The problem I have with your opening post is clarifying what you are asking of the group. You seem to have it together better than most, so it appears your questions are about some cash you have set aside. You haven't explained the purpose of the money you have set aside. I tend to group my funds into three categories: Speculation, Investing, Emergency funds and maintenance funds. Speculation is when you place money into a form of investment with the intent to make money fast. These funds can move around regularly, depending on what you perceive as the best short-term results. Money I place into investment funds are generally allocated into a set ratio and I only move it around to maintain the ratio, mutual funds are the most common instrument for this fund, but it could also be real-estate, stocks, bonds, or whatever. Emergency funds money is usually in bank accounts (money market, savings, cd's). My maintenance accounts are saving/checking accounts where I hold money for paying the monthly bills.
Thanks! That's exactly it: what I need is something like your categorisation of funds which I've not done. So far we've had retirement funds and everything else which is disorganised. "Everything else" covers a lot of savings and a sudden cash inflow. I also had some movement in retirement funds that has lead a large cash influx (now sitting in bonds). So to get even more specific, I have:
Cash: If we assume that my retirement portfolio is our main source of FI, i.e., it represents a figure that is 100%, we have ended up saving a lot of money in addition representing another 50% of our portfolio and it is sitting in cash earning 0.5% - If I invest this, it would be after tax. That bothers me. So I'm trying to decide what to do with it. Part of this was meant for a purpose: to buy a second home down south (FL, TX, LA, AL, etc.) on the coast ideally with low light pollution (I will create a separate post on this on the area of forum where I've seen others do this) but part of it is just extra funds. The plan was to buy the property in cash but given low interest rates and given the additional savings (i.e., spending on this property would exhaust about half the spare cash), why not get a loan at say 3% and then invest all these funds in the market.
But I need to categorise this "cash" in the way you have, but in a way that works for me. We need to decide whether to buy this home in cash or mortgage. Either way there's some cash that should be invested and I guess I'd need four categories:
1. Pre-tax long term (retirement).
2. After tax cash (bills).
3. After-tax short term/speculation.
4. After-tax long term.
Anyone have thoughts on this?
Retirement: $20% of my investments are in a bond fund (FXNAX) I would like to move to stock mutual fund but feel the market is overvalued (i.e., I had more and I bought about 10% in the last dip in October). Deciding what to do with that. This 30% is from a movement from another provider that I had forgotten about. The rest of the money (which represents 70%) are in a variety of mutual funds and that's going well - no concerns there and that's our primary source of FI in the US. I max out the $57K/year I can do in retirement contributions each year.
Our current home is 100% paid off. No other debts. We've basically done only two things in terms of saving: saved for retirement, and saved in cash. We've not considered investing the cash until now but I'm thinking I should take all this cash and invest it. I have a steady income and even if we buy that property, it'd be more than enough to cover any mortgage. But regardless of this decision, we can invest at least half the cash and leave it for the long term. I guess I'm so conditioned to pretax investing that I haven't actively thought of after tax investing so I need to come around to that (which I've started doing, so I have a TINY amount of cash in high risk ETFs which are doing well which would fall into the (3) category above).
--Ram
Lots of thoughts! You'll have to decide which ones, if any, to follow up concretely though - no clear advice, other than gain greater clarity yourself.
It sounds like you have money but not a systematic investment plan. For the moment, you face decisions about allocating part of your portfolio (the part that was for the new property), a part that is now in cash.
I notice 3 common approaches to allocation decisions:
1. Have a plan that serves your purpose. For that, you need to be clear about the purpose of the dollars you are allocating. It also helps if you have an overall plan, in the sense that the details of how to allocate on part of your portfolio logically flow from the state of the overall portfolio and whether the overall portfolio meets your life goals
2. When in doubt, find an allocation that suits your emotional as well as practical needs.
3. First, ensure your portfolio safely ensures that your desired expenses can be paid from passive investments as long as you live. After that, do what you like with the rest of the money. Arguably, this is just the version of 1 that is common among this forum.
You've explained 1 in general terms, but not addressed 3 very specifically. Most posters here implement 3 by detailing their expenses clearly enough to establish a reliable figure for desired income. From that, a figure for investments needed can be calculated.
I'm going to guess that you're right about being "safe" already, in which case what your investment is doesn't matter much. Also, since you like your work, a risky approach to 2 is probably safe for you. So probably, your maximum dollars would flow from investing some of the cash into stock funds - but when we say that, we're guessing; it's hard to know for sure.
I also have questions.
4. Re personality, most people strongly dislike seeing their net worth numbers or their investment values go down. You mentioned your wife came from a poorer background. If you do invest the property money (or in future, the proceeds from the mortgage on your 2d home) in stock funds and they go down, how will she feel? For that matter, how will you feel?
5. You also mentioned not wanting to be taxed on possible investments. Why? It's uncool? You think it might be unwise? You are anti-government? The reasons could affect how to optimize your investing toward your goals. Does it affect your outlook to consider that, generally, you'll only pay tax if you're making money - which implies that, after tax, you're still making money? Which is better: 100% of a .5% return, or 60% of a 5% return?
PS. Re your four categories, it's true that others mentioned speculation as a category, because it's important to distinguish that from other purposes. But why do you need to speculate? You have enough money. What's the point?
In your shoes, I'd go with pretax retirement, bills, backstop for variable expenses (some people call this emergency fund), and taxable long term.