I Finally Setup My Target Index Fund! But...?

Investing
#1

Hey Jeremy! And Hello Everyone!

Jeremy, Thank you so much for your awesome course! It took me some time but I finally opened up a Vanguard Target Index Fund with 300k [VFFVX]

I have about 400k set aside I was going to use towards a downpayment of a home but my wife and I decided we’re going to wait it out for a bit.

QUESTION: Any recommendations on where we should park the cash for 3+ years (there’s a chance we won’t need this cash but I want it to be fairly liquid just in case).

I was thinking of putting the cash in the VFFVX fund for a little bit and taking it out if/ when I need it. Any other ideas on where I can park the cash?

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#2

Good afternoon,

I suppose the first question would be if your conscious of it being liquid enough over the next couple of years what would you potentially be using it for?

Would you be comfortable with loosing some money over the next 2 years say? Because that could happen, remember the S&P has an average of around 22% but that’s mainly when invested for the long term. Some years have a much bigger profit but some years are ‘down’ years too… 2021 & 2022 could be down or flat years? Unlikely, but could be.

Are you guys set on the idea of being home owners? You could rent forever and not own your primary residence and pay for your lifestyle with dividends and the 4-5% from the trinity study example and still grow your portfolio in retirement.

Just my two cents though. :+1: by the way, congrats on having the 400k to invest in the first place that’s awesome!

Tom

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#3

Hi Tom,

Good point on the possibility of losing money, since potentially those funds would be “shorter term”.

Over the last few years I’ve been ignoring my investments and cash and focusing too much on my business - not smart though as the cash could be working for me.

Yes, I’m okay with losing the cash. I’m okay with just renting but I have a feeling my wife wants a house, eventually, and we have 2 young kids…

Trinity study example? Sounds like something I need to search for.

Thanks again for your input!

#4

Hi, just curious where you’re getting the S&P 500 22% average annual return number? That’s not accurate unless you’re talking about a specific time frame

1 Like
#5

Hiya,

Well you passed the test… well done.

Haha sorry supposed to say around 12% average. :+1:

Tom

#6

Well if you can handle seeing a minus number / percentage on your portfolio then you’ll be fine investing. But I would say make sure you talk it through with your wife and get aligned and understood on what both of you want going forward regarding buying vs. renting as it could be something engrained from her childhood which is telling her to buy and you don’t want to be pushing against each other.

Search trinity study 4 percent rule on google, basically it was paper put together by 3 professors at Trinity University looking at a ‘safe withdrawal’ rate for a balanced portfolio with the idea of not running out of money during retirement. So this is linked to your FIRE number, financially independent retire early. So you would take your living expenses per month, X by 12 to get that per annum. Then take your yearly expense number and times by 25. That’s you’re fire number if you withdraw 4% per year from your portfolio once accounting for growth and dividends. Mine for example is,

2,000 X 12 = 24,000 per year.
24,000 X 25 = 600,000 - Fire Number
600,000 X 0.04 (4%) = 24,000

If I had my 600,000 in an index fund and it grew at 8% per annum, and I withdrew the equivalent of 2,000 a month after 10 years it would have grown to £935,106.45

So it grows over time too even though you’re withdrawing a little from it and not working.

Just for context the fund I invest in through Vanguard is currently up 16.35%… and I got in well after March 2020 :stuck_out_tongue_winking_eye:

Tom

#7

Oh shoot, the T’s are multiplying! we now have Tom and Thomas! #LOL

Following this thread since I’m in the exact same position as OP @drizzlesd