Right on. I’ve been feeling like I just want all of the non-checking to be in the tax advantaged money market accounts, nothing in high yield savings accounts. Other than FDIC, I can’t think of a lot of downsides?
Why a one year bucket rather than just take any cash you need from either equities or bonds to maintain your asset allocation split the way you want it? If bonds are up, take your emergency cash by selling those, and if equities are up, rebalance by selling those? Or a bit from each if you’re already at 75/25 or 60/40 or whatever floats your risk boat…
You have to do that when you rebalance annually, quarterly or even monthly, so why do buckets? Purely self-paychology? Because you don’t like the idea of harvesting when market is down?
The returns are better if you don’t maintain a year’s worth of cash all the time. Cash is a drag, literally.
I am still ironing out the final withdrawal mechanics. I was also thinking through how to segue the emergency fund into a FIRE tool when you are near the final years of accumulation.
Maybe it is a bucket, maybe it is a glidepath... good ERN post on the strategy: https://earlyretirementnow.com/2021/09/14/bucket-strategies-swr-series-part-48/ "a cash bucket faces challenges when interest rates are low but it certainly works if you deploy it right at the peak of the market. Depending on what kind of bear market we go through, though, the cash bucket might work better or worse than diversifying with a bond portfolio. If you fear an upcoming inflation spike the cash pile will be the better option. If we face another demand-side recession where the Federal Reserve will try to push down the bond term structure again, then government bonds will be better."
Yeah, market timing is seductive. I do some of that with glide paths (not really market timing, but risk on vs risk off timing based on expected withdrawal rates) and asset (re-) allocation decisions (diversification choices), but generally I attempt not to! Might not be a bad time to keep extra cash rn, but call it what it is: market timing.
Or, **always** maintain a cash allocation, and call it diversification (a three fund portfolio: equities, bonds, and cash), or as Karsten calls it, “diworsesification” … because, per my original point, cash is a drag, pretty universally. Cederberg’s work actually now recommends a global allocation to only equities and not bonds at all, claiming it works better as a diversifier than adding bonds to the mix. ¯\_(ツ)_/¯
I’m curious what led you to open so many different accounts in the first place before the simplification efforts? Why have brokerage/retirement accounts AND Ally Invest? And why multiple Chase accounts? Was it just an attempt to spread risk around?
Ah that feeling when you simplify something to make your life easier is oh so good. For me it’s been consolidating some holdings in my investment account.
My emergency fund looks pretty similar. Although we utilize a savings at the bank we have a checking account in. Then I had additional months of expenses in Fidelity money market funds.
I’d look into something like wealth front but more accounts through different financial institutions would be harder on my wife at this time
The focus is all on the after-tax yield. I am agnostic if it is state tax exempt, federal tax exempt, exempt from both, exempt from nothing, just going with whichever provides the highest in after-tax terms. There is a link to the forumpost on the spreadsheet I use to calculate this.
How do you judge the differences between VUSXX and VCTXX in terms of tax aware treasury/muni money market funds for California? Is VUSXX truly CA tax exempt and has 50% higher yield over the CA fund?
Take a look at the MM optimizer I linked to from a bogelhead forum user. It has every comparison you would want.
The key is to remember one may be tax exempt at the state level while the other at the federal level. So the actual difference in yield tends to be much smaller.
It's so awesome that you're transparent with how much you were paid for an ad, and CoIs! I've always been curious how much influencers get paid :)
Why do you still have three tiers - why not just go with either Wealthfront or the money market? Is it about having more in an FDIC bucket?
I honestly think it's more of a psychological element of having clear separation between different account types.
FDIC is less of a concern since many banks, like Wealthfront, are utilizing partner banks which can greatly expand the coverage of FDIC insurance.
Right on. I’ve been feeling like I just want all of the non-checking to be in the tax advantaged money market accounts, nothing in high yield savings accounts. Other than FDIC, I can’t think of a lot of downsides?
