Reply to Best place to "save"?

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Reply to "Best place to "save"?"

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[quote=Anonymous]The way i would approach this is to think about what your time horizon is and what's your risk tolerance.  If you might use this within the next 5 years (for home repair/remodeling/new car) then you probably don't want to be in the market, but if you see this as longer term savings (college/retirement/etc) then you probably want to have at least some equity exposure.

I will say that when we first start saving outside our 401k we were much more conservative than in our 401k-- we didn't want to lose capital both psychologically and because it was partly emergency funds.  So we started saving with ibonds, which preserve principal, generally offer better interest rates than the bank, plus it's tax-deferred (possibly tax exempt for college) and inflation indexed (can't access it for the first year and small penalty for the first 5 years).  Once we had those savings established we started adding mutual funds.  We did use "balanced funds" for a while, which have both stocks and bonds in them, but I started getting annoyed that they weren't very tax efficient (the dividends on which we were taxed were greater than the increase in value of the fund).  I think Vanguard's stock index funds are very tax efficient, but ETFs can also be tax efficient. Our investments outside retirement accounts are still a bit more conservative (as far as asset allocation/% of stocks vs bonds) than our retirement accounts which may in theory not make sense but works for us psychologically.

So basically, I would probably use some combination of online savings accounts/i-bonds for money you want to be safe, adding Vanguard index funds (S&P 500 or Total Stock Market) if you see this as money which you want to invest long term.[/quote]

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