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Where Should I Stash $50,000?

by retirebyforty on January 20, 2012 · 141 comments

in goals and milestones, income

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where should i stash $50,000 CD

Only $32 bucks in my wallet.

I have to meet a few of Mrs. RB40′s conditions before I can quit my corporate job. One of them is for us to save $50,000 in cash. (I negotiated down from 100k because I really think that is way too much cash.) We’ve been working on it for a while and we finally made it this month!

We have been diligently socking away my paycheck every month into the ING Orange Savings account. The interest rate on the Orange Savings account recently dropped to .75%. We’ll get about $375 of interest per year if we keep the money at ING. This is quite a bit lower than inflation and I thought we should find a better alternative.

The main criteria we have for this $50,000 is to keep it liquid. If we need to use some of this, we need to be able to get it in a week at the most. With this criteria, we eliminated pretty much all investments. Here are some other choices.

  1. Stash it under the mattress – not a good idea. The bed will be lumpy and uncomfortable. Nobody will be happy with that.
  2. Keep it at ING Orange Saving. This is not a bad choice for a saving account, but the interest rate is just not good enough for a big stash. This option gives the maximum flexibility. *Update 01/2014* ING changed to Capital One and the current rate is 0.75%. American Express Saving has one of the best at 0.85%.
  3. My online checking account has 0.10% better interest rate than Capital One 360. This is where I’ll stash the $50,000 for now.
  4. Build a CD ladder. This is probably the safest way to stash the money and get a bit more interest than the saving account.
  5. I can open a saving account in Thailand and get 2.5% on 6 month CD. Although, the currency exchange fee will cut into the gain and the exchange rate is not great at this time. Perhaps I need to look into this further.
  6. Readers suggested optionI-bonds @ 3% interest rate and a pretty low penalty (3 months interest.)
  7. Any suggestions? Keep in mind, this amount cannot go down and needs to be liquid, so no gold, stock, or bonds.

I’m leaning toward building an I-bonds ladder.

The classic way to build a CD ladder is to break up $50,000 in to 5 pieces. Then you use $10,000 to buy 1 year CD, another $10,000 to buy 2 years CD, and so on. After one year, then you can collect the money from the 1 year CD and use that to buy a 5 year CD. Eventually, you will maximize the interest rate and have penalty free access to some of your money every year. You can do the same with I-bonds.

CD rates are also very low at this point. It’s not much better than the online saving account and I don’t think it’s really worth it right now.

Online Saving Accounts with good interest rate

Institution APY Minimum Deposit Misc 1 year of interest on $50,000
 
 best saving account to stash $50,000 0.85% none $427
 best saving account to stash $50,000 0.80% $1,000 0.85% if your balance is at least $25,000. $401
 

2014 Update

After over a year of not having a full time job, we haven’t had to dip into our $50,000 cash saving. I reallocated this cash toward my dividend portfolio and I’m keeping $20,000 an online Saving account. The dividend portfolio is better for the long term because we’ll get the dividend and the long term growth from the stock which is currently much better than 1%. The stock market is volatile, but our investment horizon is still about 20 years so we have plenty of time to recover from a set back.

What would you do with $50,000?

If you need help keeping track of your finances, try using Personal Capital to manage your budget and net worth. It can help you keep track of your income, expenses, and net worth, all in one place. Personal Capital is geared for investors and has many great tools. See my review of Personal Capital and how they helped me reduce what I’m paying in investment fees.

 

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{ 136 comments… read them below or add one }

Financial Samurai January 20, 2012 at 12:29 am

Congrats on getting to 50K! Why not shoot for 100K now and give yourself that extra cushion?

You can put your cash in a 2% CD. At least you know it will be there!

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retirebyforty January 20, 2012 at 4:23 am

I know you like the CD and that’s what we’ll probably do.
I’d rather put the other 50k into my dividend portfolio at this time. It’s doing much better than 2.5%. Am I being too greedy?

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Juan January 20, 2012 at 6:52 am

Personally I would put as much as possible in the retirement account, but then again I’m not that close to retirement.

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retirebyforty January 20, 2012 at 8:38 am

That’s what I would do if it was 10 years ago. :)

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Financial Samurai January 20, 2012 at 10:09 pm

Not at all. Investment what you’re willing to lose.

I don’t like CDs at 2%… I’m bullish on the market, whoo hoo!

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101 Centavos January 20, 2012 at 3:54 am

365 days of interest as a withdrawal penalty at those rates doesn’t sound like much. I see people getting $20 or $40 out of an ATM that charges a $2 fee.

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retirebyforty January 20, 2012 at 4:27 am

Ugh… Now that you put it that way. Those ATM fees are a huge % and really eats into your gain.

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Jason February 1, 2012 at 8:13 am

Try USAA; their banking is available to everyone and they refund all ATM fees

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Niki January 20, 2012 at 4:18 am

Congratulations on socking away 50K. Other then that I have no other advice to give. This is something I have been pondering myself and still have no clue. I know that when we reach our efund goal I don’t want to keep that amount just in our savings, I thought a cd ladder would be a good option, but even those rate are nothing to get excited over. I guess it’s better than burying it in your backyard.

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retirebyforty January 20, 2012 at 4:28 am

That’s true. Those rates are very low historically. Hopefully they will come up at some point.

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Another Reader January 20, 2012 at 4:24 am

In your shoes, I would not consider tying up 60 percent of my “liquid” savings for 3, 4, and 5 years to get a marginally better yield over the lowest interest rates in history. If I needed the money, the penalty would cancel the benefit of the higher rate. In addition, interest rates will go up as the economy improves.

