Cash vs Taxable

[ACN]

Here's my situation.  1-year fellowship starting this summer.

Anticipated Household Income: $125-50k

Max out 401ks by year end.

Roth IRA maxed out already.

Current Cash on hand $60k. ($30k emergency fund)

 

We need to buy a new car for my wife probably in the next year (trying to push for two) depending on how long I can hold her off.  Her car has 250k miles on it, so might be sooner than later as I'd really hate to see her get stuck or for it to breakdown while she's driving.  We've casually looked into some Ford, Honda, Toyota SUVs for like $30-40k. (probably buy used 1-2 years old)

My question is should I continue to keep the Cash in Ally @ 1% or should I toss it into a taxable account?  My fear with a taxable account is a market correction in the next year and our $30k taxable becomes a $10k account.  I was hoping to finance the car at 0% with $10k down on a CC for points anyways and then just make monthly payments of $200-400.   Thus, even if I lose $20k, would it really matter?  If we purchase a car for $30k next year, should I move $30k from taxable to Ally at that point? No other major expenses coming up beside vacations (we like to travel 3-4 times/yr), rent ($2k/month * 3 years - wherever I get a job after fellowship), then saving for a down payment on a starter home in 3 years.

Just wanted to hear some opinions...

[Antares]

If you lose 20k, it doesn't matter unless it bothers you to lose 20K. Personally, I prefer not to lose 20k.

I'm assuming when discussing transferring money into taxable, you are talking about investing the money in equity markets, thus subjecting it to market risk. Since you have a need for the money in the near future, it would be unwise to put it at risk. Invest money you don't need to access for a few years.

[VagabondMD]

Most car dealers will not allow you to put $10k on a credit card after negotiating the price on the car. The interchange fee might eat a good bit of their profit. For the last two cars that I purchased, the most I could put on a credit card was a deposit of $500.

[WallStreetPhysician]

Sounds like you're pretty frugal and will be making a great salary in 15 months. My strategy would be to stick it in taxable. If the stock market falls, you should be able to quickly save for the car within a few months of finishing fellowship anyway. This strategy is not for everyone because I know a lot of people like to have buckets for certain purchases.

[hightower]

Another option is just go ahead and get the car now and invest what's left over.  And if you want to use a credit card to buy a car you are usually allowed to put down 5-10k at most dealerships.  You can call around and ask.  The other option is use plastiq.  They charge 2.5%, but if you use a new rewards card with a generous enough bonus point offer for your first purchase and then transfer the money to a O% APR balance transfer card (with no transfer fees), you could potentially pay nothing for that transaction.  Its up to you if you think its worth it.  But, you could potentially end up with a 0% APR on a credit card and 15-21 months to pay it off.  That would allow you to invest your 30k now.

[ACN]

All the deals at the car dealerships now are offering 0% @ 36 months, thus I don't forsee the "need" to have 30k cash to pay for the car; although maybe mentally it would put my mind at ease knowing I had the extra cash on hand for just in case.

WallStreetPhysician wrote:

Sounds like you’re pretty frugal and will be making a great salary in 15 months. My strategy would be to stick it in taxable. If the stock market falls, you should be able to quickly save for the car within a few months of finishing fellowship anyway. This strategy is not for everyone because I know a lot of people like to have buckets for certain purchases.

Click to expand...

Yes, we're pretty frugal when it comes down to daily expenses. We do enjoy going out to eat and traveling, but we don't overspend by any means.  After fellowship, I do intend to be making $400k+ (+wife salary), and probably a $50k sign on bonus (sometime during fellowship).

hightower wrote:

Another option is just go ahead and get the car now and invest what’s left over.

Click to expand...

We have to move across the country for fellowship, so I guess we could just sell her car before we move and buy her a new car when we get to fellowship.  Unfortunately, 1-2 year old models of the cars we are looking at do not come with the standard features we would like (TACC, cameras, ect).

