Author Topic: Advice needed: student loans vs mortgage vs investing outside of maxed 401k  (Read 1467 times)

cmm4kc

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Hello everyone.
This is my first post and I am a beginner to mustachianism, at best.  My family and I live in the Kansas City, MO area where my wife stays with the kids and I work a modest LOW six-figure position.  The six-figures is recent but I'm later in life (41 tomorrow).  I have concerns about the correct direction to move with our excess monies.

Three options I can think of with details below:

1) We refinanced with Sofi (thank you, MMM) to seven years about a year ago.  Total payoff is $13,300 @5.5%.  Monthly is $225.

2) We refinanced our house from 30 year @4.75% to 15 year @ 3.49% this month.  Payment increased $200/month to $1400.

3) We max our 401K @ $18,000/year.  Looking at starting a new investment opportunity. 

We have multiple hundreds of dollars to use each month to pay down or invest, but not more than $1000 at this point.

One last question; does real estate ever make sense?  We are driving camping trip/vacationers (not primitive but not cabin dwellers, either).  We live in the part of the country where green space can be acquired for less than $1,000/acre.  Does undeveloped, recreational land ever make sense as an investment, other than an emotional investment?

To close, thank you all for the community you provide to aspiring do-gooders, amateur investors, and recreators of the norm.

Best regards,
cm 
 

Cwadda

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Does undeveloped, recreational land ever make sense as an investment, other than an emotional investment?

The short answer is no. If it's not making money then it's not a worthwhile investment. Would you use it yourself? If you could use it for vacations to offset vacation costs then it may be worthwhile.

Sibley

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Pay off the SL. 5.5% is high enough to justify wiping it out. Once that is gone, you free up that cash flow for other things.

Paying off the mortgage early has arguments both ways, often emotional reasons.

Buying land probably doesn't make sense. Buying VSTAX does.

bestname

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Assuming you have an emergency fund, I would focus on paying off the student loan - guaranteed 5.5% return is hard to beat. If you have close to a thousand extra dollars to throw at it, you should be free from it in about a year. Then open an IRA in Vanguard and start indexing.

PapaBear

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I second paying off the student loans and would love to throw the investment order in the ring:

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WHAT           
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund mega backdoor Roth if applicable           
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account with any extra. 
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

For reference: The 10yr treasury yield note is currently ~2.25%.
Thus, what is your HSA and Roth status?
« Last Edit: June 29, 2017, 08:34:15 AM by PapaBear »

cmm4kc

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Contributing to HSA at deductible rate each year ($3500) and no Roth at the moment.

PapaBear

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Then it basically depends on your risk appetite whether you want to throw it at a Roth/Taxable account or pay down the student loans.
To be honest, I share bestname's view: 5.5.% guaranteed return is hard to beat. However, one could argue that long-term average returns in the stock markets are higher -  but for me personally, the peace of mind of not having the debt would be worth a few percentage points.

When your student loan is paid off, Roth/taxable investment in diversified index funds could be the way to go, depending on your medium-term plans and expected expenses in the future.
« Last Edit: June 29, 2017, 09:18:07 AM by PapaBear »

cmm4kc

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Awesome advice, everyone.