Instead, I would put the $50,000 in money market and’or savings accounts at the institution or institutions with the highest rates. Once CD interest rates improve to an acceptable level, factoring in alternative cash investments, I would look to creating a mix of money market accounts and shorter term CD’s. By shorter term I mean 6 to 18 months. This $50,000 is meant as an emergency cushion/reserve and the duration of any investment should match the intended purpose.

CD ladders are meant for investments, not reserves. In your shoes, I would shoot for that other $50,000 in reserves and have that portion tied up in a one to five year ladder. You might take a look at I-bonds for the longer terms, as you get the inflation protection and the penalty is less if you hold them for several years.

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retirebyforty January 20, 2012 at 4:39 am

That is good advice about reserves. Our reserves is normally 15-20k and we haven’t had to dip into it much over the years. That’s why I thought 20k in saving would be fine, but with a big change like quitting the corporate job, it might be wise to keep 50k in saving for at least a couple of years.
The problem is the rate will be low for 2 more years as the Fed announced. I’ll take a look at TIPS.
Thank you for your input.

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Lisa @ Cents To Save January 20, 2012 at 4:34 am

Before we bought our new home, I was stashing money away in CD’s similar to the ladder technique. Need to get back to it and start building up the stash again.

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Another Reader January 20, 2012 at 4:43 am

One more thing. I’m not sure how you are accounting for the rental property reserves. With three rental properties, including a 4-plex, you need solid cash reserves. If your reserves for the rentals are part of the $50,000, you need to save more.

Having owned rentals for a long time, I have watched the operating costs, especially the cost of capital inprovements, more than double in the last 10 years. The cost of a roof today, especially on that 4-plex, can wipe out a big chunk of your $50,000. In your shoes, I would take a hard look at the capital improvements likely to be needed in the next five and ten years, and figure out what they would cost today. Then add in 5 to 10 percent a year in price increases, and estimate what you will need to reserve. Given the current returns on cash, that $100,000 looks like a good number to me.

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retirebyforty January 20, 2012 at 8:33 am

You’re right about that. The rental reserve is part of the 50k. The 4 plex is in a relatively good shape and we fixed quite a few things last year including the roof. It should be good for at least another 5 years, probably 10 actually. From the inspection report, there are only a few things left to fix this year. Still, it’s probably best to increase the reserve up to at least 70k. I’m taking profit on some large cap stocks so I can redirect the money to the reserve in a month or two.
Again, I really appreciate your input. Thank you!

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Another Reader January 20, 2012 at 9:44 am

A lot of things that were fine at the time a property was inspected will go wrong, even in the first five years. Make sure you budget for capital improvements, including furnaces/heat pumps. hot water heaters, appliances, carpet, tile, interior paint, etc. If you do not have experience replacing these items, do some research to find out what they will cost installed. You now have six rental units, and all of them will need capital improvements in the years after you retire. $50,000 will NOT be enough for your needs and the needs of the rental properties, I assure you. $70,000 may not be enough, either. More homework is needed to estimate what you need.

Most financial planners recommend three years of living expenses in cash or cash equivalents at retirement to insulate you from having to tap into your paper assets when the financial markets are down. Your wife’s job is secure, but you need to insure against her disability or death if you want to count her income during your retirement. As long as her income is insured, you can reduce the cash hoard needed. However, you must ADD the reserves for the rentals.

Remember, most of your readers are not real estate investors. Only other experienced real estate investors in your local market and your own research can help you estimate the amount of reserves you will need for your rental properties. Do the homework and be a lot more confident when you decide to take the plunge.

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retirebyforty January 20, 2012 at 3:47 pm

All good advice. I’m still going to make some money online or in some other way so we are not planning to dip into this saving unless it is an emergency. Our cash flow should be positive even after I quit my corporate job. I’ll do some research and probably beef up the reserve as you suggested. We are not planning to tap into the assets at all until my wife retires. I’ll check on her insurance.

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NoTrustFund January 20, 2012 at 5:22 am

I know savings account rates are low right now, but I really don’t think the CD rates are high enough to make up for locking up your capital. If I were you, I would keep the 50k in your savings account, especially if you want to add more to your dividend stocks.

Congrats on saving $50k! I’m impressed.

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retirebyforty January 20, 2012 at 8:34 am

Thanks for your input. I’ll add to the dividend stocks from other sources. I’m liquidating a few growth stock holding so I can redirect the money to the dividend portfolio or add to the reserve.
You’re right about the low CD rate, that’s why I’ve been putting it off.

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Roshawn @ Watson Inc January 20, 2012 at 5:45 am

Joe, while I completely understand wanting to put it in your dividend portfolio (as you said they are doing MUCH better), I made the decision to keep it separate too. I think it is awesome you guys set this goal BTW.

While I’m not personally a big fan of CDs, they are doing a lot better than most interest-earning saving accounts. Putting a portion in them and doing the ladder would certainly be reasonable IMHO.

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retirebyforty January 20, 2012 at 8:35 am

It’s not easy to watch the emergency fund sits around and not doing much, but we need it for emergencies. Glad to hear you’re doing the same. :)

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Greg January 20, 2012 at 6:10 am

Ally’s CDs have an early withdrawal penalty of only 60 days. Break your cash into 5 different 5 year CDs and there will only be a small penalty for accessing a portion on your cash while earning a good APY.

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retirebyforty January 20, 2012 at 8:36 am

That’s a good idea. I’ll check into that. Maybe I can put some in Ally and some in PenFed.
Thank you!

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Michelle @ Making Sense of Cents January 20, 2012 at 6:49 am

Congrats on the $50! I’m kind of leaning towards the CD ladder also.

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retirebyforty January 20, 2012 at 8:37 am

Thanks!

