Author Topic: I need to do SOMETHING with this money.  (Read 3048 times)

Fyzbo

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I need to do SOMETHING with this money.
« on: July 31, 2014, 08:53:53 AM »
I have a large amount of cash sitting in a savings account with a 0.8% interest rate.  This is outside of my rainy day fund, and outside of my retirement contributions.  I have been extremely tempted to spend this money on a new car and realized the best way to prevent this is find a better use for it that 0.8% interest.

Options I've thought of:
1.  Pay off student loan (2.88% interest rate)
2.  Pay down mortgage (4.5% interest rate)

I looked into CDs, but the interest rates are ridiculous.  I've looked into p2p lending, but North Carolina has many restrictions making it a poor choice.  It's not enough to start any type of real estate investment.  I feel like a new investment has the potential to out perform paying off debt, but I'm not a confident stock trader, I have enough trouble managing my IRAs.  What is your advice?

Cpa Cat

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Re: I need to do SOMETHING with this money.
« Reply #1 on: July 31, 2014, 08:59:43 AM »
Do you itemize deductions? If not, then definitely the mortgage.

But even better than that.. invest it in ye ole index funds.

frugaliknowit

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Re: I need to do SOMETHING with this money.
« Reply #2 on: July 31, 2014, 09:10:48 AM »
I know you said the money is "outside of retirement", but, are you by any chance still eligible for a Roth contribution?  If not
for 2014, what about 2015 (that's only a few months away...).

That aside, what is your after tax mortgage rate (4.25 * (1 - marginal tax rate)).  Compare that to the student loan rate and pay the higher of the two and/or invest in index fund(s).

Fyzbo

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Re: I need to do SOMETHING with this money.
« Reply #3 on: July 31, 2014, 09:33:01 AM »
Do you itemize deductions? If not, then definitely the mortgage.

But even better than that.. invest it in ye ole index funds.

I do itemize deductions, so there is a tax benefit to the interest paid.

I know you said the money is "outside of retirement", but, are you by any chance still eligible for a Roth contribution?  If not
for 2014, what about 2015 (that's only a few months away...).

That aside, what is your after tax mortgage rate (4.25 * (1 - marginal tax rate)).  Compare that to the student loan rate and pay the higher of the two and/or invest in index fund(s).

I max roth contributions for both myself and my wife every year, so that is not an option.  I say outside retirement because I've maxed out my roth and 401K contributions.

If I invest in index funds, is this a good time to buy?  Any thoughts on expected return?  Any suggestions on where I should open an account (tdameritrade?) and which funds I should purchase?

Thanks.

J Boogie

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Re: I need to do SOMETHING with this money.
« Reply #4 on: July 31, 2014, 09:55:54 AM »
If you have an interest in real estate investing, don't count yourself out.

If you have a good amount of cash and a good amount of equity in your home you can definitely parlay that into making some real estate moves.  You probably won't have the same opportunities or speed if you had all the capital, but you can still get in the game.

Also, if either an HSA or a 529 is an option, you could do that.


nawhite

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Re: I need to do SOMETHING with this money.
« Reply #5 on: July 31, 2014, 10:12:42 AM »
Are the student loans variable or fixed interest rates? If they are variable, then now might be a great time to pay them down. Interest rates are low and expected to rise over the next few years.

Other options, I-bonds, index funds, home efficiency improvements (attic insulation, energy-efficient water heater/furnace/refrigerator, professional window/door sealing, and pipe insulation all can have better returns than the stock market. Even solar can come out ahead depending on the tax credits), taxable play-money investing account if you want to try that, new extremely comfortable bed/pillows and extra nice sheets (improvements in sleep are generally one of the few areas where money can directly buy happiness).

eil

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Re: I need to do SOMETHING with this money.
« Reply #6 on: July 31, 2014, 11:52:50 AM »
I'd put it on paying down the mortgage. 4.5% is nothing to sneeze at when the loan is large, anything you can do to bring it down will help in the future.

t-rymz

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Re: I need to do SOMETHING with this money.
« Reply #7 on: July 31, 2014, 08:15:10 PM »
Take it to Vanguard and get a 60/40 stock/bond lifestyle fund or a target date retirement fund for your age in a taxable brokerage account.

Keep adding to that until dividends = expenses :)