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  • Side fund in light of market directions

    Hi,

    My wife and I are both 3 years away from eligibility for PSLF forgiveness and the total loan amount between us is in the low $400k range. Being WCI readers, we have a side fund that totals in the low $300k range to which we add regularly in case PSLF doesn't work out. The side fund is half index funds (of which 70% VTSAX, 30% VTIAX) and half high-yield savings account.

    We are not market experts, but it seems like a bear market (if not a crash) is somewhere on the near (within 3 year) horizon. Should we liquidate the index fund portion of our side fund and transfer it to the high-yield savings account for safety, given our possible need for funds in a short time horizon? Would hate to lose the capital gains but might feel safer. We are pretty confident (like WCI) that PSLF will work out, but would feel stupid if it doesn't and the market has left us with much less in our side fund...

    Thanks in advance for any advice!

  • #2
    A bear market is always on the horizon. If there's a chance you'll need funds for anything in less than 5 years then a safer position is a good idea.

    Comment


    • #3
      The market can and did take a significant downturn recently. The general advice is definitely have it within a relatively low risk and low volatility asset given your timeline of 3 years. I have mine in a “high yield” savings account. It’s only high yield in name these days since they’re all below 1%.

      Are you going to have to realize gains in order to convert this to a fixed income asset? Make sure you set some aside some for that tax bill.

      Comment


      • #4
        65% cash/bonds and 35% equities seems to be a pretty conservative allocation.

        I wouldn't lose sleep at all, but up to you.

        Think of worse case scenario holding that current allocation - somehow everything gets cancelled PSLF-wise and markets go down 50%. You still are at $250k in your side fund and it's not like you hit 10 yrs and you ha e to pay up everything on the spot.

        Our plan is stick at 50/50 VTI/Munis all the way through the end. But as I've noted in other posts, as the program becomes more established and acceptance continues to rise, we may actually skew things more to equities as time progresses as we think of it as more of a retirement fund.

        Comment


        • #5
          Originally posted by East coast View Post
          65% cash/bonds and 35% equities seems to be a pretty conservative allocation.

          I wouldn't lose sleep at all, but up to you.

          Think of worse case scenario holding that current allocation - somehow everything gets cancelled PSLF-wise and markets go down 50%. You still are at $250k in your side fund and it's not like you hit 10 yrs and you ha e to pay up everything on the spot.

          Our plan is stick at 50/50 VTI/Munis all the way through the end. But as I've noted in other posts, as the program becomes more established and acceptance continues to rise, we may actually skew things more to equities as time progresses as we think of it as more of a retirement fund.
          My interpretation is that OP is at 50/50 equities/cash, so worst case is the 300k drops to 225k. Not the end of the world, sure.

          Comment


          • #6
            If you are young, the best thing for you is a bear market, you can buy more at a reduced rate. Stay the course , if you are both physicians you will have a good income potential to ride out the bear.

            Comment


            • #7
              Originally posted by TheDangerZone View Post

              My interpretation is that OP is at 50/50 equities/cash, so worst case is the 300k drops to 225k. Not the end of the world, sure.
              Yep, you're right - haven't kept up my vanguard mutual fund ticker knowledge. Fortunately, my point still holds.

              Comment


              • #8
                Originally posted by wolpertinger View Post
                Hi,

                My wife and I are both 3 years away from eligibility for PSLF forgiveness and the total loan amount between us is in the low $400k range. Being WCI readers, we have a side fund that totals in the low $300k range to which we add regularly in case PSLF doesn't work out. The side fund is half index funds (of which 70% VTSAX, 30% VTIAX) and half high-yield savings account.

                We are not market experts, but it seems like a bear market (if not a crash) is somewhere on the near (within 3 year) horizon. Should we liquidate the index fund portion of our side fund and transfer it to the high-yield savings account for safety, given our possible need for funds in a short time horizon? Would hate to lose the capital gains but might feel safer. We are pretty confident (like WCI) that PSLF will work out, but would feel stupid if it doesn't and the market has left us with much less in our side fund...