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Melissa January 20, 2012 at 6:53 am

I agree with Greg. I opened 2 5 year ally CDs in 2010 and another 2 this year. If I need to cash out, I plan on breaking the ones from this year first since the interest rate is much lower. I wouldn’t have opened the CDs elsewhere because of the higher penalty for breaking the terms.

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retirebyforty January 20, 2012 at 8:38 am

Thanks for your input. I’ll check Ally again.

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Jeffrey January 20, 2012 at 7:09 am

With your requirement of keeping funds liquid, it seems like the CD works if you’re able to withdraw without significant penalties. I can’t think of any better ideas that remain liquid.

I’m not sure if you have other savings or emergency funds, but $50k seems like a large chunk to need to be liquid. Would you consider stashing away half of that in some sort of investment with better returns?

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retirebyforty January 20, 2012 at 8:40 am

The $50k is the emergency fund/reserves. As one of the comment pointed out, we need a bigger reserve due to the rentals. It is quite a big chunk to be liquid and I would rather invest more. I think it’s prudent to keep 50k liquid at least for a year or two if I quit my job though.

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Aloysa January 20, 2012 at 7:26 am

If I ever get to that much money in my savings, I probably would keep it in savings and log in into my account every day just to admire it. :) Congrats on a huge milestone! :)

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retirebyforty January 20, 2012 at 8:40 am

Thank you! I try not to log into my ING account everyday and stare at the daily accrued interest. :)

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PKamp3 January 20, 2012 at 7:38 am

How big is your backyard? You could bury it? That way it would only be a shovel away!

In all seriousness, are you sure you want to lock it up in CDs? I know you can break the CD at any time, but if the most important part of the account is you need to get it in a week, you’ll be walling off something like 4/5 of your funds. Perhaps you can split it – some money in something liquid, like a savings account (or money market account) and other money in the CD ladder.

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retirebyforty January 20, 2012 at 8:42 am

With the feedback from everyone, I think I will add a bit more to the reserve. Maybe 30k in ING saving and then put 30k into CDs.

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Jeremy @ Personal Finance Whiz January 20, 2012 at 8:23 am

Congrats on hitting $50k!

Have you checked the rates your local credit unions are paying? Our checking account at the credit union we use is paying 3%. (That’s not a typo. We’re seriously getting 3% on our checking account.)

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retirebyforty January 20, 2012 at 8:29 am

Our checking is paying a big fat 0%. There are a few checking account that pays 2%(?), but I’d have to use the debit card 12 times a month, auto deposit, and etc… Too many conditions for me. We don’t use the card enough to qualify for these type of accounts.

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DollarDisciple January 20, 2012 at 8:26 am

Congrats RB40! Doesn’t meeting a financial goal, especially once which you have worked towards for a while, give you a big sense of accomplishment? 50k is a hefty cash cushion!

Given your parameters, a CD ladder is probably a good fit. If the only penalty is interest then tapping into it might not be so bad. Especially since you can just crack open the shortest-term one in the event of an emergency.

I also like that you wanted to reserve a good chunk of it so that you *dont* have to break one of them open. 20k would cover a lot of emergency situations.

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retirebyforty January 20, 2012 at 8:42 am

That’s right. The shortest term CD should have less penalty. I’ll double check that.

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Corey @ Passive Income to Retire January 20, 2012 at 8:52 am

I know it’s not the best interest, but I would go with just the online bank account if you’re not going to invest it in stocks or real estate. If you need access to it within a week, the CD ladder sounds too complicated, especially for how low CD rates are right now. Is there a particular reason you need this much of cash? Surely, 20k would cover any emergency and you could invest the other elsewhere. Then again, I am sure there is comfort in having that much liquid cash.

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retirebyforty January 20, 2012 at 3:42 pm

I think 20k is enough as well, but from what the comments said, it’s prudent to have a big reserve for the rental properties. Anyway, the online business might now work out and we may have to dip into the saving.

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Andy Hough January 20, 2012 at 8:54 am

I was going to suggest a rewards checking account but I see you are not a fan of them. We use one as our main checking account and never have any trouble meeting the requirements. When I was single I did find it hard to use the card enough times since I like to use rewards credit card for larger purchases. Now that I’m married my wife easily meets the usage requirements.

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retirebyforty January 20, 2012 at 3:44 pm

Maybe I need to take a look at this a bit more closely, but we rarely use the credit card since our grocery store does not take them. They do take debit though so maybe we could meet the requirements.

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Jeff @ Sustainable Life Blog January 20, 2012 at 9:57 am

For me, i’d pay of debt, but in your situation i’d lean against building a cd ladder – you could lock in your money for 5 years at low rates. While a savings account may not pay more, there’s a possibility of a rate increase over 5 years – which you wont get with a CD

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retirebyforty January 20, 2012 at 3:48 pm

That’s another reason why I haven’t done it yet.

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Hunter - Financially Consumed January 20, 2012 at 11:07 am

If I had a lazy $50k laying around, I would feel compelled to spend some of it, maybe just the annual interest, on my friends in Denver whom I will be attending a major industry conference with. You rock Joe!

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retirebyforty January 20, 2012 at 3:48 pm

I can spend the $32 in my wallet. :)

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Tommy April 13, 2012 at 12:44 pm

I hear you on that $32.00. I have 50K stashed in an Ally account and am getting jack as well. So I am also looking for other safe options and not finding any. I too considered ladders and did not do it for reasons others have covered. Not worth the hassles. I think I will leave the 50K at Ally and put other new money into a Roth IRA when depending on where you put it you can make better interest, have access to your contributions w/o penalty and earn interest tax free. And if I don’t touch it I’ll have more for retirement.

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retirebyforty April 13, 2012 at 3:23 pm

That sounds like a good plan. I’ll wait until the interest rate rise a bit and then move some to bonds and CD.

