Author Topic: What to do with ~$80k of cash?  (Read 3552 times)

Hoosier Daddy

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What to do with ~$80k of cash?
« on: October 18, 2016, 08:34:27 AM »
Hey all,

Looking to get some advice on what to do with $80k of cash, but first some background:

Background:

  • Soon to be married (end of next year)
    • Combined salaries: $170k
    • Maxing 401k ($18k each) and HSA ($3,350 each) each year
    • Combined spending approximately $60k per year
    • After taxes, have approximately $35k of money in taxable accounts after expenses, per year

In prior years, we had lots of student debt, and did not start maxing our pre-tax contributions until recently. Thus we have saved up ~$80k that we have already paid taxes on. We should have ~$35k of after-tax money a year to invest outside of our pre-tax investments, and we are looking for some investment ideas.

We are currently renting an apartment. We live in a small Midwest town that has basically one major manufacturing company in the area. If this company ever ran into trouble and entered bankruptcy, the entire town would likely default and become a ghost town. As a result, we are terrified of buying a home here as that is a lot of capital tied up essentially in the success or failure of one company.

Thus we were trying to decide what to do with the extra money:
  • We will start contributing to a ROTH, but that still leaves some money to be invested
  • We could buy a rental home
    • Buy near our town, but in a more attractive market, in order to do maintenance if needed?
    • Buy in a location we would like to retire in?
  • Buy more index funds, after tax?
  • Something more unconventional like SoFi?

What do you guys do with your funds after you have maxed out your pre-tax investments? Are we thinking correctly about the risk associated with buying a home in our area?

Cwadda

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Re: What to do with ~$80k of cash?
« Reply #1 on: October 18, 2016, 08:48:39 AM »
Quote
Buy near our town, but in a more attractive market, in order to do maintenance if needed?
This sounds like a good option, depending on the commuting time it'd add.
Edit: oh wait, do you work for said manufacturing company or somewhere else?

Have you also maxed out HSA? That's another investment vehicle you can use to sock away money.

How much is left on the student loans and at what %?
« Last Edit: October 18, 2016, 08:50:25 AM by Cwadda »

Frankies Girl

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Re: What to do with ~$80k of cash?
« Reply #2 on: October 18, 2016, 08:56:30 AM »
If I've maxed out my work sponsored pre tax accounts, my IRA (and spouse's IRA) and have contributed the max to the HSAs (if available) then yes, it would go into taxable. I have my taxable invested in one single fund - the low cost total stock market index fund (at Fido, but Vanguard's is awesome too).

I don't do real estate for investing purposes, but if I did, then I would likely agree with you if the main employer in the area was at all shaky looking (is it?). But I do agree looking at a different town or city nearby that might have a more diverse employment scene and hire a property manager to take care of the issues if you were so inclined. It might even be worth it to check out cities/towns you might be interested in living in one day and finding a bargain house to rent out for now, and eventually could use as your home if/when you decide to move there - or live in for a year or two while you build/buy your dream home (2+ years means you'd get a better deal for it being your primary residence as far as cap gains if you sell).

But honestly, I just like boring/easy and invest in the taxable with the tax efficient single fund. ;)

honeybbq

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Re: What to do with ~$80k of cash?
« Reply #3 on: October 18, 2016, 09:02:41 AM »
I'd probably continue renting and throw your $$ into VTSAX.

Hoosier Daddy

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Re: What to do with ~$80k of cash?
« Reply #4 on: October 18, 2016, 09:19:20 AM »
Quote
Buy near our town, but in a more attractive market, in order to do maintenance if needed?
This sounds like a good option, depending on the commuting time it'd add.
Edit: oh wait, do you work for said manufacturing company or somewhere else?

Have you also maxed out HSA? That's another investment vehicle you can use to sock away money.

How much is left on the student loans and at what %?

Yes, definitely maxing out the HSA! Also, paid off all debt almost two years ago. Now just making money and figuring out what to do with it if you don't have a house :).