[ACN]

Vagabond MD wrote:

Most car dealers will not allow you to put $10k on a credit card after negotiating the price on the car. The interchange fee might eat a good bit of their profit. For the last two cars that I purchased, the most I could put on a credit card was a deposit of $500.

Click to expand...

I was hoping to put that much down on a CC, but I'm well aware that might not be able to happen.  We'll see how good of a negotiator I am.  8-)

[Kamban]

Transporting a 250K mile car across the country is not worth it. So sell it like you stated and buy a new one at the place of fellowship. Unless the place you are going to is a rough area and not worth driving a new car there.

If you are going to buy a new car there look for 0 % deals and negotiate with dealers in that area. Just test drive cars in this area and make your top 3 picks, and purchase the best offer in the fellowship area.

You are not going to put much in a CC card. Concentrate on getting the lowest price on the vehicle.

[jfoxcpacfp]

ACN wrote:

My question is should I continue to keep the Cash in Ally @ 1% or should I toss it into a taxable account?  My fear with a taxable account is a market correction in the next year and our $30k taxable becomes a $10k account.  I was hoping to finance the car at 0% with $10k down on a CC for points anyways and then just make monthly payments of $200-400.   Thus, even if I lose $20k, would it really matter?  If we purchase a car for $30k next year, should I move $30k from taxable to Ally at that point? No other major expenses coming up beside vacations (we like to travel 3-4 times/yr), rent ($2k/month * 3 years – wherever I get a job after fellowship), then saving for a down payment on a starter home in 3 years.

Click to expand...

I'm sure you didn't mean "Thus, even if I lose $20k, would it really matter?" literally. You need to determine what your plan is. Do you foresee needing the $30k in the next 5 years? If so, do not invest. If this is meant to be your emergency fund, iow, keep it liquid.

When Low Interest Rates Are OK

[G]

Let us know how much you can negotiate to put on the CC.  My local Toyota dealer said I could put $5k on a card, but when it came to brass tacks, their sell price was awful.  The dealer I went to an hour away had a much better deal (and lower taxes to boot--that alone was worth a couple tanks of gas) but would only let me put the downpayment on the card ($1k).  Apparently with Truecar pricing they have a very slim profit margin and the CC fee would eat that up.  If I were to do it over again, I'd try to make the downpayment with CC as big as possible.  I had hoped to just put the whole thing on my card and use the miles for a free ticket.

[ACN]

jfoxcpacfp wrote:

I’m sure you didn’t mean “Thus, even if I lose $20k, would it really matter?” literally. You need to determine what your plan is. Do you foresee needing the $30k in the next 5 years? If so, do not invest. If this is meant to be your emergency fund, iow, keep it liquid.

When Low Interest Rates Are OK

Click to expand...

Great article; think it answers my question perfectly as well as your response!    Given that my income as a resident/fellow is good, but not great when compared to an attending, I think having the extra cash on hand and in my ally account is a good idea.

Kamban wrote:

Transporting a 250K mile car across the country is not worth it. So sell it like you stated and buy a new one at the place of fellowship. Unless the place you are going to is a rough area and not worth driving a new car there.

If you are going to buy a new car there look for 0 % deals and negotiate with dealers in that area. Just test drive cars in this area and make your top 3 picks, and purchase the best offer in the fellowship area.

You are not going to put much in a CC card. Concentrate on getting the lowest price on the vehicle.

Click to expand...

We've thought about the idea of just selling the car instead of towing it across country.  It's worth, according to kbb, about 3-4k in a private party sale.   We've replaced a few parts on the car and have put in $1k over the past two years; it needs probably another 1k in the engine to be in optimal driving shape.  I constantly go back and forth in regards to putting in the extra money vs keep it as is vs just selling it outright.

My fellowship is in a larger city, but in a nice area, so a new car would do just fine.  Just a matter of deciding whether or not to buy a new "used" car.