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First Gen American January 20, 2012 at 11:30 am

I have the same issue. Right now, our approach has been to sit on it and then wait for a good CD promotion to come along to lock it up. Last year, I found one for 3%, but it only lasted a couple of weeks, so when I got another chunk of cash, I had no where to put it and I’m still sitting on it a year later. I don’t think it’s worth locking up for under 2%. What about I-bonds? There are caps by SS#, but the variable rate have been higher than cd’s of late.

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retirebyforty January 20, 2012 at 3:49 pm

I’ll add I-bonds to the options. That’s a pretty good option too. Thanks.

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krantcents January 20, 2012 at 12:51 pm

I di dnot see an option of sending it to me! :) That is my choice. $50K seems like a lot of money to keep in a bank account. I think I definitely ladder the CDs. Be careful because I expect interest rates to increase somewhere between 1 and 2 years from now.

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retirebyforty January 20, 2012 at 3:50 pm

How much did you keep in reserves when you had rental properties?

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The Passive Income Earner January 20, 2012 at 1:57 pm

Impressive! Well done on saving. I was going to suggest money market. Especially for your rental property operating expenses.

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retirebyforty January 20, 2012 at 3:50 pm

I think money market is not paying much more than the .8% from ING savings right? I need to do a bit of research there.

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Trent January 20, 2012 at 8:34 pm

Might I suggest a slightlyy higher level of risk with a Corporate Note in a well-respected company … for instance, GE Interest Plus. They currently yield 1.3% and, though not FDIC insured, have the backing of a long financially-sound company. Food for thought

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Trent January 20, 2012 at 8:35 pm

I correct that … currently yielding 1.21%

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retirebyforty January 22, 2012 at 7:27 am

That’s not much higher than the .8% from ING. If the rate keep dropping then it might be a good choice.

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stephane January 20, 2012 at 9:19 pm

I just just bought 20 k in ibonds for me and my wife, considering buying another 10k for my daugther ( same age as rb40 baby) just got tired of dollar saving direct and ing low rate

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retirebyforty January 22, 2012 at 7:28 am

Ibonds sounds like a really good alternative to CD. The only problem is we would have to keep it for at least 1 year. I’ll probably start with 10k and add more later. Thanks for sharing.

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youngandthrifty January 20, 2012 at 10:21 pm

Wow, $50K in liquid cash!

I think what you should do.. is to empty out your living room or bedroom or bathtub.
And put the money in it.
And throw it up in the air.

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retirebyforty January 22, 2012 at 7:30 am

Heh heh, I’ll to get $1 bills. :)

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cashflowmantra January 21, 2012 at 3:52 am

This is a great question that I think would be best addressed in a totally separate post so I will be writing this weekend and posting it on Monday on CFM. Thanks for the idea. The answer may not exactly fit your criteria but I think the purposes will be accomplished.

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retirebyforty January 22, 2012 at 7:33 am

Looking forward to it!

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Neo January 21, 2012 at 4:33 am

Consider purchasing a rental property to generate passive income. ROI on a smart real estate investment can be well over 15% per year. I am certainly looking into investment properties as one of my next major purchases.

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retirebyforty January 22, 2012 at 7:34 am

I would like to purchase another 4 plex, but probably not right now.

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lifeoverwork January 21, 2012 at 7:38 am

Regarding the Thailand account option: It seems to me that the purpose of this money is to serve as your immediate source of funds, not a set of money you want to put into high-risk investments. Currency fluctuations are so unpredictable that they probably make this option inappropriate for this particular set of money. A rate of 2.5% doesn’t seem high enough to me to justify this risk.

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retirebyforty January 22, 2012 at 7:36 am

The exchange rate is favoring Thailand quite a bit right now so this isn’t a good option. The rate was 4% last year and if it goes up to that level again, I probably will think about it a little harder. I don’t mind having money in Thailand. :)

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My University Money January 21, 2012 at 2:53 pm

With your investment income I think 50K is plenty of a cushion (but I have a high risk tolerance and a true love of early retirement so take that with a grain of salt). Chalk up another vote here for the CD ladder option. What life events can you foresee that would need more liquidity than that?

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retirebyforty January 22, 2012 at 7:38 am

I also think 50k is plenty. The rentals could all have problems at the same time and I’d need a big cushion then. Other than that, I can’t see any problems, but who knows.

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My University Money January 21, 2012 at 2:53 pm

With your investment income I think 50K is plenty of a cushion (but I have a high risk tolerance and a true love of early retirement so take that with a grain of salt). Chalk up another vote here for the CD ladder option. What life events can you foresee that would need more liquidity than that?

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SB @ One Cent At A Time January 21, 2012 at 4:32 pm

I would rather question your decision to put $50,000 in emergency. I would settle for $30k , freeing up $20,000 for dividend/high yield bonds (both have same return at the moment).

That 30K would then go to $20,000 CD for one year and $10,000 in a 2 year CD. Some workplace credit union offer same or above interest rate than 2 year CD. Try talking to your frnds who happen to work for other employers. You may find a great deal.

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retirebyforty January 22, 2012 at 7:39 am

Thanks for your input. It sounds like a lot to me as well and maybe I can bring it down to 30k in a couple of years.

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Ginger January 21, 2012 at 4:49 pm

You might want to look into a combination of those idea. For example, put $10,000 in ING, 30,000 in 2,3,4 year CDs and $10,000 in I bonds. Over the last 5 years my I bonds have averaged over 4% and even with the 0% fixed you should make over 3%.

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retirebyforty January 22, 2012 at 7:40 am

That is what I’m leaning forward now, but probably 20k in ING.

