What to do with $200K cash? (2024)

Hi Bogleheads Experts,

Hoping you can provide some help here.

I have about $200K in cash sitting in a HYSA (4.55 APY) and am wondering if there's a better way to put it to use. I have already maxed out my Roth IRA, Spouse's Roth IRA, my 401K, as well as my HSA for the year.

The main options I've considered are keeping it in the HYSA, putting into a taxable account (not sure what to invest in??), or paying off my mortgage.

Other details that might help below:

Emergency funds: Have about $15K in a checking account

Debt: Mortgage of $115K at 3.375%

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal, 6% State

State of Residence: Idaho

Age: 34

Total investment portfolio is right around $337K, details below:

Taxable
None

His 401k (58% of total portfolio)
100% VFFVX-Vanguard Target Retirement 2055 Fund
Company match? 5%

His Roth IRA at Fidelity (18% of total portfolio)
100% FXAIX

His HSA (7% of total portfolio)
100% VFFVX

Her Roth IRA at Fidelity (17% of total portfolio)
100% FXKAX

Let me know if any other details would be helpful and thank you in advance!

If you don't need the money anytime soon (<5 years), you can consider investing it in your taxable brokerage.

I'd suggest beefing up your emergency fund by doubling or tripling it. Then, rather than leaving it in your checking account, putting your entire EF in an HYSA or a money market fund that only invests in treasuries (SNSXX, VUSXX, FDLXX — USFR/TFLO would be the ETF version if you prefer that). All these options should be equally safe, with faster liquidity on an HYSA.

Then, take the rest & dump it into a globally diversified total market index fund similar to VFFVX — I'd suggest VT (100% stock) or AOA (80/20). You could even default to the same VFFVX in your taxable — there is a slightly higher tax cost to using Target Date Index Funds in taxable, but I personally don't mind it.

OP,

Think about how your asset allocation in taxable will look. For me, I would take 30K of it and put in in treasuries in the taxable brokerage. You can do this via a call to your brokerage and they can walk you through it. You can also figure it out online.

Another option would be as the above poster mentioned by putting it into a treasury fund. Then, put the rest of it in VTI in the same taxable brokerage. When you set up the taxable account, make sure to turn on "specific id" for shares. Thus, when you need to fund things, you can sell from VTI with the least possible tax consequence.

If you follow: 170K in VTI 30K in treasuries. The dividends alone would be able to fund some of your Roth contributions for the year. 2635$ is what I get when computing the dividend.

Long story short, you really dont need much of an "emergency fund" anymore with 200K in cash. Put it in taxable and when you need to make a big purchase, sell some to checking to keep your checking to the level you want it at.

Regulator23 wrote: ↑Wed Aug 09, 2023 1:43 pmAge: 34
....
Debt: Mortgage of $115K at 3.375%

It is hard to think of using the the word "only" with $115K but if I was in your situation I would just pay that off since it is "only" $115K and will be a lot less in 10 years. If it was $500K it would be a harder choice since it could make a bigger difference in your overall finances. If getting a paid off house by the time you are 34 looks like a mistake in retrospect several years from now then that is a pretty good mistake to have made.

You can then invest the freed up mortgage payment each month.

One reason to pay it off is that while it is not exact in many ways a mortgage is very similar to owning a negative bond in your asset allocation. I did not try to crunch the numbers but I would guess that if you count your mortgage as a negative bond then your overall asset allocation would be negative in bonds and over 100% stocks which is likely a lot more agressive than you would plan on.

Another part of my reasoning even at 3.375% investing the money in stocks and bonds and getting a higher after tax return is harder than it sounds because you have a sequence of returns risk. Here is a very simplistic example of that which I have posted before so you might want to play with your actual numbers looking at it this way.

If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To pay off the mortgage at the end of the second year you would need about $96.5K so you would need to gain back $12.5K and another $6,000 for the next years mortgage payments which combined is $18.5K. That would take a 22% return on the remaining $84K to get back to the point where you could pay off the mortgage.

