Right now, I have 120k in a T-bill ladder. My justification is that I will need to pay for a wedding and major house renovations (basically a gut job) in fewer than five to seven years. Is it wise of me to leave that money on the sidelines? It bothers me that the return is only 5% instead of 15-20% in VTSAX.
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You are getting married five years from now?
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The wedding is likely 1-2 years away, with the renovation planned after that. I don’t want to tackle both at the same time.
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Why would you suggest 7 years when it is actually 1-2? That is considered short term. You should keep it in more liquid, short-term accounts for that time frame. The market is better suited for longer-term investments.
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Wedding is 1-2. House renovations is longer
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I would say it is important to separate the timelines for each project rather than lumping everything into a “5-7 years” category, since there is a significant difference in time over three times as much. Personally, I lean towards using Treasuries, bonds, or high-yield savings accounts (HYSA) for anything 5 years or less.
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I would simply chuck it into VTSAX as you request, in my opinion. However, that’s the risk level I myself have. Not yours. Whether you are willing to assume the risk of a potential decline is up to you. Although there is always a chance, I believe it is sufficiently diversified that any decline would, if it were possible, not be too severe.
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How much danger are you willing to take? Remember that although 15-20% is not sustainable, that 5% is certain. Does losing 20% in a market correction ruin your marriage and your plans for renovations? Furthermore, should you see this as a single financial pot rather than two pots with different objectives and risk tolerances?
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Invest the majority in index funds. A 5-7 year timeframe is long enough to have those investments in the market. In fact, it could even double in value over that period.
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I agree being aggressive with investments when you are young assuming that’s the case is a good strategy. If the market doesn’t perform well, you can always scale back on wedding expenses and opt for a simpler or cheaper alternative, like eloping.
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Keep your funds invested in bonds. A recession is probably on the horizon, thus it makes sense to look for safer options.