What's a good ratio of savings account vs index fund?

[u/psykitt]

Here's an overview of my situation:
I don't make much (~47k net annually, after taxes), but i do want to optimize my finances. I have a 401k that's a Vangard 2055 target date retirement fund, also 10k in i-bonds, so these two are set it and forget it (debatable about the i-bonds though). My real question is focused on my savings. I have 35k in Capital One's Performance HYSA which is currently 4.25% APY. I get around 100$ a month from that interest, which is nice. I also have one stock in my Robinhood account that I've invested in, which is the index fund VTI. I only invested around 2k in there a couple of years back (wish i did more). So, my question is simply how much would you recommend I move from my savings account into VTI? Also, what about timing, should i wait for a dip or invest gradually over time (DCA, is it called?)?

[u/notquitehuman_]

It's dependent on your spending and salary.

My rule of thumb is that if I was out of work for 3 months, my emergency savings would cover all of my necessary payments.

That way, if anything happens employment wise, you have plenty of time to find something new. If 3 things break at once, you can cover it.

Beyond that, your budget should be broken down into necessary spends (essential bills), "would-like" spends (subscription services, occasional treats like meals out) and a fund for expensive purchases or trips. The leftover should go into savings until your emergency fund goal is met, then investments once the savings are at a safe level.

Pay yourself first! And keep your emergency fund seperate from your checking account but readily available in a pinch.

[u/siamonsez]

Instead of looking at how much in each kind of account or type of investment think of it as the total sliced up based on how available the money is and when you might need it. Vti is actually the least available in the sense that you can't count on a minimum return at any point in the near future that you might need to sell. The HYSA and I bonds are most accessible so right now if you're not saving for any upcoming large expenses you have something like 18 months worth of an emergency fund which is pretty conservative.

[u/helpwithsong2024]

Keep 3 to 6 months of expenses in cash (HYSA) invest the rest. Do this for 30 to 40 years and you'll be set.

[u/skewi6]

the general rule of thumb is to have 3-6 months of expenses in a bank account and to invest the rest.

[u/among_apes]

Whatever you decide as far as rations I would advise getting used to building treasury ladders at around 5.35% using 4 week tbills which also exempt any earnings from state taxes (if that’s applicable).

After setting up 4 consecutive auctions you will see interest dump in your HYSA account each week.

[u/Nemarus_Investor → u/among_apes]

Why go through the hassle of a treasury ladder when you can just buy a floating rate treasury ETF like USFR and get the same state-tax free yield without the trouble?

[u/big_deal]

In my opinion, a fixed ratio isn't a good way to specify this split. I keep enough in cash savings to cover planned spending and I put everything else into investments. The planned spending is a relatively fixed amount, the investments is a continually growing amount.

Checking account: Keep enough cash to cover about two months of bills.

Savings account: Save up for spending that's outside of my normal monthly expenses that I plan to spend in the next year or so. I contribute and hold just enough to cover my planned spending. This is where I'll save for big things like a car, a big trip, or home repair/remodeling/furnishings. This amount varies depending on what I'm planning to purchase.

Emergency fund: This is more cash savings with enough to cover about 6 months of bills. Together with my checking and savings account I generally have about a year of spending in cash.

Investments: I put in as much as possible. Anything I don't have in checking to pay for normal spending or in savings to pay for larger/unusual spending goes into investment accounts starting with tax advantaged contributions to 401k, Roths, and HSA, and any extra goes into a taxable brokerage account.

[u/BradCOnReddit]

The amount you should have in cash savings is based on your expenses. It has nothing to do with how much you have invested.

3-12 months of expenses is the typical range of recommendations. Higher end if you are single income.

[u/TakeMyL → u/BradCOnReddit]

This is the correct answer

If you have more liabilities/potential expenses, then a higher savings amount aswell (homeowner,run a business, etc)

But otherwise, unnecessary cash is just losing potential gains

[u/Embarrassed_Time_146 → u/BradCOnReddit]

This, and also any extra money that you plan on using for something specific in the next five years (you could also use fixed income for this though).

[u/Misaiato]

I don't know you - but I'm proud of you for saving, investing, and caring about your finances. It's really important - and you're doing a great job.

Advice:

• I think you're probably young, which means you have time (in theory). You cannot buy more time.
  
• Move 20,000 into VTI
• Buy a 12-month CD with $10,000 - Capital One has 5% for you (you can get higher rates, let's start simple)
• Look at the $5000 in your HYSA and will it to grow. Make sure you spend less than you make, and make that number go up.
  
• Invest your time in your skills, your health (exercise, eat, and drink healthy things), and your hobbies / social circle. You won't have a ton of money to do it, which means you find things you can do without a ton of money: take walks, read, etc.

Look at your retirement fund composition (scroll almost to the bottom): https://investor.vanguard.com/investment-products/mutual-funds/profile/vffvx#price

Vanguard Total Stock Market Index Fund Institutional Plus Shares 53.80% Vanguard Total International Stock Index Fund Investor Shares 36.40% Vanguard Total Bond Market II Index Fund9 6.80% Vanguard Total International Bond II Index Fund 3.00%

The fees on your fund are 0.08%, which isn't actually bad, but you could put your money in VFIAX with is basically tracking the S&P500 for 0.04% fees, and you could just buy more i-bonds if you want more bonds (you're probably young, as I said, so you really shouldn't be worried about bonds at all)

The best way you can optimize your savings is to save more. The best way you can save more is to make more. Believe in yourself, improve your skills, and do not be afraid to search for another job that pays you more.

[u/AbbreviationsFar9339 → u/Misaiato]

eh, not really a fan of this. I don't think you can give numbers this specific w/ out know this persons expenses.

• 3-6 months of expenses should stay in HYSA or some other stable liquid vehicle like SGOV or money market acct.
• there is no reason to lock up 10k in a cd when you can put it in SGOV etf or money market for the same return.
• I would say your VTI allocation is aggressive w/out knowing OP's expenses.

What I would tell OP is to just put all future contributions that were going into savings into VTI instead unless they have some large short term expense.

[u/among_apes → u/Misaiato]

I wouldn’t mess with the CDs at this point when he can get used to building treasury ladders at around 5.35% using 4 week tbills and also exempt any earnings from state taxes (if that’s applicable)

[u/Nemarus_Investor → u/among_apes]

Why go through the hassle of a treasury ladder when you can just buy a floating rate treasury ETF like USFR and get the same state-tax free yield without the trouble?

[u/s32bangdort]

You could open a standard brokerage account at Fidelity and put that $35k into SGOV ETF which is a tbill ETF and get another percent in interest and have it state tax exempt (for the most part: have to check the percentage annually). Also the Fidelity “cash account” sometimes referred to as “sweep” account pays also higher percentage rate. It takes almost no time to open these accounts.

As for the investment in VTI, only you can know your tolerance for risk but it is definitely one of the “whole market” ETF that gets recommended a lot. There are several studies concerning DCA or lump sum and that has been discussed 10x a week. See also r/bogleheads for similar discussions.

There is no “ratio” for an individual investor. You should have a bucket of high liquidity (cash or tbills, etc) for emergencies (how much do you spend monthly??), and then something available longer term or for retirement.

[u/among_apes → u/s32bangdort]

Are these still state tax exempt? I’ve always wondered that. I have been just building treasury ladders on the actual treasury direct site.