In the past portfolios have declined in roughly one of four or five years depending on the asset allocation. (20 to 25 percent of the time)

https://investor.vanguard.com/investing ... allocation

The sequence of returns risk can also go the other way and you could get lucky and have the first couple of years get good returns that would put you on the path for large gains over the years. There will sometimes be very optimistic projections on just how much better not paying off the mortgage could be but one limiting factor that needs to be considered is that few people actually keep a 30 year mortgage for the full 30 years. It is difficult to put a number on it but many people who own a home will sell it in less than 10 years.

If you paid off the house then the rest of your money could be used to build up your emergency fund or for a car fund to be able to pay cash when you need a replacement car. For part of your emergency fund you could buy iBonds.

The Federal Money Market at Vanguard (Settlement Fund default) is 5.27% 7 Day SEC last time I looked (updated).

<5 years is "do the best you can".

Regulator23 wrote: ↑Wed Aug 09, 2023 1:43 pmLet me know if any other details would be helpful and thank you in advance!

Where does this money come from? Last year you had $50k lump of cash, and now you have it 4x.

As others have suggested, you could do half of the current cash to the mortgage and half into taxable. If you already have a Fidelity brokerage/cash management account, you could first buy FZDXX (Fidelity® Money Market Fund Premium Class) which has a $100k minimum to initially invest before using most of it to buy say VTI (Vanguard Total Stock Market ETF). You can then keep your emergency fund and other "cash" earning FZDXX's current 7-day yield 5.1%.

Basically simplify from 3 checking + savings + brokerage accounts (+ mortgage account) to a single cash management account that holds money market and total market, and you can continue to pay bills, mobile deposit checks, withdraw cash ATMs with fees reimbursed, contribute to Roth IRAs, etc.

Even if you were getting 5.1% instead of HYSA 4.55%, your after-tax rate is 3.6% (up from HYSA 3.2%), so if you kept your 3.375% mortgage, $115k has a net yield of about $200/yr in addition to the flexibility of using that cash for some other purpose. But if you don't need that flexibility and are okay with foregoing the potential $200, might as well pay off the debt to then get a different kind of flexibility of your choice of how to redirect those monthly payments.

Lots of good advise on if you do NOT need the money within 5 years or if you WILL need the money within five years.

Now if you MAY need the money in 5 years, then dollar cost average into VTI or the mutual fund equivalent. That will minimize the potential sequential losses.

Regulator23 wrote: ↑Wed Aug 09, 2023 1:43 pmHi Bogleheads Experts,

Hoping you can provide some help here.

I have about $200K in cash sitting in a HYSA (4.55 APY) and am wondering if there's a better way to put it to use. I have already maxed out my Roth IRA, Spouse's Roth IRA, my 401K, as well as my HSA for the year.

The main options I've considered are keeping it in the HYSA, putting into a taxable account (not sure what to invest in??), or paying off my mortgage.

Other details that might help below:

Emergency funds: Have about $15K in a checking account

Debt: Mortgage of $115K at 3.375%

. . . . .

I suggest: (1) paying off the mortgage; (2) 3-6 months of core living expenses in the emergency fund; and (3) the rest in a taxable account at a low-cost provider like Vanguard, Fidelity, or Schwab investing in a very tax-efficient stock index fund such as Vanguard Total Stock Market Index (VTSAX).

"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy

I would not pay off the mortgage given the current interest rates. I don't disagree with the psychological benefits etc., but you have a loan that is at least 1% less than you can make in a HYSA. Obviously if the rates come down you can reevaluate, but I wouldn't do the bank any favors.

If you open a taxable account with the money, you can invest a portion (according to your IPS (mine is 30% of equity allocation)) in an international index fund such as Vanguard Developed Markets Index Fund (VTMGX) to get the foreign tax credit.

Good luck.

What I'd do:

• Buy 10,000 ibonds for you immediately

• Buy 10,000 ibonds for DW immediately

• Put 33,000 in VUSXX

• After the 1st of the year use that 33,000 to fund your Roth IRAs and ibonds for 2024

• VTSAX and chill with the rest

• MAYBE - stick most of that emergency fund into your VTSAX once the ibonds have seasoned a year

You could use tips instead of ibonds. I personally care more about the nominal value never going down on my ibonds.