load up on
I-bonds in 98-00, hang on to those! I bought some and wish

Of course, one can't really "load up" on savings bonds
any more, even if the rates were favorable, now that the
annual purchase limit was reduced from $30K to $5K.

--
Rich Carreiro rlc-news@rlcarr.com

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Guest
PostPosted: Mon May 12, 2008 2:15 pm    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
Quote:
By way of example, the Vanguard short-term investment grade
bond fund is currently yielding 4.87%, is rated 5 stars by
MStar, and hasn't had a negative year in at least 10 years,
has only had two negative quarters in that time, and has had
a 10 year annualized total return of nearly 5%. (in '94,
it actually had a total return of -0.08%, the only down year
since it started, and that was sandwiched between two years
of +12.74% and +7.07%). That fund is VFSTX.

I assume that a fund like VFSTX would be exempt from federal tax but
not state tax (PA tax is 3.07%)?

It seems to me that the general consensus says that it is not worth it
to try to squeeze an additional 1-2% at the risk of principal loss.
For the sake of argument, at what point is it worth it? Maybe it
never is? If one had 100k in liquid savings, would the risk be
warranted to invest the "non-emergency" portion of those savings in an
effort beat the normal CD/savings return by using a bond fund or
similar? Obviously there is a price to be paid for liquidity, and a
true emergency should be kept in a low risk, liquid savings account.
There is also a risk in trying to increase yield. But, is there not a
risk in failing to capitalize on your non-emergency cash flow? For
example, if inflation is at 4%, and one invests non-emergency cash in
a CD or savings account that is earning around the same minus taxes,
that person is losing money, no? I suppose the answer to this would
be to invest in long term instruments like 401ks, IRAs, etc. However,
maybe the point of this cash is for a rainy day type fund that isn't
necessarily emergency but not retirement either. I suppose the cost
to benefit ratio really isn't in favor of a mid term investment of
this type, and probably accounts for the fact that many people only
view investments in terms of short term emergency savings and
retirement.

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Sandra Loosemore
Guest
PostPosted: Mon May 12, 2008 5:11 pm    Post subject: Re: Suggestions for mid term savings/investments? Reply with quote
jdbst56@gmail.com writes:

Quote:
I assume that a fund like VFSTX would be exempt from federal tax but
not state tax (PA tax is 3.07%)?

No, it's the other way around: US government bonds are exempt from state
tax, but you still have to pay the feds. (A national short muni bond fund
would be exempt from federal tax but you'd still pay state tax.)

Quote:
It seems to me that the general consensus says that it is not worth it
to try to squeeze an additional 1-2% at the risk of principal loss.
For the sake of argument, at what point is it worth it? Maybe it
never is? If one had 100k in liquid savings, would the risk be
warranted to invest the "non-emergency" portion of those savings in an
effort beat the normal CD/savings return by using a bond fund or
similar? Obviously there is a price to be paid for liquidity, and a
true emergency should be kept in a low risk, liquid savings account.
There is also a risk in trying to increase yield. But, is there not a
risk in failing to capitalize on your non-emergency cash flow? For
example, if inflation is at 4%, and one invests non-emergency cash in
a CD or savings account that is earning around the same minus taxes,
that person is losing money, no? I suppose the answer to this would
be to invest in long term instruments like 401ks, IRAs, etc. However,
maybe the point of this cash is for a rainy day type fund that isn't
necessarily emergency but not retirement either. I suppose the cost
to benefit ratio really isn't in favor of a mid term investment of
this type, and probably accounts for the fact that many people only
view investments in terms of short term emergency savings and
retirement.

I think a large part of it is how much you have in the way of other
assets. If your $25K emergency fund is all you have, you probably
don't want to take any chances with it. If you have $250K in your
taxable investment account and your mortgage is paid off, losing
perhaps a few hundred dollars of pricipal if you have to tap into your
bond fund in an emergency seems like not such a big deal. If you're a
multimillionaire, you may figure, why take risks at all? and swing
back to keeping all your money in only the safest of investments.

-Sandra the cynic

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