On Mar 31, 7:09 pm, joetaxpayer <joetaxpa...@[EMAIL PROTECTED]
> wrote:
> jIM wrote:
> > I am reviewing some account information and making sure I understand
> > what is generally recomended.
>
> > We have savings for 4 reasons:
>
> > 1) Emergency fund with 3 months expenses (in a 90 day CD ladder)
> > 2) Retirement (160k, invested in nearly 100% equities)
> > 3) Mortgage paydown fund (invested in PRPFX). This doubles as a
> > secondary emergency fund, so investment risk is moderate at best.
> > 4) HSA- this is a new one- It finally has enough money to invest (I
> > need to keep some of it in cash for current medical expenses, and the
> > rest of it could be invested).
>
> Well, first, congrats on the new kids. I don't really understand (3). If
> it's an emergency fund, treat it as such. It stays liquid. But then how
> is it different than (1)? You might want to cap 1+3 at 6 months'
> expenses and choose between actually paying down the mortgage or putting
> it in your retirement ****tfolio.
>
> Are you able to contribute to a Roth? That's one hybrid choice to
> consider, as deposits may be withdrawn with no penalty, but if no
> emergency comes up, you can ****ft it to more aggressive investments.
> Joe
Maybe I gave too much information to distract from the question. The
question is do HSA's count in normal asset allocation, and do
emergency funds count in normal asset allocation? I don't think they
do (based on the time horizons of each account need or liquidity need
of each account).
The 160k I have is a combination of 401ks, rollovers and Roths.
I don't think it's prudent to keep 6 months expenses in cash.
Interest rates are way too low and 1-3% growth is not what I think is
prudent for (in my case) 24k of assets (that is 16% of my ****tfolio
and I am only 35 yo).
So my compromise (to myself) was 3 months expenses in CDs and 3 months
expenses in a moderate investment.
My wife wanted to pay down the mortgage once we hit 3 months expenses
(where as I was in camp to invest instead of paying off). So what I
did was combine all 3 into one "objective". Keep 6 months expenses,
but make sure some of this is in an investment which will beat
mortgage rate (5.75%) while also being relatively stable in value
(preserve my investment). The mutual fund is quite moderate (PRPFX),
it does not quite have 3 months expenses in it yet, but should within
18 months. I want to keep at least 3 months expenses in this, as this
fund also becomes the "new roof" fund, the "new water heater" fund,
and the "problem/crisis" fund.
If we used the 12k slated for this initially to pay down mortgage, we
could not easily tap into it to get a new roof or new water heater.
If we used the 12k in a cash account, it would not grow faster than
the mortgage would be costing over any time period (debt is costing
5.75% before taxes).
If we only kept 3 months in EF, it may not cover cost of new roof,
water heater or similar expense.
HSA- this is like a reverse lifecycle fund. I see a need to keep 2
years medical expenses in cash, then have the rest grow-grow-grow for
when I have higher expenses later. 2 years expenses makes sense in
that I need to have $X in money market (by account rule) before I can
invest $Y amount to grow. $X is probably 1 years expenses for me, so
having 2 years expenses gives me a chance to not withdraw investment
out in a down year to meet plan rules.
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