Ideas to generate income for EF

**kork13** · 08-21-2012, 04:19 PM

Originally posted by tripods68 View Post

Okay last year I put 15K EF to GNMA Vanguard Fund (total EF $28,765K) in which I pocketed $600 interest + capital gains. Last week pulled it out. So now I am looking to put 15K again into something different. MUNIs and REIT. I like both funds, but what do you think of my allocation based on simple risk factor.

20% Vanguard REIT Index Fund Investor Shares (VGSIX) or 3K
80% Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX) or 12K

The rest of our EF sits in Money Market funds which barely earns anything.

Any thoughts?

I actually just did the exact same thing with Vanguard's GNMA fund... I had about $11k in the GNMA fund as a part of my house fund, and last week I sold out of it entirely as part of my downpayment. I ended up making about $400 since last October (~3.5% return). I'm fairly happy with that. I've also been using Vanguard's High-Yield Stock ETF (VYM) for a while... With a current yield at about 3.3%, it's been decent for funneling spare money into.

I use I-Bonds for most of my emergency fund. My EF is currently $15k (though I probably need to raise it up to $20k or so now), and I've got $12k in I-bonds earning ~2.2%, and $3k in a cash savings account earning 1%. Over the next year or so I'll be adding another $5k in I-Bonds.

**tripods68** · 08-21-2012, 05:29 PM

Originally posted by kork13 View Post

I actually just did the exact same thing with Vanguard's GNMA fund... I had about $11k in the GNMA fund as a part of my house fund, and last week I sold out of it entirely as part of my downpayment. I ended up making about $400 since last October (~3.5% return). I'm fairly happy with that. I've also been using Vanguard's High-Yield Stock ETF (VYM) for a while... With a current yield at about 3.3%, it's been decent for funneling spare money into.

I use I-Bonds for most of my emergency fund. My EF is currently $15k (though I probably need to raise it up to $20k or so now), and I've got $12k in I-bonds earning ~2.2%, and $3k in a cash savings account earning 1%. Over the next year or so I'll be adding another $5k in I-Bonds.

Kork---You're plan is solid much and much lower risk.

I do plan to take some of the earnings towards our vacation plan next so I figured 15K is good enough to make few hundreds bucks without the feeling angst of an up-and-down market. Although REITs is a bit higher risk, with 20% commitment or 3K I can live with. If MUNIs do well, given its historical risk/reward/return, i may just park the rest of EF for a while.

**kork13** · 08-21-2012, 07:34 PM

I realized that I totally forgot to comment on your actual questions... haha sorry!

2 thoughts...
First, I like the idea of intermediate-term bonds. In a low-rate environment such as we have now, where the expectation is that rates will begin to rise at some point in the (moderately) near future, you have to be generally cautious with Bond funds. Intermediate-term bonds at least cut the middle between getting better rates of long-term bonds and flexibility of short-term bonds. But my question would be: Why did you decide to get out of the GNMA fund at this particular time? Seeking higher returns, or lower risk? If higher returns (which appears to be the case), then I'd say VWITX could be a decent choice.

Otherwise, my personal opinion is that an EF can absolutely be tiered. Keep a portion is totally secure cash, but then you can expand outward to broaden the earning capability of your money. In reality, your entire portfolio of cash and investment assets would be on tap in a true emergency anyway, no? I'm interested in REITs, but haven't taken the leap yet because they seem a bit overly risky for my taste... But I expect that your EF would be just fine even if that $3k went to $0, so if you're comfortable with keeping a limited amount in them, I don't see a reason not to.

**dontgopoor** · 08-24-2012, 02:33 AM

If you're seriously considering munis, you should research why Buffett did not renew a big chunk of the insurance he sold to cover munis. Seems like the default risk for munis has significantly worsened recently.

**tripods68** · 08-24-2012, 07:27 AM

Originally posted by kork13 View Post

I realized that I totally forgot to comment on your actual questions... haha sorry!

2 thoughts...
Why did you decide to get out of the GNMA fund at this particular time? Seeking higher returns, or lower risk? If higher returns (which appears to be the case), then I'd say VWITX could be a decent choice.

My goal for GNMA was to put my money there for a year and pull out. Use some of our gains towards our vacation which I accomplished.

2nd- I wanted to invest into MUNIs and REITs long time ago but just couldn't. Now I'm more comfortable where the market is heading without committing more of our EF towards risky investments.

Ideas to generate income for EF