Andre, as I waited for this article I wondered what new and different can one do to optimize a simple liquid investment and you didn't disappoint. Thank you. It's good to know of all these options. I've always had my 6-mo emergency fund invested in 6 CD's one for each month so I don't have to cash them all out at once: 3 No-penalty CDs and 3 5-yr CDs. But with the recent Savings yield being higher than my 5-yr CD I recently cashed them out and with a 5-mo penalty! I've since had the funds in my HYSA as the rates keep increasing. I will now consider some of your options to maximize them. Please clarify:
1. You probably have a lot of different accounts for each of your Emergency Fund tiers and FIRE investments. Isn't it difficult to manage them if you are opening and moving funds around often? And where's your primary account for monthly expenses?
2. Is your liquid Emergency Fund part of your 90:10 bonds allocation? When you max out your iBonds limit for your Emergency Fund, where do you invest the 10% bonds portion of your FIRE investments? And do you prefer retirements/non-retirement accounts for FIRE investing in bonds?
3. You didn't talk about municipal bonds here. Was that intentional? Wouldn't it help saving taxes if you used munis?
1. I primarily view my accounts through the aggregators I use (YNAB/PersonalCap/Quicken), so the ongoing management issues are diminished. That said, I wouldn't recommend over-complicating things unnecessarily. I would lean having 1 bank that gives you some local access to a human and a web-only bank that tends to always have near highest interest rates.
2. I don't include my emergency fund as part of my FIRE investments. That said, if iBonds push you over the 6-month emergency fund mark, including that portion as part of you bond allocation makes a lot of sense. Overall, I tend to hold bond mutual funds within my retirement accounts since bonds are rather tax-inefficient overall. Keeping them within my 401k removes any ongoing tax burden. They also tend to be the slowest growing. Since in FIRE i'll need to rely on my taxable account primarily I want that portion more focused on growth.
3. The current rates of T-Bills just make them a more compelling state tax-free option without any risk. If you did want to include bonds within your taxable account, Muni-bonds is what I would do (I had previously done just that).
I agree with you on the 1 local and 1 web-only bank idea. For over a decade, my primary account is with Ally Bank, while I keep rotating my secondary bank between Chase, BofA, Wells Fargo, Citibank etc. a couple of times a year based on their promotions. I'm curious which bank/s do you have your primary & secondary account/s with? (I've been considering switching my primary account from Ally Bank to the Fidelity Cash Mgmt account also. Not only to get the higher interest but also to consolidate funds in one place and be able to move funds between accounts with any delays. But now, thanks to you, I'm also looking at Wealthfront. Are there others that you strongly recommend I consider?)
For your FIRE investments, it looks like you have an increased allocation (>10%) to bonds in your retirement accounts so you can have a lesser allocation to bonds in your non-retirements accounts. Interesting idea and I will certainly consider it, even though different allocations among different accounts may make overall rebalancing slightly more effort-intensive. (Eagerly waiting for your "Step 9" post!)
Also, I infer you invest in bond mutual funds than actual bonds for your FIRE bond allocation your non-401K accounts (IRA & taxable) also. Why so? What if we invested in the bonds directly and held them until maturity? And lastly, which specific bonds/funds do you go with in your 401K, IRA, and taxable accounts for your bond allocation?
"In August, my emergency fund balance dipped as I moved some cash into my taxable investment account in anticipation of an upcoming RSU vest.", can you explain this strategy? What do you get out of this?
When my RSU’s vest, I sell them and buy index funds within my taxable brokerage.
That would look like: RSU Vest -> RSU Sale -> Transfer cash to other brokerage -> Buy index funds.
Instead, I did this: Transfer estimated amount I would get from RSU sale from emergency fund to brokerage -> buy index funds -> RSU vests-> sell rsu -> use proceeds to refill emergency funds.
No major benefit. Honestly not certain why I did that sequence. I think my emergency funds was starting to grow too high and I didn’t want to make any more transfers than needed.
For someone like me, who has been at Meta for a very long time, and never sold a single stock (although was in roles with minimal stocks so don't have a lot of stocks either), is there a way you'd recommend for me? Given the stock is high right now, selling the old ones may invite a heavy tax bill -- is it also possible to sell the ones from the latest vest than the older ones?
Hey Andre- thoughts about SHY? Can get exposure to short term T-bills and it’s easier compared to buying directly and laddering. Currently at 4.24% yield
Would be a fine option got some of your bond allocation in your overall retirement account. Got my emergency fund I don’t want the underlying movement that can come with funds. Your can see SHY down more than 4%. I like the predictability and guarantee of the underlying funds (again, for emergency fund).