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Wayne @ Young Family Finance January 21, 2012 at 6:14 pm

Don’t forget that there are tax advantages to the I bond as well. Interest is exempt form state income taxes, interest taxes are deferable and there are a few ways to potentially shift tax liability.

Although, I’m not saying that it is the best place to put it. Just that there are a few additional considerations.

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retirebyforty January 22, 2012 at 7:41 am

I like the I bonds quite a bit too and will probably put 10k there. Thanks for the input.

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Jackie January 21, 2012 at 9:31 pm

Congrats on the $50K! That’s awesome :)

I don’t have any suggestions on where to stash it, but I like your CD ladder idea and I have a PenFed account because we have our mortgage with them. They’re great.

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retirebyforty January 22, 2012 at 7:41 am

Thanks for the feedback on PenFed. :)

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Leigh January 22, 2012 at 2:35 am

Ally has a no penalty 11 month CD. I like using those to “lock in” the interest rate for short-term savings that I would otherwise keep in cash. With rates continuing to go down right now, I would do that if I were you with part of the reserves and then keep the rest entirely in cash.

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retirebyforty January 22, 2012 at 7:43 am

The no penalty 11 months CD has .91% interest right now, that’s barely higher than the ING saving. Is it worth the trouble?

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Leigh January 22, 2012 at 9:38 am

That’s what I thought when the rates were at 1.25%… You have to call/chat to get the CD released early and it takes about an extra business day over the savings account. That’s why I just use them to “lock in” the interest rate on funds I would otherwise keep in the online savings account.

If you’re hesitant about a CD ladder due to the early withdrawal penalties, the 11 month no-penalty CD isn’t a bad idea. BUT the early withdrawal penalties at Ally aren’t very high anyways, so even cashing in a 2 year one isn’t *that* bad.

(I had two 11-month no-penalty CDs, a 1-year CD, an 18-month CD, and a 2 year CD with Ally that I cashed out to use for my down payment. I had to call in and I had the funds out in my checking account within about a week.)

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retirebyforty January 22, 2012 at 10:13 pm

Ally seems like the best option for CD ladder. They have a pretty good rate with a penalty that people can live with. Thanks for your input.

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Personal Finance Journey January 22, 2012 at 5:38 am

Wow! Way to go! I like the CD ladder too, but do you want to tie up the money for 5 years when you plan to “retire” sooner than that? I would go for a shorter term and forego the slightly higher interest rate.

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retirebyforty January 22, 2012 at 7:45 am

Just some of the money will be tied up right? With the low rate, it’s probably better to go with the shorter term. In 3 years, I’m sure the rate will be up a bit. I like the ING saving option too, that’s why I’ve been putting off the CD ladder. :)

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ColdHardCash January 22, 2012 at 10:23 am

“…this amount cannot go down…”
I assume you are talking about nominal values here since your $50k bank account balance certainly can go down in real terms. If you measure inflation the way it used to be measured before the early 90′s it is currently over 6% annually, check out http://www.shadowstats.com/ and look at the chart. The bottom line is that real interest rates are negative right now meaning that your bank account balance is most certainly going down in value much more than the paltry interest you are accruing.

I thought it was interesting that you would suggest keeping your money in a foreign currency bank account given that you are so concerned with making sure the nominal value “$50k” does not go down, you do realize that it is quite possible for this nominal value of your account to decline if you change it into a foreign currency?

Have you thought about holding at least some cold hard cash as a reserve? I am not talking about paper notes or bank account balances which are neither cold nor hard. I mean real money in specie i.e. gold and silver coin. You probably didn’t know this but your $50K bank account balance is actually worth far less than its face value; today it would be worth only a little more than four pennies on the dollar or a little over $2000 in real terms as a dollar is a coin containing 0.773 Troy Ounces of silver. Of course this can change your $50k bank account balance is not guaranteed to be worth anything, while if you had $2000 in cold hard cash you would know that it would always be worth what it is namely 1546 Troy ounces of pure silver.

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retirebyforty January 22, 2012 at 10:16 pm

Inflation will get worse and worse due to gasoline price. It’s a bit depressing to think about, but I have my rentals as the inflation hedge. I don’t know about gold and silver coins. From what I understand, the dealers takes a big chunk when you exchange it for dollars. I am planning to buy some gold/silver when the price goes down, but I’m not in a hurry there.
Thank you for your input.

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Nata January 22, 2012 at 11:04 am

In Ukraine you can get 8.5 % on 12 month CD in US dollars…

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retirebyforty January 22, 2012 at 10:17 pm

Heh heh, nice. 8.5% is a pretty good rate. Is it safe?

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Darwin's Money January 22, 2012 at 2:58 pm

Good luck on your goal! I might have missed it since you garnered a MILLION comments on this one :) but have you considered one of those “flex” CDs or no-penalty CDs? I think ally bank offers them. Sometimes, the no-penalty rate is close to market rate on a given term.

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retirebyforty January 22, 2012 at 10:18 pm

Some readers suggested Ally and they seems like a good compromise between ok rates and less penalty. They are definitely one of the better options.

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World of Finance January 22, 2012 at 3:58 pm

Great job on saving 50K RB40 :) Have you looked at rates at credit unions, might be higher? Check out this article Derek (LAMF) wrote: http://www.creatingapassiveincome.com/2011/12/high-yield-savings-account/

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retirebyforty January 22, 2012 at 10:25 pm

We won’t be able to meet the requirements. We use the cards less than 12 times a month, that’s the main sticking point. Thanks.

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W-at-Off-Road-Finance January 23, 2012 at 7:29 am

I would avoid the Thai account unless you know enough to evaluate the Thai political situation and associated risk. I consider myself knowledgeable on bonds, and I wouldn’t touch that without consulting an expert.