                Thanks in advance for any advice!
                Just curious - did you know the March bear was on the horizon 3 yrs ago? 3 mos ago? If not, consider that it may be because they are unpredictable. Many intelligent and respected investment advisors had been predicting a bear since 2010. Prob doesn’t take a lot of guesswork what their clients and those who simply read their prognostications and went the DIY route lost. I’ve also been listening to clients and others commenting since about the same time that high interest rates were just around the corner, so better lock in those 4% - 5% loans NOW.

                Please, just don’t rely on your personal instincts to time the market. Even a broken clock is right twice a day, but it is not the rest of the time.
                Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                Comment


                • #9
                  if the last 3.5 years have not taught you not to try to time the market nothing will.

                  Comment


                  • #10
                    Originally posted by jfoxcpacfp View Post

                    Just curious - did you know the March bear was on the horizon 3 yrs ago? 3 mos ago? If not, consider that it may be because they are unpredictable. Many intelligent and respected investment advisors had been predicting a bear since 2010. Prob doesn’t take a lot of guesswork what their clients and those who simply read their prognostications and went the DIY route lost. I’ve also been listening to clients and others commenting since about the same time that high interest rates were just around the corner, so better lock in those 4% - 5% loans NOW.

                    Please, just don’t rely on your personal instincts to time the market. Even a broken clock is right twice a day, but it is not the rest of the time.
                    I dunno if I totally agree w this + @mpmd’s comment in this context. Of course your statements are true - but would u fault a 529 plan that reduces risk as you near payment date? That’s all OP is dealing with and I think it’s fair even though my exact reasoning and tolerance is quite different.

                    Comment


                    • #11
                      Any money that you need should not be invested in the stock markets at 3-5 years out from goal.
                      Look at the history of the dot.com and GFR bear markets to convince yourself of this.

                      Comment


                      • #12
                        Basically you are saying you have 400k in debt. 150 in the stock market and 150 in cash. Whether or not the stock market goes up or down, you dont need to use this specific allocated money to pay off the debt in entirety. You should develop a long term plan in regards to your asset allocation for what you think is right for you.

                        I sounds like you are starting out and hopefully young enough to recover from some market hiccups and make sure your short term cash is enough to carry you through in case there are unforeseen issues in life.

                        Comment


                        • #13
                          Originally posted by jz- View Post
                          Any money that you need should not be invested in the stock markets at 3-5 years out from goal.
                          Look at the history of the dot.com and GFR bear markets to convince yourself of this.
                          I guess the difference here is that he probably does not need the money in 3 years because PSLF will work for them. It is a theoretical need unlike a house down payment. I would not realize the capital gains given the info provided.

                          Comment


                          • #14
                            I agree with Hatton. It doesn’t seem like you’ll need the money as you feel pretty good about PSLF. I would hate to accumulate capital gains for money you may not even need. I’d stay the course if it was me.

                            Comment


                            • #15
                              Originally posted by wolpertinger View Post
                              Hi,

                              My wife and I are both 3 years away from eligibility for PSLF forgiveness and the total loan amount between us is in the low $400k range. Being WCI readers, we have a side fund that totals in the low $300k range to which we add regularly in case PSLF doesn't work out. The side fund is half index funds (of which 70% VTSAX, 30% VTIAX) and half high-yield savings account.

                              We are not market experts, but it seems like a bear market (if not a crash) is somewhere on the near (within 3 year) horizon. Should we liquidate the index fund portion of our side fund and transfer it to the high-yield savings account for safety, given our possible need for funds in a short time horizon? Would hate to lose the capital gains but might feel safer. We are pretty confident (like WCI) that PSLF will work out, but would feel stupid if it doesn't and the market has left us with much less in our side fund...

                              Thanks in advance for any advice!

                              The fact you are posting about this here tells me that it is worrying you. If it is worrying you, that’s a sign that your asset allocation is too aggressive. Adjust it to be more conservative until you’re no longer even thinking about it. If I were you, I’d just hold that side fund as 100% cash until you get confirmation on the PSLF thing. Chances are you wont miss out on much. But at least you know you have the cash on hand to get rid of the debt.

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