Andre, as I waited for this article I wondered what new and different can one do to optimize a simple liquid investment and you didn't disappoint. Thank you. It's good to know of all these options. I've always had my 6-mo emergency fund invested in 6 CD's one for each month so I don't have to cash them all out at once: 3 No-penalty CDs and 3 5-yr CDs. But with the recent Savings yield being higher than my 5-yr CD I recently cashed them out and with a 5-mo penalty! I've since had the funds in my HYSA as the rates keep increasing. I will now consider some of your options to maximize them. Please clarify:
1. You probably have a lot of different accounts for each of your Emergency Fund tiers and FIRE investments. Isn't it difficult to manage them if you are opening and moving funds around often? And where's your primary account for monthly expenses?
2. Is your liquid Emergency Fund part of your 90:10 bonds allocation? When you max out your iBonds limit for your Emergency Fund, where do you invest the 10% bonds portion of your FIRE investments? And do you prefer retirements/non-retirement accounts for FIRE investing in bonds?
3. You didn't talk about municipal bonds here. Was that intentional? Wouldn't it help saving taxes if you used munis?
1. I primarily view my accounts through the aggregators I use (YNAB/PersonalCap/Quicken), so the ongoing management issues are diminished. That said, I wouldn't recommend over-complicating things unnecessarily. I would lean having 1 bank that gives you some local access to a human and a web-only bank that tends to always have near highest interest rates.
2. I don't include my emergency fund as part of my FIRE investments. That said, if iBonds push you over the 6-month emergency fund mark, including that portion as part of you bond allocation makes a lot of sense. Overall, I tend to hold bond mutual funds within my retirement accounts since bonds are rather tax-inefficient overall. Keeping them within my 401k removes any ongoing tax burden. They also tend to be the slowest growing. Since in FIRE i'll need to rely on my taxable account primarily I want that portion more focused on growth.
3. The current rates of T-Bills just make them a more compelling state tax-free option without any risk. If you did want to include bonds within your taxable account, Muni-bonds is what I would do (I had previously done just that).
Thanks, Andre.
I agree with you on the 1 local and 1 web-only bank idea. For over a decade, my primary account is with Ally Bank, while I keep rotating my secondary bank between Chase, BofA, Wells Fargo, Citibank etc. a couple of times a year based on their promotions. I'm curious which bank/s do you have your primary & secondary account/s with? (I've been considering switching my primary account from Ally Bank to the Fidelity Cash Mgmt account also. Not only to get the higher interest but also to consolidate funds in one place and be able to move funds between accounts with any delays. But now, thanks to you, I'm also looking at Wealthfront. Are there others that you strongly recommend I consider?)
For your FIRE investments, it looks like you have an increased allocation (>10%) to bonds in your retirement accounts so you can have a lesser allocation to bonds in your non-retirements accounts. Interesting idea and I will certainly consider it, even though different allocations among different accounts may make overall rebalancing slightly more effort-intensive. (Eagerly waiting for your "Step 9" post!)
Also, I infer you invest in bond mutual funds than actual bonds for your FIRE bond allocation your non-401K accounts (IRA & taxable) also. Why so? What if we invested in the bonds directly and held them until maturity? And lastly, which specific bonds/funds do you go with in your 401K, IRA, and taxable accounts for your bond allocation?
"In August, my emergency fund balance dipped as I moved some cash into my taxable investment account in anticipation of an upcoming RSU vest.", can you explain this strategy? What do you get out of this?
When my RSU’s vest, I sell them and buy index funds within my taxable brokerage.
That would look like: RSU Vest -> RSU Sale -> Transfer cash to other brokerage -> Buy index funds.
Instead, I did this: Transfer estimated amount I would get from RSU sale from emergency fund to brokerage -> buy index funds -> RSU vests-> sell rsu -> use proceeds to refill emergency funds.
No major benefit. Honestly not certain why I did that sequence. I think my emergency funds was starting to grow too high and I didn’t want to make any more transfers than needed.
For someone like me, who has been at Meta for a very long time, and never sold a single stock (although was in roles with minimal stocks so don't have a lot of stocks either), is there a way you'd recommend for me? Given the stock is high right now, selling the old ones may invite a heavy tax bill -- is it also possible to sell the ones from the latest vest than the older ones?
Take a look at this post and see if it helps you answer that question: https://open.substack.com/pub/andrenader/p/how-to-sell-rsus-and-wash-sales?r=8tqoq&utm_campaign=post&utm_medium=web
Hey Andre- thoughts about SHY? Can get exposure to short term T-bills and it’s easier compared to buying directly and laddering. Currently at 4.24% yield
Would be a fine option got some of your bond allocation in your overall retirement account. Got my emergency fund I don’t want the underlying movement that can come with funds. Your can see SHY down more than 4%. I like the predictability and guarantee of the underlying funds (again, for emergency fund).