Author Topic: How would you invest an extra $100,000 a year?  (Read 758 times)

Megs193

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How would you invest an extra $100,000 a year?
« on: May 31, 2019, 05:18:20 AM »
    We are about 6 months away from paying off our mortgage. We have been putting all of our extra money towards the mortgage once we discovered we could pay it off in 3 years. We are aware that we could have made more money in the market but for us it was as much an emotional choice as a financial one. Once the mortgage is paid off we will have an extra $100,000 a year to save and need help figuring out where to put it. 
    We currently max one 401k. I don’t have access to one so we max one traditional IRA for me. We max our HSA and we put $7200 per year in a 529 account (we have 2 kids and plan on paying for 4 years of college for each kid).  The two things we know we are doing is increasing the 529 amount to $10,000 (that is the max amount we can get a state tax deduction on) and contributing to an IRA for my husband and converting it to a back door roth. That is only $8,800 a year. Do we put the additional 90k+ in a taxable vanguard account or is there another option we are missing? 
    The other thing we have considered is saving some of it in cash. We would love to buy a small vacation home in Florida since we go twice a year but would only do that if there was another real estate crash because the prices are so high right now. We wouldn’t be willing to take out another mortgage though so this purchase would have to be in cash.

RWD

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Re: How would you invest an extra $100,000 a year?
« Reply #1 on: May 31, 2019, 06:41:19 AM »

Megs193

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Re: How would you invest an extra $100,000 a year?
« Reply #2 on: May 31, 2019, 07:55:58 AM »
Investment order

It looks like the step I missed was a mega back door roth.  From what I can tell this is something only some employers offer so we will have to check into this.

nereo

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Re: How would you invest an extra $100,000 a year?
« Reply #3 on: May 31, 2019, 08:15:23 AM »
Investment order

It looks like the step I missed was a mega back door roth.  From what I can tell this is something only some employers offer so we will have to check into this.

Not everyone qualifies for every step (particularly so for the mega backdoor Roth).

In response to the topic question - I'd invest it according to my plan, in the same asset allocation.  In general windfalls should not be treated differently from earned income, unless it pushes you past your FI number (at which case you might want to start 'playing more defense' by prioritizing principle conservation over capital gains.
 Or maybe not, depending on your ultimate goals which are hopefully outlined in your Investor Policy Statement).

Megs193

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Re: How would you invest an extra $100,000 a year?
« Reply #4 on: May 31, 2019, 08:34:56 AM »
Investment order

It looks like the step I missed was a mega back door roth.  From what I can tell this is something only some employers offer so we will have to check into this.



Not everyone qualifies for every step (particularly so for the mega backdoor Roth).

In response to the topic question - I'd invest it according to my plan, in the same asset allocation.  In general windfalls should not be treated differently from earned income, unless it pushes you past your FI number (at which case you might want to start 'playing more defense' by prioritizing principle conservation over capital gains.
 Or maybe not, depending on your ultimate goals which are hopefully outlined in your Investor Policy Statement).

So I have to admit, this sounds like another language to me. We will have $100,000 each year to invest. Currently we are just saving for retirement so I guess that is our ultimate goal. Do you recommend using a financial planner or are there any books you recommend so I can understand things like  Principal conservation?  We have a nice salary and a fairly simple life but we definitely need more education in the area of personal finance. I think part of the reason we have chosen to pay of the mortgage is because we are lost when it comes to investing.

Philociraptor

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Re: How would you invest an extra $100,000 a year?
« Reply #5 on: May 31, 2019, 08:58:41 AM »
Do you recommend using a financial planner or are there any books you recommend so I can understand things like  Principal conservation?  We have a nice salary and a fairly simple life but we definitely need more education in the area of personal finance. I think part of the reason we have chosen to pay of the mortgage is because we are lost when it comes to investing.

Try JL Collins' Stock Series.

nereo

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Re: How would you invest an extra $100,000 a year?
« Reply #6 on: May 31, 2019, 09:01:21 AM »
So I have to admit, this sounds like another language to me. We will have $100,000 each year to invest. Currently we are just saving for retirement so I guess that is our ultimate goal. Do you recommend using a financial planner or are there any books you recommend so I can understand things like  Principal conservation?  We have a nice salary and a fairly simple life but we definitely need more education in the area of personal finance. I think part of the reason we have chosen to pay of the mortgage is because we are lost when it comes to investing.

