Should I change my investment account from tracking to budgeted?
I have an investment account where I have everything placed in high yield interest bonds. We are going to build a cabin this year, and the money there is intended for this purpose (though not necessarily all of it). I also have a buffer account that I do use in my budget.
Currently, I have not budgeted any money for the cabin, even though I have a pretty good idea of how much I need for this. If I were to change my investment account from tracking to budgeted, I would be able to actually place money towards the cabin and also include this in the pile of money for budgeting. It would also give me more ease of mind with budgeting. I would spend money from the buffer account first, before selling from the investment account, yet still have a healthy overall budget.
My worry though is that adding this to my budget means I would have a very large amount of money under budget. Several months' worth of salary. So it could skew my view of how much I have available.
I have my investment account in my budget. However it's invested 100% in broad market stock index funds for tax efficiency. I do not have bonds in any non-tax deferred accounts (that includes I Bonds which are tax-deferred up to 30 years and are inflation protected).
Unless held to maturity even individual bond FMV can fluctuate just like stocks, and high yield bonds have a volatility and risk profile similar to stocks, but are not tax efficient.
That said, my recommendation would be that if you have an investment account on budget, no less than 50% of high-volatility assets should be dedicated purely as an investment category to absorb gains and losses without putting the rest of the budget at major risk of loss.
It actually sounds like your current budget is skewed, as you are planning on spending some of it on the cabin ("I would spend money from the buffer account first"), but that's not reflected in the budget.
Yes, if you want to plan with the money currently invested, it needs to be on budget. You should also plan on losing some of it to negative market movements.
Maroon Beat said:
I would have a very large amount of money under budget. Several months' worth of salary.
Get used to it. It's commonly recommended to have an Income Replacement category with at least 6 months worth of income. Combined with various true expenses and near-term savings goals, etc., that's a fair chunk that most would not subject to loss due to the vagaries of the market. Your risk tolerance, of course.