I think the basic fact is that nothing you do that’s liquid will out-run inflation without taking on risk. The 13 week T-bill is about 200 basis points below measured CPI inflation – that says in this environment there’s too many people chasing safety, so you just can’t win. But since you can’t quit the game either I’d probably just buy some short term CDs at your bank or something. I’d avoid money markets since I think the risk of a Euro-bank default is a lot more than zero at the moment.

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retirebyforty January 23, 2012 at 10:21 am

I don’t mind having some money in Thailand since I have a lot of families there. I’ll check with them, but I don’t think the political instability had much effect on the banks.
You’re right about taking on risk with this money. I’d rather have smaller interest payment than take on a lot of risk.

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Bruce January 23, 2012 at 9:53 am

Hey

Thailand, that sounds so risky.

Have you ever thought about australia, they are paying prime interest right now, and the political situation is fine. you get 4.5% in a regular bank account.. (not even a savings type)

https://www.westpac.com.au/personal-banking/bank-accounts/tools-calculators-rates/savings-interest-rates/

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retirebyforty January 23, 2012 at 10:10 am

Yes, I thought about Australia, but I couldn’t find a way to open an account there. From my research, you have to be a citizen or resident to open an account. My aunt lives there, but I don’t know if I want to send her $50k. :)

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Miss T @ Prairie Eco-Thrifter January 24, 2012 at 7:14 am

Wow congrats. This is awesome.

I would pick something short term. You don’t want to lock that money in in case you want it for something. I would do something like ING where you can make a few extra dollars interest and have access to it ASAP if you wanted.

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EconomicallyHumble.com January 24, 2012 at 9:26 am

CONGRATULATIONS! thats a huge step. I like the idea of a CD ladder, though the rates right now may not be as good as your ING Account and the effort may not be with the interest.

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Judith January 24, 2012 at 10:54 am

I advocate buying real estate. But second buy stock not for appreciation but for Dividends. You need careful research. With the market down buying for the dividends is a great idea.

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Chuck January 25, 2012 at 10:37 am

If you’re eligible, Ally Demand Notes offer a higher rate of return and access to all of your money at all times. http://www.demandnotes.com

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Newlyfrugal January 26, 2012 at 1:28 pm

I just stumbled onto your article today. I see that at least one poster suggested Rewards Checking Account but mentioned your aversion to them. May I suggest that you take a closer look at RCAs? I was in a similar situation as yours and decided to keep my $50k in an RCA. You can go to checkingfinder.com, enter your zip code, and see the list of community banks/credit unions that offer high interest rates.

This is how I found Centera Bank, which requires me to receive online statements, do one ACH transaction, and 10 debit transactions (used as credit card) per cycle. I make a nominal $5 ACH payment to a credit card. As for 10 debit transactions, I break up my purchases at CVS or the grocery store, or I buy several packets of gum or canned food.

If I meet all requirements, I get 3.01% interest (used to be 4.01% five months ago) on deposit up to $25k. I get .55% on deposits beyond $25k. I opened two RCAs with Centera, one in my name and one in my spouse’s name. So we get 3.01% on the total of $50k. In each account, I keep $25,200 or so. This way, I don’t fall below $25k when I make the ACH transaction or 10 debit purchases. My money is entirely liquid and I can add or withdraw at will. My interest last month was $52 and $54 for each RCA account, so a total of $106 per month.

After putting $50k in Centera, I put the rest of my liquid savings in Ally, whose online savings account and money market account each offer .84% (used to be .89% a week ago.) The savings account and MMA each allow up to six free withdrawals per month. I pay all our bills with a cashback rebate credit card, then at end of the month, I pay the CC online with my Ally account. I use Ally as intermediary to move money from my Centera bank to my local bank and other banks as needed.

I have $50k in Ally at .84%. I am considering putting some of this in No Penalty CD for 11 months or in regular CD for 12 months. The penalty for early withdrawal is only 60 days. I doubt we will need to withdraw early because we have funds in our Centera accounts. If you need $100k in liquid assets, you might try what we are doing ($50k in RCA, $50k in Ally.)

Make sure you take care of long term investments also; we have IRA and regular accounts at Vanguard and Schwab. This money will stay there for 20+ years to ride out any market fluctuations. Good luck to you and your family. Hope everything works out.

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retirebyforty January 26, 2012 at 4:36 pm

That’s good advice. I’ll look into it. It’s just a lot of effort on our part to meet the requirement and I’m sure we’ll slip up after a couple of months.

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lholts January 28, 2012 at 5:51 pm

Until this year, I was buying muni bonds. And, getting 5% return. Haven’t had much luck getting them recently; they’re just not around so much! Now, I’m looking at utility stocks that pay good dividends. You may not get huge equity gains (or losses) but you can score 5%+ with PP & L, First Energey, etc.
Good luck! And congrats!

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retirebyforty January 28, 2012 at 11:02 pm

I like the utility stock idea, but I put those in my after tax stock account. Thanks!

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MoneyforCollegePro January 30, 2012 at 9:50 am

That is awesome that you have amassed such a nice cushion. I have been looking for alternatives for our savings in ING also. I have thought about a CD ladder but did not like their rates. I did not realize you could join Pen Fed so easily. I will have to look into joining there. Thanks for the info. !

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Lisa @ The Penny Hoarder January 31, 2012 at 10:25 pm

You have so many great ideas on retiring abroad – I think that a separate post regarding “How I would invest $50k into Retiring Abroad” is in order! Great article – thanks!

