Author Topic: Where to invest?  (Read 9497 times)

breemat

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Where to invest?
« on: March 01, 2012, 09:25:43 AM »
Hello,

My husband and I are in our mid-twenties and both earn pretty good wages.  We carry no debt except for our 15 year mortgage at just less than 200k at 3.75% interest.  We also contribute fully to our employer match 401k plans. As it stands right now, we currently have accumulated an additional 30k (on top of the "emergency fund" we keep in cash) and expect to continue saving a large portion of our bring home income in the coming years.  The real question is, what our next move should be.

We've already got a few thousand dollars in mutual funds.  We could easily move the money to that same Vanguard account and invest in the stock market.  We've also considered buying some inexpensive rental property, paying it down as quickly as possible over the next ear or so, and using the income from the property as another revenue stream.  Or, we could put the money down on our mortgage and shoot to pay that off very first.  We do wish to have our entire mortgage paid off for peace of mind, but aren't bent on having it done immediately if there is a smarter way to use our money to our advantage in the short term. 

Any thoughts or advice would be very appreciated. 

judgemebymyusername

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Re: Where to invest?
« Reply #1 on: March 01, 2012, 05:30:58 PM »
My 2 cents:

  • Keep paying down the mortgage. You've got a decent rate and it's only a 15 year loan instead of a 30.
  • Define your emergency fund to somewhere between 6-12 months of living expenses.
  • Contribute to your 401k to the max that your employer will match. (Sounds like you're already doing this if I read it correctly.)
  • Each of you should put $5000 into a Roth IRA at Vanguard. Put it into some type of index fund.
  • My generic advice at this point is for both of you to contribute the max $17k to your 401k's.
  • What I would personally do is take the extra cash at this point and use it as a down payment on a rental house and begin building my real estate empire. (Instead of maxing out the 401k.) Eventually I want to buy 5-10 homes and grow into buying apartment complexes.

I recommend you take a second look at your investment choices and go with complete market index funds or an S&P 500 index fund and choose your age as the % of money to put into a bond fund for each of you. Any additional questions I'm open.
« Last Edit: March 01, 2012, 05:32:55 PM by B »

James

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Re: Where to invest?
« Reply #2 on: March 01, 2012, 05:58:55 PM »
You are at a point of needing a very thorough investigation into rental options, much of which can probably be done in this forum, followed by an examination of your desire to own rental properties and all that comes with it.  My brother does very well with rentals, enjoys it (though not as much in the last three years), and will probably always be involved in various ways of making it work for him.  For myself, I have no desire to have anything to do with it.  I think I am in a location that would allow me to make decent money in rentals, but I simply don't want to spend my time in those areas.  It's a stress I don't need or want in order to meet my goals.  I'm willing to give up some amount of additional profit in order to park my money in various index funds that cover what I want to invest in.

You are in a great position, enjoy the journey.  :)

breemat

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Re: Where to invest?
« Reply #3 on: March 01, 2012, 10:38:17 PM »
My 2 cents:

  • Contribute to your 401k to the max that your employer will match. (Sounds like you're already doing this if I read it correctly.)
  • Each of you should put $5000 into a Roth IRA at Vanguard. Put it into some type of index fund.

I recommend you take a second look at your investment choices and go with complete market index funds or an S&P 500 index fund and choose your age as the % of money to put into a bond fund for each of you. Any additional questions I'm open.

We're already contributing to our 401k plans at pretty high rates at 10% and 14% respectively.  Aside from that, we've socked away nearly 40k in those plans thus far.  We obviously want to fund our (regular) retirement,  but how much would you suggest is enough? 

Also, do you  mind expanding a little on your market index funds recommendation?  Frugal living has come pretty naturally but investing is a little bit more complicated. :)

Thanks again for all the help.

judgemebymyusername

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Re: Where to invest?
« Reply #4 on: March 02, 2012, 04:40:02 AM »
We're already contributing to our 401k plans at pretty high rates at 10% and 14% respectively.  Aside from that, we've socked away nearly 40k in those plans thus far.  We obviously want to fund our (regular) retirement,  but how much would you suggest is enough? 

Also, do you  mind expanding a little on your market index funds recommendation?  Frugal living has come pretty naturally but investing is a little bit more complicated. :)

Thanks again for all the help.

Well, the index fund I'd recommend would depend on what your goal is. If you're each putting $5k into a Roth IRA for retirement, then you can simply choose their retirement date fund that matches your estimated retirement date. If you plan on retiring earlier, choose that date. You can find them here https://personal.vanguard.com/us/funds/vanguard/TargetRetirementList

The target date funds are simply a combination of VTSMX and VBMSX funds. It's hard to give more advice for your generic situation. I recommend reading Boglehead's Guide to Investing and visiting the forums at bogleheads.org. MMM also recommends those funds I listed by the way.

Where are you keeping your $40k? If you've chosen various mutual funds, you should know that 80% of mutual funds do not beat the regular S&P 500 index year after year.

arebelspy

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Re: Where to invest?
« Reply #5 on: March 02, 2012, 09:07:55 AM »

We're already contributing to our 401k plans at pretty high rates at 10% and 14% respectively.

That's only 12% of your gross (assuming you both make about the same, otherwise a little more skewed towards the 10 or 14).  Don't listen to the standard "10-15%" mantra.  ;)

I think you should start with a goal/target.  I.e. we want to retire at X age, our living expenses will be Y, that is Z years before traditional retirement, so we will need N dollars to fund those Z years, and O dollars after, etc. etc.

Figure out when you want to retire and expenses first, then you can determine how much in 401k, how much in other vehicles, etc.
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breemat

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Re: Where to invest?
« Reply #6 on: March 02, 2012, 01:23:43 PM »
Sounds like I've got a fair bit of number crunching ahead of me.  Any suggestions for the best retirement calculators for a less than standard financial plan?

breemat

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Re: Where to invest?
« Reply #7 on: March 02, 2012, 02:11:13 PM »
You are at a point of needing a very thorough investigation into rental options, much of which can probably be done in this forum, followed by an examination of your desire to own rental properties and all that comes with it.  My brother does very well with rentals, enjoys it (though not as much in the last three years), and will probably always be involved in various ways of making it work for him.  For myself, I have no desire to have anything to do with it.  I think I am in a location that would allow me to make decent money in rentals, but I simply don't want to spend my time in those areas.  It's a stress I don't need or want in order to meet my goals.  I'm willing to give up some amount of additional profit in order to park my money in various index funds that cover what I want to invest in.

You are in a great position, enjoy the journey.  :)

We are leaning toward purchasing our first rental and we're trying to do some of the initial leg work to make sure it makes sense for us, although it sounds like you have a different strategy that is working for you.  Do you mind explaining your index fund plan? (I'm still working through the forums, so if you've already explained, my apologies). 

Grigory

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Re: Where to invest?
« Reply #8 on: March 02, 2012, 09:26:27 PM »
I'm with Warren Buffett when it comes to these types of questions: if you're not an expert in any particular type of trading or assets, just put your money in an index fund and/or bonds.

Mr Mark

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Re: Where to invest?
« Reply #9 on: March 05, 2012, 04:31:25 PM »
A lot of analysis demonstrates that most 'active management stock investment' doesn't work, and over the long term you are best investing  a steady amount in an index fund that simply tracks the entire stock market.

The good index funds have much lower fees, which helps them too. (check out www.Vanguard.com )

Eventually, when you are happy with its size, you can take out ~3-5% per year for ever*, and at this stage would shift say 40% to a mix of bonds.