Sorry - I could have been clearer.

Ideally you shuold have a plan on how to invest your money, and the investment order (linked above by seattlecyclone) is a great place to start.  If you want a really detailed plan, you can create an Investor Policy Statement, but some/many people don't go that far.

Your Asset Allocation (AA) is simply what you invest in.  For example, you might put 75% of your money into an SP500 index fund (a collection of the 500 largest stocks) and 25% into a bond fund.  Or you might just choose to put all your money into a Target Date Fund that does all this for you.

Principle Conservation is just protecting your capital (or principle). If you have all the money you need, your biggest concern may be protecting that money, as opposed to trying to grow that money into an even bigger pile. For those people they may choose to hold more bonds or cash and fewer equities.  For most of us that are still rapidly saving, we are in the "accumulation phase" which basically means we want our money to grow. This means we want a considerable portion (≥60%) of our money in equities.  Two good, low-cost equity funds are Vanguard's SP500 fund and their Total Market Fund.

If you feel lost with investing, I highly recommend you read JL Collins Stock Series.  Its very understandable, easily digestable and (gasp) funny.
https://jlcollinsnh.com/stock-series/

You don't even need to read each post - the most important information is in the first fifteen posts (or so), and you can read each post in 5-10 minutes.

Hope that makes things at least a little bit clearer.  Please ask questions if you have them.

jps

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Re: How would you invest an extra $100,000 a year?
« Reply #7 on: May 31, 2019, 09:15:18 AM »
Do you recommend using a financial planner or are there any books you recommend so I can understand things like  Principal conservation?  We have a nice salary and a fairly simple life but we definitely need more education in the area of personal finance. I think part of the reason we have chosen to pay of the mortgage is because we are lost when it comes to investing.

Try JL Collins' Stock Series.

+1

Megs193

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Re: How would you invest an extra $100,000 a year?
« Reply #8 on: May 31, 2019, 11:21:27 AM »
So I have to admit, this sounds like another language to me. We will have $100,000 each year to invest. Currently we are just saving for retirement so I guess that is our ultimate goal. Do you recommend using a financial planner or are there any books you recommend so I can understand things like  Principal conservation?  We have a nice salary and a fairly simple life but we definitely need more education in the area of personal finance. I think part of the reason we have chosen to pay of the mortgage is because we are lost when it comes to investing.

Sorry - I could have been clearer.

Ideally you shuold have a plan on how to invest your money, and the investment order (linked above by seattlecyclone) is a great place to start.  If you want a really detailed plan, you can create an Investor Policy Statement, but some/many people don't go that far.

Your Asset Allocation (AA) is simply what you invest in.  For example, you might put 75% of your money into an SP500 index fund (a collection of the 500 largest stocks) and 25% into a bond fund.  Or you might just choose to put all your money into a Target Date Fund that does all this for you.

Principle Conservation is just protecting your capital (or principle). If you have all the money you need, your biggest concern may be protecting that money, as opposed to trying to grow that money into an even bigger pile. For those people they may choose to hold more bonds or cash and fewer equities.  For most of us that are still rapidly saving, we are in the "accumulation phase" which basically means we want our money to grow. This means we want a considerable portion (≥60%) of our money in equities.  Two good, low-cost equity funds are Vanguard's SP500 fund and their Total Market Fund.

If you feel lost with investing, I highly recommend you read JL Collins Stock Series.  Its very understandable, easily digestable and (gasp) funny.
https://jlcollinsnh.com/stock-series/

You don't even need to read each post - the most important information is in the first fifteen posts (or so), and you can read each post in 5-10 minutes.

Hope that makes things at least a little bit clearer.  Please ask questions if you have them.

Thank you!  This makes a lot more sense. We are in the wealth accumulating stage so I will definitely read the series.

Tester

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Re: How would you invest an extra $100,000 a year?
« Reply #9 on: May 31, 2019, 04:53:31 PM »
I can't help but say that saving 100k yearly means that almost whatever you do with them will mean you will be in abgreat position quickly.
You also mentioned finishing mortgage which means paid off home?
Now, if you are not spending 300k per year you should get in a very nice position really soon.
If I would manage to save 100k per year with a paid off home I would go to part time work/retire in less than 10 years.