Week 15 Day 7: Match Your Container to Your Timeline

Short-term money (0-3 years): high-yield savings or money market. Medium-term money (3-10 years): taxable brokerage with a conservative allocation. Long-term money (10+ years): 401(k), Roth IRA, and taxable brokerage with aggressive stock allocation. The timeline determines the container and the risk level.

Here is the complete container-matching framework. Emergency fund (6 months expenses): High-yield savings (Marcus, Ally, Wealthfront Cash). No stocks. Immediate liquidity. Vacation next year: Short-term CDs or high-yield savings. No market risk. House down payment in 3-5 years: Taxable brokerage with 40-60% bonds / 40-60% stocks. Moderate risk but some growth to outpace inflation. Kids' college in 10-15 years: 529 plan (tax-advantaged for education), invested in age-based allocation. Regular retirement in 20-40 years: 401(k) and Roth IRA, 80-100% stocks until 10 years out, then gradually add bonds. Early retirement in 10-20 years: Max all tax-advantaged accounts + taxable brokerage. Build the Roth conversion ladder. Legacy/estate: Taxable brokerage (step-up in basis) and Roth IRA (tax-free to heirs). Each goal has a container that matches its timeline and tax situation.

The concept of 'mental accounting,' while often cited as a behavioral bias (Thaler, 1985), is actually functional when applied to goal-based investing. Assigning each financial goal to a specific account with an appropriate asset allocation reduces the probability of behavioral mistakes. Research by Shefrin and Thaler (1988) on the behavioral life-cycle hypothesis showed that people naturally segregate money into mental accounts and treat them differently. Rather than fighting this tendency, the container-matching approach leverages it: money earmarked for 'retirement' in a 401(k) is psychologically more difficult to spend than money in a savings account, even though both are fungible. Das, Markowitz, Scheid, and Statman (2010) formalized goal-based portfolio theory, showing that layering risk across portfolios dedicated to different goals produces similar wealth outcomes to mean-variance optimization but with dramatically better behavioral adherence. The practical result: people who use goal-specific containers are less likely to panic-sell, withdraw early, or deviate from their plan.