The niece and nephew will not need income from their bond fund, though wouldn’t that be nice! The funds are intended to be the start of their emergency fund which, I told them, they should build to 6 to 8 month of essential expenses and “forget” about it to a large extent. So, preservation of purchasing power against inflation would be nice. But, I know that that is going to be hard with historically low rates.
They have other resources for house down payment money though neither is likely to be in the market for several years. This account will also be their go-to fund for true emergency expenses, which they will replenish if spent down.
They both have reasonably good job and career prospects.
I was going to recommend the Vanguard Intermediate Term Tax-Exempt Fund (VWITX) but I think that with their low tax brackets, it probably does not make sense. Its SEC Yield is 1.80% and ER is 0.20% and I have long-term experience with it, so it looks good to me.
@IxnayBob, we cross-posted. I don’t think I have to worry about the 20% level.
At their age and relative inexperience, I don’t think they will be rebalancing, etc. I just want to suggest they start saving their emergency fund with some purpose.
Their portfolios have some pre-existing stuff that their parents set up for them, but this is their money that they will be loosely managing (i.e., depositing). That’s as much as I expect them to do for now.
IMO, until you have a fairly large stash, a true emergency fund should be in MM, short-term CDs with low penalty, cash, etc. But, bonds are close enough. You just don’t want to have to sell on a dip.
@IxnayBob, so I can recommend that they use the Vanguard Prime MM Fund and ignore the fact that inflation exacts a reduction in purchasing power each year.
That is easier to accept for someone like me and you because we know the stash is a necessity to provide ballast against stock market risk. (That’s what I tell myself, anyway.)
But, when one is 20-something and 6-8 months of living expenses is, for now, a huge chunk of their visible money, it isn’t persuasive and certainly doesn’t sound attractive.
I don’t think that they’ll like short-term CDs any more than I do. Too much work.
Just had this coversation with S1, who had way too much cash in a MM account. Moved some of it to Vanguard Wellington and Wellesley. He already has sone of the broader indexes in his 401k. The idea was to get some growth/incone on $$ above his emergency fund, but that he may want to use for a house/condo purchase in 3-5 years.
I started consolidating my 401k/IRA funds this week.
I intended to roll over one of my 401k funds to Fidelity but in the end I moved to Vanguard because Fidelity does allow my fund administrator (John Hancock) to directly send check, or make direct deposit, or wire my money to Fidelity. Fidelity wants the check sent to my home then I need to resend it together with Fidelity rollover application to Fidelity. It takes 3-5 business day to receive snail mail rollover application from Fidelity. Vanguard rollover does not need any application and accept direct check or wire money. John Hancock requires direct deposit or wire (no check) if the rollover amount is larger than 50K.
Why does each company have a different procedure in rollover?
I did a couple of rollovers from Fidelity to Vanguard this year. I provided Fidelity with explicit instructions (ie, one check to BobWife for $xxx,xxx, and another check for the remainder of the account to BobWife – one was post-tax contribution (and was thus known to the penny), the other was the gains on post-tax (which could vary day to day)).
They did cut both checks, but neither was for the correct amount, and BobWife has some vestigial amounts in the accounts (~$1k). It wasn’t a big deal, but it bothered me that they couldn’t follow explicit (and legal) directions but didn’t have the sense to call me when they got confused. Rather than try again, I just went with it.
@notrichenough That website does not apply to my 401k plan at Fidelity. They have a different website after I logon my account. I actually called Fidelity myself and the rep’s instruction is as the same as the one on my account website.
Perhaps they make it difficult for people who want to roll over to 401k account and force people to open IRA account with Fidelity?
I have done several trustee-to-trustee transfers to and from Fidelity, Schwab, Vanguard, Putnam (from only), TIAA (from only, I think) etc. All of them tend to make it hard to move money out (though I think Vanguard was easier). Schwab and Fidelity made me jump through more hoops, IIRC, and Schwab recently made it tough for the kids of friends of mine for whom I was trustee to accounts that went to them when they were in their mid-twenties. We got contradictory statements from Schwab representatives each time we call and had transferred denied. They hung onto the money for months.