Where to invest all that extra cash to achieve FIRE?

[jakenoack]

It seems there are countless people in the mustachian community who have achieved FIRE already or are well on their way. Where does everybody invest their money to grow that financial stash? Obviously I know of a 401k and a Roth account. I currently put the max my employer allows (30%), max out my Roth, have a rental property, etc. Now I am trying to figure out what the best way to put my extra money to work for me. Should I just place money in Betterment index funds? What other options do I have?

[TomTX]

Vanguard index funds. More rental properties.

[DaveR]

A couple of other places to stash some dollars: HSA if available, 529 plan if you have any future education expenses, possibly (this is a much-debated topic around here) paying down mortgages (primary or rental).

Once you have run out of taxed advantaged places to stash dollars, you have lots of options depending on amount and risk tolerance. A good ol' taxable account with index funds/ETFs (low fees, tax-efficient) is probably the best bet. Or if you want to get more adventurous (and have the time to experiment), things like peer-to-peer lending, private equity, angle investing, and all kinds of other fun stuff.

[jakenoack]

It looks like I am out of luck in the tax advantaged accounts.

DaveR, could you give a little info on private equity, angle investing, and other ideas? Have you tried any of these?

[DaveR]

It looks like I am out of luck in the tax advantaged accounts.

DaveR, could you give a little info on private equity, angle investing, and other ideas? Have you tried any of these?

There was a similar thread recently that covers some of this: http://forum.mrmoneymustache.com/welcome-to-the-forum/advanced-income-strategies/

[Eric]

I personally just stick with a regular ol' taxable account at Vanguard for my non-tax advantaged investing.  Seems a lot simpler.

[James]

I personally just stick with a regular ol' taxable account at Vanguard for my non-tax advantaged investing.  Seems a lot simpler.

Same here

[honeybbq]

VTSMX

[nereo]

I personally just stick with a regular ol' taxable account at Vanguard for my non-tax advantaged investing.  Seems a lot simpler.

Same here

yup - me too.  Simple and effective.

[DaveR]

I personally just stick with a regular ol' taxable account at Vanguard for my non-tax advantaged investing.  Seems a lot simpler.

Yep. At this moment, it looks like less than 5% of my investable assets are in alternative investments. It's my "fun money" that in theory should return 25-30%. Those returns come at high risk; there is a fair amount of failure/underperformance in there.

It also means 95%+ of assets are in boring ol' index funds. I like knowing there will be food on the table every night.

[Guesl982374]

Vanguard index funds. More rental properties.

+1

Vanguard index funds for long term growth and rentals for short to mid term cash flow.

[jakenoack]

You think vanguard index funds are substantially better than betterment? I know betterment has a higher fee, but I do like that set it and forget it mentality. Rather than learning how to pick my funds in vanguard and having to rebalance my portfolio and all that, I can use that time and work overtime.

[tetlee]

You think vanguard index funds are substantially better than betterment? I know betterment has a higher fee, but I do like that set it and forget it mentality. Rather than learning how to pick my funds in vanguard and having to rebalance my portfolio and all that, I can use that time and work overtime.

There are several threads on that too
https://www.google.com/webhp?hl=en#hl=en&q=site%3Aforum.mrmoneymustache.com%20betterment%20vanguard

It seems to come down to two arguments,

• It's a personal preference on ease
• The fees aren't worth it

[zephyr911]

Rentals. I can never have too many rentals.
Double digit net, tax-advantaged status, what's not to like...

[Frankies Girl]

You think vanguard index funds are substantially better than betterment? I know betterment has a higher fee, but I do like that set it and forget it mentality. Rather than learning how to pick my funds in vanguard and having to rebalance my portfolio and all that, I can use that time and work overtime.

Yes, vanguard is better than betterment - ANY good index fund you manage yourself is better than paying someone else to manage for you because index funds don't need managing so you're paying an extra fee to be lazy. You can set it and forget it (check in once a year) using vanguard or really any index funds. If you're too lazy to learn really, really basic investing, then you probably won't make it very far towards the RE part of FIRE.