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Debbie February 1, 2012 at 7:58 am

Hi RB40,
I found a checking account at First Community Credit Union that pays 2.5 on up to $25,000.00. Their Money Market/Management is much lower. I am not sure why they want 25 in a checking account with such a high rate, but hey it pays and that’s all I care. There are a few stipulations. Off the top of my head, monthly, you must have at least one auto payment to the account, 12 debit card transactions, enroll in e statements there is something else, but I can’t remember. I had already done all these things and it was silly for me not to take advantage of the rate. Thought it was something you could check out. And not to mention, it’s totally fluid. If you do not match the criteria nothing happens you just don’t qualify for the 2.5.

https://www.firstcommunity.com/

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retirebyforty February 1, 2012 at 9:47 am

I have seen those too and I really need to check them out. We won’t meet all the conditions without some changes, but it might be worth it. 2.5% is pretty good.

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Dino February 7, 2012 at 9:20 pm

Rb40 -
My suggestion is considerably different for your $50k.
Place it in a tax-free municipal bond fund with Vanguard, specifically the Limited Term TE Bond Fund or if you want a little higher rate and risk, the Intermediate Term Fund. In this scenario, you earn higher interest rates that are federally tax exempt, you have access to your money via free checks to write for $250 and above, and you collect monthly dividends PLUS the power of compounding. You can also add to your holdings monthly via automated electronic transfer payments at no charge,while VGs fees of .20 percent are the lowest in the industry.
- Dino

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Tommy April 13, 2012 at 1:05 pm

I like that suggestion and will look into it as I have my work 401K there and am thinking of moving 50K of my outside T. Rowe IRA there to get a “Free” Financial Plan.

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retirebyforty April 13, 2012 at 3:24 pm

Beware of “free” financial advisers. They are just glorified sales people.
Take a long look at what they want you to buy and compare them to Vanguard funds.

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Tommy April 14, 2012 at 5:09 am

The plan is from Vanguard made of Vanguard funds. I am going to a T. Rowe center to talk with a planner (he is not a CFP) there today just to hear what he has to say before moving the 50K to Vanguard for their plan (prepared by a CFP).

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Hannah @ HowMuch February 10, 2012 at 11:48 am

I was almost in the same situation as you. I wanted to pay off my house as well as save upwards of $40k~ in order to quit my day job. I had hit this goal about 3 years ago. I just got fed up with my $40k making only 2% tops, so I decided to just purchase more rentals in my area. I was able to find a lender that would do 10% down for a lower interest rate for the next 5 years.

Quick story short, I have 4 total rentals now (looking to add more) and have invested about 25k of my 40k and the returns have been very nice. I saw that you have a rental, but this may be something you want to look into just to throw a little bit of that money in :)

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retirebyforty February 10, 2012 at 10:13 pm

I have a 4 plex, a rental home, and a rental condo. I’m still looking around a bit, but I haven’t found any good deals lately.

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Yep February 12, 2012 at 7:43 am

All the financial advisers think I’m crazy, but I’ll tell you what I did in your situation. Time will tell whether I was right or not. Instead of buying a CD at less than a percentage point, I “refinanced down” my mortgage. I had a little more money than you, so I was able to get a 10-year loan for about what we paid for a 30 year. The principal owed is dropping surprisingly quickly. My logic was that if I can only earn 1% or less, but I’m paying 3-4% interest, I’ll save massively by paying off the loan earlier and enjoying some additional freedom. To protect myself from sudden cashflow issues (I also have a 4plex that could cause a sudden expense), I opened a line of credit on my house (I have lots of equity since I just gave the bank lots of money), however I don’t have a payment on it unless I take a draw so my cashflow stays good.

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Jesse Frei March 8, 2012 at 8:44 pm

I’m not sure what Prosper does… but lendingclub.com has an online trading platform where you can sell the notes you own at a discount to other investors. Typically to attract investors you sell it for a discount, I’ve done it a few times and it seems to work rather well. This is one way the investment can still remain liquid.

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Jerome March 28, 2012 at 3:12 am

I would opt for a dividend portfolio. Chances that you suddenly need all of your buffer are very small, so it is in my opinion acceptable to take that extra risk and make nice few extra dollars on the side. A mixture of 25k cash in a bank-account and 25 k in dividend is also a good option and a bit more secure on the short run.

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retirebyforty March 28, 2012 at 9:00 pm

It would be nice to have the additional dividend income.

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Gina September 3, 2012 at 8:08 am

I have a Cd at Penfed, and the reason I like it is I never think about it!
I don’t drive by the bank, it is out of sight out of mind. I have three more years of 4.0%
CD.
I am starting a CD ladder at ING, only cause I have available $500.00 amounts at a time.

My husband wants to retire early, but is no where near prepared as you guys. We are so looking forward to it, but the process to get there is hard!

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retirebyforty September 3, 2012 at 6:16 pm

4% is really great. I’ll add some money to the CD when the interest rate is higher. The current rate is just too low for me.

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Kevin November 24, 2012 at 1:54 pm

$50,000 in cash, in my humble opinion, is not the best option. Inflation will erode the value of that money over time. I have a 401(k) and Roth IRA, but like you, I also have taxable liquid savings. I use the permanent portfolio for my taxable account:
25% cash (SHY) 25% gold (GLD) 25% Treasuries (TLT) 25% Stocks (VTI)
This way, I have a quarter of my money in liquid cash for emergencies, while the remainder can always be working for me. If you look at the volatility and max drawdown of this allocation it is actually quite steady and safe, with returns that rival a 100% allocation to stocks. Rebalance semi-annually and you are good to go! I love seeing my taxable savings grow alongside my retirement. In fact, I’m considering allocation my entire bankroll this way. If you don’t know about the permanent portfolio, please Google it.

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retirebyforty November 25, 2012 at 7:45 am

I agree, but I want to keep the cash for now because I don’t work full time anymore.
If our finance work out, then in about a year I would reduce that position.
I’ll do some research on the permanent portfolio. I don’t like GLD though.

