Asset Allocation and Age...

[corn18]

not only me and even with the person who has emergency fund and no CC debt, even his net worth will also get affected. he has to use from emergency fund to get through 3 to 6 months until he finds the next job. Yes I would be paying slightly more than him. but situation is not drastically different. rather than worrying about paying of CC debt and saving EF, i simply ignored both and started building equities by putting max on 401k and bought my current primary home and investment home (again I used 401k loan for the down payment for both houses).

if I have equity, i can get money out of it to get through 6 month or 1 yr. worst case I would sell some of it.

Talk to the folks from 2009 that had that same plan. Equities tank 40% AND they lost their job. Now you get to pay back your 401k loans IMMEDIATELY AND you have no income AND your EF equities have lost 40% of their value. I like my plan where I only have to manage a mortgage and have 12 months of living expenses stashed in a short term bond fund / cash.

Obviously we are not going to convince you otherwise. I truly hope we never get to say I told you so. Just don't expect us to support you in this matter.

[rennigade]

I asked this same question over at bogleheads and they made a good point...

"Why go with 100% equities when the risk-adjusted return is not significantly better than 75/25?

https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-risk

Average return for 100% stock = 10.2%
Average return for 80/20 = 9.6%
Average return for 70/30 = 9.2%"


Ill head for an 80/20 AA since there isnt much difference from the above link/chart. I added a bond to my 401k and will be buying throughout the year.

Not sure if ill take toms advice. Loading up on bonds then when the market crashes converting those to equities. On paper it sounds great but that seems more like timing the market. Although it does sound interesting.

[FoolFromAZ]

Talk to the folks from 2009 that had that same plan. Equities tank 40% AND they lost their job. Now you get to pay back your 401k loans IMMEDIATELY AND you have no income AND your EF equities have lost 40% of their value. I like my plan where I only have to manage a mortgage and have 12 months of living expenses stashed in a short term bond fund / cash.

Obviously we are not going to convince you otherwise. I truly hope we never get to say I told you so. Just don't expect us to support you in this matter.

That's exactly the reason why we had 50/50 allocation while we were still in mid 30s. No way we would lose 40% with that allocation.

Your 12 months efund sitting in bond outside of 401k. Mine in my 401k.

[LivingAlmostLarge]

i'm 90/10 and always have been. Mostly cash for the 10% because we wanted to get into and out of stocks. So it's just been the nature of being mostly in stocks but cash heavy for quick ins and outs. Most of our money I've been turning to ETFs now I convinced my DH. Before he had a lot of fun playing stocks. Too tiring now.

[corn18]

Your 12 months efund sitting in bond outside of 401k. Mine in my 401k.

Mine cost nothing to use, yours cost 10% penalty plus taxes. Mine is not my retirement fund, yours is. Once that tax advantaged space is lost, it is lost forever.

Like I said, you seem to have it all figured out.

[FoolFromAZ]

Mine cost nothing to use, yours cost 10% penalty plus taxes. Mine is not my retirement fund, yours is. Once that tax advantaged space is lost, it is lost forever.

Like I said, you seem to have it all figured out.

To payoff c.c debt and save 12 months e.f I have to either stop 401k or reduce our contribution to 6% for at least 5 yrs. If we had started doing 5 yrs ago, we would have had no c.c debt by now and had emergency fund as well, but our 401k would have had 150k less than what we currently have. Now apply your logic.

[Nutria]

To payoff c.c debt and save 12 months e.f

Few people think that you need a 12 month EF (unless you're income stream is very unstable).

Heck, I don't even have an "EF" per se, but a bunch of small "funds" (really "columns in a spreadsheet") for specific purposes like "Car Fund" and "Vacation Fund" and "Job Loss Fund" (which has barely more than a month in it). Money can easily be shifted from "fund" to "fund" if need be.

I have to either stop 401k or reduce our contribution to 6% for at least 5 yrs. If we had started doing 5 yrs ago, we would have had no c.c debt by now and had emergency fund as well

Few say that the EF has to be built all at once. Heck, even Saint David of Ramsey's mantra is "baby steps".

but our 401k would have had 150k less than what we currently have. Now apply your logic.