And to answer the original question: I use a taxable account for the overflow once my tax-deferred accounts were maxed out. Just have to make sure the fund(s) in there are tax efficient (no bonds - all total stock market).

[opnfld]

I max out all tax advantaged accounts (my IRA, my 403b, wife's IRA and Solo 401k(she's self-employed)).  Remaining goes into a taxable account at Vanguard.  The total amount across all accounts is diversified across 12 asset classes ala Paul Merriman's recommendations available here: http://paulmerriman.com/the-ultimate-buy-hold-strategy-2014/.  Merriman's advice is clear, comprehensive, easy to implement, and completely free (he is a retired advisor who considers financial education his life's work).

I haven't looked into Betterment.  I'm not willing to pay any fees for something that is so fun to do myself.

[zephyr911]

MMM had a pretty decent post about a recent decision to send $$ to Betterment - he felt the tax loss harvesting and other benefits actually outweighed the fees.

http://www.mrmoneymustache.com/2014/11/04/why-i-put-my-last-100000-into-betterment/

[redbird]

Invest in stocks that pay out dividends. While you're still working, take the money that you get paid from the dividends every quarter and use it to buy more shares. Rinse and repeat. When you are ER, dividends can be all or some (depending on your situation) of your passive income without even having to sell off shares.

Don't have to do it one by one. Doesn't have to take a lot of time. Can use Vanguard for this.

[DaveR]

Rentals. I can never have too many rentals.
Double digit net, tax-advantaged status, what's not to like...

What's not to like?...oh, I don't know... liquidity? transaction costs (acquisition and disposition)? capitalized costs? added accounting and recordkeeping for tax advantages?

Rentals can be fantastic assets, but you don't get double-digit net for no reason. One of those little recession things, high vacancies, unexpected opex, and, poof! negative cash flow. It's like everything else: diversify and have adequate reserves to weather the downturns, then you'll be fine. Too much risk? Poof.

[Frankies Girl]

MMM had a pretty decent post about a recent decision to send $$ to Betterment - he felt the tax loss harvesting and other benefits actually outweighed the fees.

http://www.mrmoneymustache.com/2014/11/04/why-i-put-my-last-100000-into-betterment/

From one of the comments on that thread:

Charlie Munger says, never ask a barber if you need a haircut ;-) I like the disclosures on tax-loss harvesting on Betterment site:

“Tax loss harvesting is not suitable for all investors – especially those in low income tax brackets. Nothing herein should be interpreted as tax advice, and Betterment does not represent in any manner that the tax consequences described herein will be obtained, or that any Betterment product will result in any particular tax consequence. Please consult your personal tax advisor as to whether TLH+ is a suitable strategy for you, given your particular circumstances. The tax consequences of tax loss harvesting are complex and uncertain and may be challenged by the IRS. You and your tax advisor are responsible for how transactions conducted in your account are reported to the IRS on your personal tax return. Betterment assumes no responsibility for the tax consequences to any client of any transaction.”

In other words, the benefits of the tax loss harvesting that is pretty much the only thing that Betterment might be "worth it" to use, are marginal at best for anyone in a low tax bracket. I have a very large portfolio, but am in a VERY low tax bracket. It is useless for me to use Betterment even if I thought it was a better plan than just self managing my own (3 fund) portfolio. I don't make any trades practically throughout the year and will only be selling off to get income for expenses at this point. Betterment is not a good deal for me, and I posit that it isn't a good deal for most folks that are on the indexing investing/FIRE path. But that is just my opinion, and you can take or leave it as you like. ;)

[zephyr911]

What's not to like?...oh, I don't know... liquidity? transaction costs (acquisition and disposition)? capitalized costs? added accounting and recordkeeping for tax advantages?

I'm my own agent, so acquisition costs are offset by commission... cha hing.
I don't buy anything that I plan on ever needing to sell. Capitalized costs typically go hand-in-hand with rising rents and they also contribute to the tax advantages. Accounting isn't fun but you can hire someone for it and still turn a profit.\

Rentals can be fantastic assets, but you don't get double-digit net for no reason. One of those little recession things, high vacancies, unexpected opex, and, poof! negative cash flow. It's like everything else: diversify and have adequate reserves to weather the downturns, then you'll be fine. Too much risk? Poof.

