27-Year-Old Couple With $235K Saved And $70K Annual Surplus Debates: 'Should We Risk It All On Index Funds Like VOO Or Stay Safe?'

In today’s financial landscape, many investors are looking for options to amplify their profits beyond the standard high-yield savings accounts (HYSA). When it comes to increasing their funds, people think of ETFs such as VOO, VTI and SPY due to their low fees and diversification.

This is the case for a couple with a combined annual income of $70K and a substantial sum of $235K in an HYSA, earning them 3.8% and $9K in their checking account.

Because they want to purchase a $1 million home in the next five to seven years, they are considering investing their money in index funds or ETFs for higher returns.

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However, according to a post one of them made on Reddit, a discussion board with over 2.6 million members, they are concerned about stock market volatility and cannot figure out how to balance the money.

“Where could we start putting some of that $70,000 saved a year (and maybe that $235,000 we already have) to have it grow safely more than 3.80% a year? And what percentage of that money would you put elsewhere? What percentage would you keep in the checking account or HYSA?” the poster asks.

Reddit’s r/bogleheads community shared their thoughts in the comments. Let’s see what they recommended to the couple.

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Reddit Advises: Index Funds or Safety?

Focus on Safe Options for Stability

Many commenters suggested the couple consider safer options, even though there aren’t many to choose from. A few examples were mentioned, including Treasury notes, bills and CDs.

“If you want safety above all else, your choices are pretty limited. You can certainly do better than 3.8%. Options include CDs, money markets or treasuries. 5-year Treasury notes are currently yielding about 4.4%, with the 7-year at around 4.5%. If you are confident that the money will be needed only at the five or seven-year point, buy and hold some of these,” one comment reads.

Another Redditor suggested the couple invest their money in short-term Treasury bills because it will generate enough for a down payment.

“Alternatively, keep your current savings in something like SGOV or other short-term t-bills fund (~4.5% at the moment) since it is enough for a down payment on your future house and redirect all future savings into risky funds,” the commenter says.

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Diversify High-Yield Money and Use Management Accounts

Several Redditors have recommended the poster use certain financial tools to increase their money while retaining liquidity.

“Look into the Fidelity Cash Management Account. Acts as a checking/HYSA combined,” one Redditor writes.

Another Redditor mentioned Fidelity Cash Management as a good tool, arguing that it has higher yields than HYSA and allows them to cut taxes.

“Put $235K in Fidelity Cash Management and purchase FDLXX. Higher yield than HYSA and state tax savings on top of it,” the commenter says.

One board member suggested using VUSXX for cash and the emergency fund, noting that the earnings from these accounts are tax-exempt.

“I use VUSXX in my Vanguard brokerage account for most of my cash savings and emergency fund. The earnings are also exempt from state income taxes,” he wrote in the comment section.

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Balance Risk and Reward

The members of the r/bogleheads community acknowledged the high return potential of index funds but some cautioned against excessive risk considering the couple’s goal.

“Risky investments like stocks can go down and stay down, for decades. You’ll have plenty of savings for the down payment on that house in five years holding cash, so why risk the money?” a comment reads.

“You might get 10% in the stock market. Or you might lose 10% or more. The choice is yours. Good luck!” another Redditor says.

On the other hand, a commenter advised them to invest the money into a risk parity portfolio since it has less volatility, proper gains and decent drawdowns.

“Since your horizon is 5-7+ years, I’d go with a risk parity style portfolio. These types of portfolios have less volatility and lower and shallower drawdowns, while still growing at a decent rate. Your time horizon and goal seem well aligned with a risk parity portfolio. There’s a lot of variety and possibilities,” the Redditor recommends.

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