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Patrick & Sharon February 6, 2013 at 4:48 pm

There are many high-yield credit union checking accounts that offer rates @ 3 0/0 or higher nationwide (long term, not promo rates) up to $25K per account. We use Lake Michigan Credit Union that paid us $900 in interest in 2012 ($30k in 2 accts paying 3 0/0 w/easy-to-meet requirements).

http://www.bankrate.com/finance/checking/high-yield-credit-unions.aspx

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retirebyforty February 7, 2013 at 8:55 am

My credit union is on that list. I rarely use the debit card though so we won’t hit the minimum requirement.

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Joek April 5, 2013 at 5:38 pm

Real inflation rate on US currency now exceeds 3 percent and growing . Official US government. Inflation rate calculation is inaccurate and manipulated.

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Precyzyjny May 21, 2013 at 2:13 am

Our checking account at the credit union we use is paying 3%

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retirebyforty May 21, 2013 at 3:37 pm

You probably has to do a few things to get that 3% though. I can’t do direct deposit (no jobs) and I use the credit card about once a week.

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Survive The Valley September 16, 2013 at 10:35 pm

How much of that $50k nut do you really need for a rainy day/emergency fund (or do you already have a separate allotment for that)?

If you have a time horizon that’s a couple years I’d take most of that money and park it into an S&P500 index fund, or if you’re really conservative, an inflation-protected bond fund like VIPSX. Sure, your principal may dip below your original amount, but I’d take the short term volatility over the less-than-inflation savings and CD rates – with the latter you’re locked in or are hit with a penalty for withdrawal anyway.

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retirebyforty September 16, 2013 at 10:50 pm

I just wanted to give the missus some peace of mind for the first year.
Now I know we don’t need that much saving so I’m going to invest most of this saving this year.

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TropicalTwo24 October 12, 2013 at 7:40 am

You can do like I did, make your investments cover themselves. I have four rentals and instead of taking my emergency cash and stashing it in a bank account or cd’s I invested it in stocks. To cover unexpected emergencies I took out a HELOC (home exquity) loan I found on the internet (Third Fed Savings/loan) that is matched to the prime rate, been 2.99% for 3 years now, no closing, etc. I’m making over 10% on my investments in stocks. I have not had to tap it for an emergency but if I did I would pay the 2.99% and write off the interest on my taxes too. If the interest rate increases for this HELOC to an uncomfortable level in the future – which it will, I then will start building cash reserves. Works for me and my money too.

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TropicalTwo24 October 12, 2013 at 7:53 am

Correction, the HELOC is a Home equity line of credit, not a loan. You only use it if you need it (check book) and only pay the interest (tied to a mortgage/tax write off) on what you have borrowed. Good peace of mind for those that are responsible, need an emergency account, and want their money working for them. The bank doesn’t care what you spend it on either. ie. I found a foreclosure property that was a steal two years ago and bought it for 50k from this account, the bank considered it a cash deal, I wrote a check and now own it. It produces new positive cash flow every month now, I will have the original loan (50k) paid of in 3 years… Keep that money working and not you.

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Michael November 30, 2013 at 5:30 am

For those out there still building their nest egg and able to handle higher risk -I ended up placing most of our liquid assets in a brokerage account investing in morningstar five star rated mutual funds. With the brokerage acct we can access the money in about 7 d if needed. I don’t know if I’d reccommend to those already retired. We limit 10k of emergency money to savings +checking since the interest rates are too low also CDs feel too restrictive for the low returns. Having the brokerage acct helps us to keep our liquid assets separate from daily expense accts and also makes it easy to move the 5.5k to our roth accts every year.

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Chris Boyles December 3, 2013 at 5:52 pm

First off, I know absolutely nothing about investments. I read the thread and most things confused me. I am 58 years old and came into a windfall 0f 50k, so googled what to do and came to this place. I am disabled and draw 5k per month. I have full coverage for medical and prescriptions from the VA. I don’t own a home, I rent, $400.00 per month. I only have 4k in debt for a car, with one paid for. I have no other debt. I have 5k in my checking and 1k in a money market secured visa for ease of use. I live alone. I also have 10k whole life paid for by the VA.

I think I could do a better job with the 50k in my savings, but am afraid to invest due to the current worldwide financial crisis. Any suggestions on how I can safely get a better return on my savings would be greatly appreciated.

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retirebyforty December 4, 2013 at 9:27 am

You might want to talk to a financial adviser. Pick one that charge a one time fee and not an ongoing fee.
If I was in your situation, I’d probably play it safe and build an iBond ladder.
Invest $5-10,000 per year in iBond with the treasury department. After a 5 years you will be able to withdraw it without penalty. You can’t withdraw it in 12 months so you have to be sure you don’t need that money in that time period.
The rate is better than money market, but not much. It is very secure though.

http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

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Chris Boyles December 8, 2013 at 7:00 pm

Thanks, I check into the iBond.

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Ameen December 18, 2013 at 12:35 pm

Wait a minute.

This is my first time at this blog, so forgive me if you already addresses this elsewhere.

But you say that you want to retire early, you want passive income, and you like real estate. So why the heck are you thinking about locking your money up in CDs when you can add to your real estate portfolio?

I get it that the money is for reserves, but when trying to retire as quick as possible you need to accelerate the velocity of your income.

Hopefully your rentals are held by a corporation and not by you personally. If so, or if you have a management company that you own, after 2 years in business you qualify for a line of credit. Capital One will give them for $50k with no collateral. That can be your safety net while your money works for you instead of sitting in a worthless CD.

Just my 2 cents, but with the experience of retiring at 30.

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nick March 31, 2014 at 3:46 pm

Congrats where is a good place to start investing besides saving over 60 % of take home income for a house. I am 20 and married.

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