If I've maxed out my work sponsored pre tax accounts, my IRA (and spouse's IRA) and have contributed the max to the HSAs (if available) then yes, it would go into taxable. I have my taxable invested in one single fund - the low cost total stock market index fund (at Fido, but Vanguard's is awesome too).

I don't do real estate for investing purposes, but if I did, then I would likely agree with you if the main employer in the area was at all shaky looking (is it?). But I do agree looking at a different town or city nearby that might have a more diverse employment scene and hire a property manager to take care of the issues if you were so inclined. It might even be worth it to check out cities/towns you might be interested in living in one day and finding a bargain house to rent out for now, and eventually could use as your home if/when you decide to move there - or live in for a year or two while you build/buy your dream home (2+ years means you'd get a better deal for it being your primary residence as far as cap gains if you sell).

But honestly, I just like boring/easy and invest in the taxable with the tax efficient single fund. ;)

Okay at least we are thinking along the same lines. I definitely agree with you regarding the boring/easy route... A roof or water heater can't break on a mutual fund lol. At the same time, our FIRE calculations do include NOT having a mortgage so putting the money in a rental home may be beneficial...

Does anyone know if you could take accelerated depreciation on a rental home? If so, that could provide an additional nice tax benefit for a few years.

EDIT: Found this on IRS website regarding depreciation: https://www.irs.gov/publications/p527/ch02.html
« Last Edit: October 18, 2016, 09:22:06 AM by Hoosier Daddy »

TheInsuranceMan

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Re: What to do with ~$80k of cash?
« Reply #5 on: October 18, 2016, 10:42:02 AM »
Loan it to me?  :)

Hoosier Daddy

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Re: What to do with ~$80k of cash?
« Reply #6 on: October 18, 2016, 12:03:30 PM »
Loan it to me?  :)

Lol What's the default risk on a loan when a ":)" is attached? hahaha

TheInsuranceMan

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Re: What to do with ~$80k of cash?
« Reply #7 on: October 18, 2016, 12:28:50 PM »
Loan it to me?  :)

Lol What's the default risk on a loan when a ":)" is attached? hahaha

Oh, about 83.2%

Cwadda

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Re: What to do with ~$80k of cash?
« Reply #8 on: October 18, 2016, 01:32:09 PM »
Quote
Yes, definitely maxing out the HSA! Also, paid off all debt almost two years ago. Now just making money and figuring out what to do with it if you don't have a house :).
In that case then it really depends on the location you're looking to buy and your overall comfort. If you can move closer to work in a better area, it's definitely worth it. You could look into buying a multi-family and rent out the other units.

Grizzly Dad

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Re: What to do with ~$80k of cash?
« Reply #9 on: October 18, 2016, 10:42:15 PM »
Difficult to give complete advice without knowing all the details about what your current portfolio looks like, i.e. how much real-estate exposure would you be taking on with a rental property?

1. Don't buy a house in your current area. I think you're correct that this is a terrible idea. It would essentially be a leveraged bet on the success of one company.

2. A rental property could be attractive but see my initial caveat. If buying a rental property would cause you to be more than 10-20% exposed to the fluctuations of a single market I would avoid it for now.

3. That leaves a nice index fund. Index funds great after-tax investments. They're one of the most tax efficient investments you can get, the turnover on index funds is almost zero. As a result, they rarely have to distribute capital gains that you would have to pay taxes on. If you don't have any international exposure in your portfolio an international total market index can actually be a great addition in a taxable account. You are able to deduct the foreign taxes paid on the fund from your own taxes so a taxable account is actually one of the best places for this exposure. See the article below on this:
 
http://www.schwab.com/public/schwab/nn/articles/Claiming-Foreign-Taxes-Credit-or-Deduction

But if international exposure isn't your thing there's always the tried and true total US market index. Which is best depends on the rest of your portfolio and your own risk tolerance.

Hope this helps!
« Last Edit: October 18, 2016, 10:45:27 PM by Grizzly Dad »

patrickza

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Re: What to do with ~$80k of cash?
« Reply #10 on: October 19, 2016, 04:48:57 AM »
I'd probably continue renting and throw your $$ into VTSAX.
Me too, except I'm not American so it would be VWRD.