Best way to sit on cash that won't be used right away

Hey all,

 

I am looking at ways to increase my investments funds and am willing to take on more risk. 

I front load a fair number of categories such as vacation, auto/boat insurance just to name a couple. This in turn means I have nearly 10k allocated but not expecting to be spent for 8-12 months and that money lives in my checking account yielding .05%. 

Since I know that these funds won't be needed until a year from now, I am trying to figure out how to store this money in my vanguard account, while still showing the funds are allocated in the category. 

Does anyone have ideas on how I could do this?

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  • Remember that accounts and categories are almost completely separate. (The accounts should reconcile, though.) Where you put the money doesn't really matter.  The only thing that feels a little odd is that when you move money between a Tracking account and a Budget account, it will ask for a Category for the transaction.

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  • Why not use a high yield savings account??

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  • Ally Bank is currently paying 1.6% on their online savings account.  That is where we keep our emergency fund and other money that won't be spent until later.  There are other bank options as well.  You can keep it at Vanguard in their money market account and earn a comparable rate.  It won't be FDIC insured but does not carry an appreciable level of risk.

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  • A few people put their investment account on-budget, and just move funds into that account. The fact the value will change behind your back mandates a category to absorb these movements (either direction). Since the timeframe of most savings in YNAB and typical investments are quite different -- let alone the fact principle is not guaranteed -- the vast majority of people do not try to do what you're suggesting. A high-yield (higher than checking at least!) savings account is where most liquid funds are kept. (1.9% is available in a number of places.)

    See this article for details about category/account independence, which will be useful regardless of whether you use a savings or investment account. The category balance answers the question, "Can I afford X?". The account balance answers the question, "Can I pay with X account?"

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
      • Reported - view

      Yep, I’m one of those few people that has my taxable Vanguard account in my budget. It’s not for everybody but it works for me. You need to be able to handle the swings if you’re not using guaranteed rate funds. But at the very least, find a high yield savings account. I’ve had good luck with Barclays and Ally.

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 1 mth ago
      • 1
      • Reported - view

      Superbone I do it too, with a Schwab intelligent portfolio that is set as an income generating (i.e. VERY conservative) ETF mix.  I put the starting deposit I made in the on budget account, and then I only enter and budget the interest and dividends.  It still feels kinda weird, but hey, the money is there.  The actual account balance is about $1300 more than the YNAB balance because of appreciation, but I leave that out of the equation in favor of a more conservative approach.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
      • 1
      • Reported - view

      Annieland Sounds tax-inefficient. I wouldn't use a conservative mix in a taxable account because it generates too much ordinary income,  which is taxed less favorably than long term capital gains and qualified dividends. As a result, I'd hold as much of the fixed income in tax-advantaged accounts where the tax rate won't matter.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
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      nolesrule On the other hand, tax efficiency isn't always the be-all and end-all. Especially in this low interest rate environment, the after-tax results are what are important.

      https://www.whitecoatinvestor.com/asset-location-bonds-go-in-taxable/

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
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        Superbone I've read that and disagree with the conclusion as a generality. Remember that he is writing for a target audience of highly paid medical professionals who are likely in the upper or top  tax bracket and will still be there in retirement. 

      His analysis completely ignores  traditional pre-tax retirement accounts which turn long term capital gains into ordinary income, and are subject to RMDs, aka forced distributions, which can inflate one's taxable income unnecessarily. So if you aren't in the top tax bracket already, you would want a smaller traditional account to avoid RMDs pushing you there. He kinds handwaves away the lack of the math in the comments.

      His use of muni bonds in his analysis isn't an appropriate choice for everyone. Muni bonds have a worse after tax return than regular bonds until you get into the 32% tax bracket, but the math says to put regular bonds in traditional pre-tax accounts.

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  • Annieland said:
    The actual account balance is about $1300 more than the YNAB balance because of appreciation, but I leave that out of the equation in favor of a more conservative approach.

    That's an interesting approach. What if it were to go below the YNAB balance? Would you update it then?

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 1 mth ago
      • Reported - view

      Superbone Oh heck yeah, and maybe nix the whole set-up!  In the beginning it dipped below a few dollars when the market was a little slow in Aug/Sept. and I just kept a very close eye on it.  Then it turned around and has been fine.

      nolesrule You're probably right, and you're much more knowledgeable about tax-efficient investing than I am.  This was just my way of splitting a chunk of cash off from my Ally account, to see if I could get slightly better returns and a little income with still relatively easy access to the money.   It's about 57% bond etf's and ~25% cash.  I opened it in July '19 and there haven't been any sells executed yet, just small dividend deposits.  So I'm just considering the tax liability the same as if I had the money in a HYSA, this was just an alternate approach.

      The majority of my fixed income investments are in an IRA which is subject to an RMD this year.

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  • Betterment savings account is at 1.83% (https://www.betterment.com/cash-management/). I also recommend Ally but Betterment is higher and both are good. I've noticed Citi has a high paying savings acct too but haven't used it. 

    To be clear, this is savings, not investment. Zero risk. And that's all you should be taking on for funds used within a year.

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