You need to stop obsessing over assets and remember that there are two sides to the balance sheet coin.

[corn18]

To payoff c.c debt and save 12 months e.f I have to either stop 401k or reduce our contribution to 6% for at least 5 yrs. If we had started doing 5 yrs ago, we would have had no c.c debt by now and had emergency fund as well, but our 401k would have had 150k less than what we currently have. Now apply your logic.

What you should have done then, is what you should do now.

1. Contribute up to the company match in your 401k
2. Put $1000 into an EF
3. Pay off credit card debt

Otherwise you will be stuck in this constant churn of your 401k loans and in CC debt forever. Someday you may actually want to change jobs or retire. What will you do then?

[FoolFromAZ]

Few people think that you need a 12 month EF (unless you're income stream is very unstable).

Heck, I don't even have an "EF" per se, but a bunch of small "funds" (really "columns in a spreadsheet") for specific purposes like "Car Fund" and "Vacation Fund" and "Job Loss Fund" (which has barely more than a month in it). Money can easily be shifted from "fund" to "fund" if need be.



Few say that the EF has to be built all at once. Heck, even Saint David of Ramsey's mantra is "baby steps".



You need to stop obsessing over assets and remember that there are two sides to the balance sheet coin.

Why not? I have not been losing my sleep over my 60K CC debt / being without EF, because I have several times worth of assets and all built while i have been having my 50+K CC debt. never had more than 5K in my saving/checking account for more than a month in last 8 yrs.

infact having 60K debt has been helping us.. we live well below our means mainly because of this debt. we have not bought expensive house/cars/vacation mainly due to this debt. we would always want this debt to be between 50K to 60K.

[FoolFromAZ]

What you should have done then, is what you should do now.

1. Contribute up to the company match in your 401k
2. Put $1000 into an EF
3. Pay off credit card debt

Otherwise you will be stuck in this constant churn of your 401k loans and in CC debt forever. Someday you may actually want to change jobs or retire. What will you do then?

Like I said, I would have 150K less in our 401k if I had gone with your method. if you are ok with me having 150K less now, then why not I sell 50K of my funds for emergency to get through 6 months? yes I would only get 25K of 50K due to penalty and taxes. but still would have more in my 401k right. if we lose the jobs while we have 401k, then I would sell funds to pay that loan and for expenses until one of us find a new job. Like I said I have that extra 150K in my 401k.

[Nutria]

Why not? I have not been losing my sleep over my 60K CC debt / being without EF, because I have several times worth of assets and all built while i have been having my 50+K CC debt. never had more than 5K in my saving/checking account for more than a month in last 8 yrs.

Mathematically, that makes no sense.

infact having 60K debt has been helping us.. we live well below our means mainly because of this debt. we have not bought expensive house/cars/vacation mainly due to this debt. we would always want this debt to be between 50K to 60K.

I think you're trolling us.

[disneysteve]

I think you're trolling us.

I don't think that at all. I think Fool actually believes what he is saying is true. Lots of people don't have even the most basic understanding of how money and finance works. They believe that as long as they can afford the monthly payments on their debt, they're dong okay. They see nothing wrong with taking on more debt as their emergency "fund". It's all good - until something goes wrong and it all comes crashing down.

[Nutria]

I don't think that at all. I think Fool actually believes what he is saying is true. Lots of people don't have even the most basic understanding of how money and finance works. They believe that as long as they can afford the monthly payments on their debt, they're dong okay. They see nothing wrong with taking on more debt as their emergency "fund". It's all good - until something goes wrong and it all comes crashing down.

But to say, "having 60K debt has been helping us.. we live well below our means mainly because of this debt" is just absurd beyond measure.

[disneysteve]

But to say, "having 60K debt has been helping us.. we live well below our means mainly because of this debt" is just absurd beyond measure.

Agreed. But that's how most Americans think.

[AJ444]

But to say, "having 60K debt has been helping us.. we live well below our means mainly because of this debt" is just absurd beyond measure.

It really seems like Stockholm syndrome for a debt.