Why a one year bucket rather than just take any cash you need from either equities or bonds to maintain your asset allocation split the way you want it? If bonds are up, take your emergency cash by selling those, and if equities are up, rebalance by selling those? Or a bit from each if you’re already at 75/25 or 60/40 or whatever floats your risk boat…
You have to do that when you rebalance annually, quarterly or even monthly, so why do buckets? Purely self-paychology? Because you don’t like the idea of harvesting when market is down?
The returns are better if you don’t maintain a year’s worth of cash all the time. Cash is a drag, literally.
I am still ironing out the final withdrawal mechanics. I was also thinking through how to segue the emergency fund into a FIRE tool when you are near the final years of accumulation.
Maybe it is a bucket, maybe it is a glidepath... good ERN post on the strategy: https://earlyretirementnow.com/2021/09/14/bucket-strategies-swr-series-part-48/ "a cash bucket faces challenges when interest rates are low but it certainly works if you deploy it right at the peak of the market. Depending on what kind of bear market we go through, though, the cash bucket might work better or worse than diversifying with a bond portfolio. If you fear an upcoming inflation spike the cash pile will be the better option. If we face another demand-side recession where the Federal Reserve will try to push down the bond term structure again, then government bonds will be better."
Yeah, market timing is seductive. I do some of that with glide paths (not really market timing, but risk on vs risk off timing based on expected withdrawal rates) and asset (re-) allocation decisions (diversification choices), but generally I attempt not to! Might not be a bad time to keep extra cash rn, but call it what it is: market timing.
Or, **always** maintain a cash allocation, and call it diversification (a three fund portfolio: equities, bonds, and cash), or as Karsten calls it, “diworsesification” … because, per my original point, cash is a drag, pretty universally. Cederberg’s work actually now recommends a global allocation to only equities and not bonds at all, claiming it works better as a diversifier than adding bonds to the mix. ¯\_(ツ)_/¯
I’m curious what led you to open so many different accounts in the first place before the simplification efforts? Why have brokerage/retirement accounts AND Ally Invest? And why multiple Chase accounts? Was it just an attempt to spread risk around?
Lots of sign up bonuses over the years! I’d collect a bonus for me then another for my wife. Or chasing every last % interest rate.
I had a crazy web of transfers across accounts to keep them active.
I return on hassle from playing these games changed last year. Needed to change what I was optimizing for!
Ah that feeling when you simplify something to make your life easier is oh so good. For me it’s been consolidating some holdings in my investment account.
My emergency fund looks pretty similar. Although we utilize a savings at the bank we have a checking account in. Then I had additional months of expenses in Fidelity money market funds.
I’d look into something like wealth front but more accounts through different financial institutions would be harder on my wife at this time
Andre, I default use Wealthfront Cash/HYSA Account for liquid savings necessity instead of a traditional savings account. Recently came across this post - https://www.linkedin.com/posts/ankurnagpal_i-no-longer-use-a-high-yield-savings-account-activity-7379562919560253440-J_cH - talking about tax-advantaged money market funds.
What do you think of this option as an alternative to HYSA?
That is essentially what my tier 3 in this post is. It isn't as complicated as the post makes it out to be.
why not pick a money market fund that also offers federal exemption?
The focus is all on the after-tax yield. I am agnostic if it is state tax exempt, federal tax exempt, exempt from both, exempt from nothing, just going with whichever provides the highest in after-tax terms. There is a link to the forumpost on the spreadsheet I use to calculate this.
How do you judge the differences between VUSXX and VCTXX in terms of tax aware treasury/muni money market funds for California? Is VUSXX truly CA tax exempt and has 50% higher yield over the CA fund?
Take a look at the MM optimizer I linked to from a bogelhead forum user. It has every comparison you would want.
The key is to remember one may be tax exempt at the state level while the other at the federal level. So the actual difference in yield tends to be much smaller.