Financial True Confession Time

As previously reported, we here at The Single Dollar are totally committed to anonymous transparency, but seeing as how we’re anonymous (at least, kind of), that relies on we — well, me — actually reporting the numbers correctly.

And lately I…haven’t quite been.

No worries, I don’t have secret credit card debt or a gambling problem or anything. Well, maybe I have a gambling problem. The thing is, I…remember when the Dow crashed into the 15000s a couple of months ago? I kinda maybe sorta took $4000 out of my newly-saved $5000 emergency fund and opened a taxable brokerage account and bought an index fund. And now I don’t know what to do.

I mean, so far so good: it’s trucking along and is now valued at over $4200. But that money isn’t supposed to be in an index fund. It’s supposed to be hanging around making $3/month in interest and waiting until I have an emergency.

A stock market correction is not an emergency.

The thing is, having done it, I’m not really sure what to do now. I could:

(1) leave it in this new Vanguard account unless there’s a true emergency, figuring that the market is unlikely to crash back below where it was when I made this move and, if an emergency doesn’t arise for a while, it’s likely to grow much better there than in the bank. Report everything accurately on my monthly net worth statement ($1000 cash plus whatever is in the brokerage account) as part of my e-fund, meaning that number will fluctuate. Risk, of course, is that an emergency shows up when the market is low, which is why you’re not supposed to do this in the first place.

(2) Transfer it to my Roth IRA. I’m not totally sure why I didn’t just do that in the first place instead of opening a whole new account. I have plenty of contribution room for 2015 and then I could withdraw the contributions if I did have an emergency, and if I didn’t, they could keep growing.

(3) Close the account, move everything back to my earning-$3-a-month savings account, and be grateful I didn’t manage to lose money on this little adventure.

Ugh, this is why the ability to trade stock on the internet is dangerous. What do y’all think?

14 thoughts on “Financial True Confession Time

  1. Hannah says:

    We have half our e-fund in an after-tax account. I would probably conver to a Roth, but you will be hit with a 25% capital gains tax (instead of 15%) so you’ll need $50 to cover your tax bill.

    1. thesingledollar says:

      Yeah, this is why it was dumb not to put it in the Roth in the first place (if I was going to do it at all). I suppose a $50 tax bill isn’t the end of the world.

  2. Hmmm. This is a very, very interesting question. Have you added more money to your $3/month emergency fund since that time?
    I am usually fairly risk-averse, but I do think that index funds tend to be a reliable choice. Can you tell us which fund it is (or just how risky it is compared to other Vanguard funds)? If it’s not a super-risky one, I myself would probably keep it there for now, assuming you are continuing to prioritizing adding to the savings account to get back up to $5000.

    1. thesingledollar says:

      It’s just the total stock market index, so not terribly risky. The thing about the savings account is that I am saving a lot of cash, but I’m trying to build up a down payment, so while in fact I do have plenty of cash for emergencies right now (my cash accounts all together are at just about $5000 currently), I might need everything to be liquid by next summer. Argh, I dunno.

  3. Jason says:

    Here I thought you had a gambling problem. You don’t have any problem. I invest part of our emergency fund (I keep part of it in an IRA) and only $1000 liquid. Some people recommend that the emergency fund be totally liquid where it is in a savings account or money market earning little interest and you never touch it. However, plenty of others advocate that you make some of that money work. So here is what I recommend. 1) Don’t beat yourself up about this; 2) Read up on those who advocate investing part of their emergency fund; 3) put this new account into a Roth IRA and still earmark it as emergency; 4) keep about $1000-$2000 totally liquid and then put the rest into your ROTH IRA to build it even more.

    I mean I think you have to look at this way. It will rain there is no doubt about that, but when you have no debt (as you do) a pretty stable job (as you do), not a lot of outside expenses or other people to worry about (or pets….you might have pets) your chances of a true emergency (e.g. the car being destroyed by fire) or something are fairly low. If you owned a home or something I might keep a little more liquid, but i wouldn’t beat yourself up about it. I do the same thing.

    1. thesingledollar says:

      Yeah, I just can’t decide! I’m not too upset or anything, I’m just not sure whether to leave it alone in the market now that it’s there, or have as much cash as possible on hand in case I buy a house next year. I dunno. I’ll probably keep waffling for a while 🙂

  4. I second other commenters who said not to beat yourself up. If it was us, we’d leave that money where it is, and not worry about it. A move to Roth with the tax bill would erase much of your gains, with no real benefit (it would still be invested and therefore be volatile). Keep focusing on your other savings, including for down payment or emergency fund. Banks require backup assets now to give a mortgage loan, and they’ll count invested assets toward that, so no problem there. If you have a true emergency, you can always still access your Vanguard account, or maybe find that you don’t actually need to spend that money. It’s like inflation figures — they assume that people will buy all the same things, no matter how much prices rise, when of course that’s ridiculous. If apples get too expensive, most people will switch to oranges. If your car breaks down and your Vanguard funds have lost value, maybe you ride a bike or carpool with someone or ride the bus. Or maybe the fund will have made money, and you’ll be safe selling the shares needed to fix your car (and be glad you weren’t stuck with your sub-inflationary 1% interest on your savings account!).

    1. thesingledollar says:

      This is really good advice, and I hadn’t thought about, hey, maybe I ride the bus for a while. I’m also glad to know that invested assets will count. I wish I’d put it in the Roth in the first place, but since I didn’t, I think maybe I’ll just let it hang out where it is.

  5. Cindy says:

    I agree with everyone else – I wouldn’t worry too much about it. I’d definitely let the invested money ride for the longer term (or medium-ish term), and work with what you have liquid now. When I was saving large amounts of money for projects around the house (sewer connection, etc.), I always looked at liquid savings as a whole as a kind of safety net. So maybe you have money earmarked for the house right now. But, if a true disaster were to hit (job loss, health issue type thing), you could reallocate that money as needed. So, right now, you have a $1,000 emergency fund, plus a back-up safety net of other savings. If/when you buy the house, you either start throwing money into building the emergency fund back up to $5,000 or you start saving for another goal, with the idea that it can also serve as a safety net.

    I think those of us who are trying to fix our finances sometimes get a little too serious about the “never touch the emergency fund!” thing. After all, money is a tool, and cash is cash, no matter what we call it.

    1. thesingledollar says:

      It’s true — it’s fungible, ultimately. I think I have to leave it in there for at least a year, to get the capital gains rate down low. It’ll be interesting to see where it’s at in a year! And you’re right, too, that if/when I buy the house, I can redirect lots of $$ to a renewed cash emergency fund (which I’ll need, because I’ll own a house, heh.)

  6. Sebastian says:

    If you’re currently putting aside an amount of money every month for extra cushion, investing, savings, etc then I would suggest keeping the good investment you started (the index fund) and start allocating those other funds monthly to replenish your e-fund until it’s where you want it. I don’t think you should pull out of the index fund (you obviously invested in it for a reason, and it seems to be a good one)…just figure out another way of getting money into your emergency reserve–even if it’s over a period of months instead of one-shot.

    1. thesingledollar says:

      Hi Sebastian! Thank you so much for this comment. I think you’re right — now that it’s in, the best thing to do is to leave it alone.

  7. Debt Hater says:

    My thought would be to leave this alone and allow it to grow since you’ve already put it in a taxable investment account. I would then start building your emergency fund (cash portion) back up in your savings/checking account. If you feel any more urges to invest, max out that IRA before increasing that taxable account! Sure you might lose a few dollars to taxes that you could have saved but it’s not like you threw your money away.

    1. thesingledollar says:

      Yup, I think that’s what I’m going to do. Thanks!

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