Well, of course. And I max out tax-deferred accounts, etc. etc...
For someone with a decent-sized stash and a balanced asset allocation, the doomsday scenario is pretty unlikely.

[Frankies Girl]

You think vanguard index funds are substantially better than betterment? I know betterment has a higher fee, but I do like that set it and forget it mentality. Rather than learning how to pick my funds in vanguard and having to rebalance my portfolio and all that, I can use that time and work overtime.

Yes, vanguard is better than betterment - ANY good index fund you manage yourself is better than paying someone else to manage for you because index funds don't need managing so you're paying an extra fee to be lazy. You can set it and forget it (check in once a year) using vanguard or really any index funds. If you're too lazy to learn really, really basic investing, then you probably won't make it very far towards the RE part of FIRE.

And to answer the original question: I use a taxable account for the overflow once my tax-deferred accounts were maxed out. Just have to make sure the fund(s) in there are tax efficient (no bonds - all total stock market).

I posted this to ask for information and suggestions on where to put extra cash. I am clearly not an investing expert (probably hardly even a newbie). I appreciate some of the information that you provided, but don't think it was necessary or polite to try and make an assumption about me. I am here to ask for help and you imply that I may possibly be lazy. Why would anyone read MMM and post questions on here if they were lazy? Simply giving me some guidance would have been all that was required. Because of the implication that I may be lazy, I will go ahead and take some words I have learned from MMM. Why don't you go ahead and make your hand into a fist and turn in towards yourself and punch yourself in the face? lol.

It isn't necessary to tell you about myself, but I will so other people don't get the idea that I am too lazy to do something that will increase my financial stash.

I didn't come from a family with money. Everything I have done, I have done by myself. I went to college and graduated without taking any student loans and without any scholarships. I graduated just after my 21st birthday and had a 3.85 GPA. After college, I spent a few years back packing and back packed my way through 14 countries.

I started working about 3 years ago and have thus far managed to buy a condo (rent it out and pocket $350 a month), buy a house, put $55k in my 401k, max out my Roth for 3 years, put $10k in the bank, and cut down my living expenses so that I am able to save about 70% of my income.

People that imply I am lazy do not know me at all. I don't know any other 26 year olds that have accomplished this much. I made it a goal to achieve FIRE before my 36th birthday. If you have any more detailed information or suggestions about investing or putting money into index funds, I would appreciate it.

Thanks.

I wasn't directly calling you lazy, so not sure why the laundry list of your stellar accomplishments (but good for you!). I'm sure you're a reasonably intelligent person just by finding your way to the MMM boards, but I'd say as a friendly bit of advice, if you're so sensitive that you take things so personally and get defensive when someone is trying to help you, you're going to have difficulties all your life.

Just to be clear, I'm not calling YOU specifically lazy. I'm saying that anyone not wanting to read about the investing basics and relying on perfect strangers to manage their investments and do things they are capable of doing pretty easily for themselves are being lazy. If you are wanting to learn, or do things for yourself, then you're not being lazy! See how that works?

But then sometimes being lazy is good - in the case of index investing, they even call 1-4 index fund portfolios "lazy" or "couch potato" portfolio... meaning set it and forget it because they do not require constant hand-holding by anyone. You don't need someone picking your pockets for fees if you understand how it all works. Recommend checking out Bogleheads for the whole index investing thang:
https://www.bogleheads.org/wiki/Lazy_portfolios

And ultimately, if you have a high tax bracket and are doing a bunch of other things that keep you busy and just don't feel like doing your tax loss harvesting yourself when Betterment can do it for you for a tiny fee... then being lazy and paying them to do so isn't necessarily a bad thing for some people. ;)


So here's another thing that might be of interest (and was my biggest help for my investing education in my journey): http://jlcollinsnh.com/stock-series/