Author Topic: Seeking Advice/opinion on Investing Strategy  (Read 3029 times)

ms.frugal

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Seeking Advice/opinion on Investing Strategy
« on: September 01, 2013, 12:53:47 PM »
Here is my situation:

I bought a house with my life partner and we each pay 50% of the mortgage and we each own 50% of this house.

I sold my previous residential home after renting it out for two years.  I did the math and it made sense for me to sell it because rent/value of house was low and the opportunity to sell it without real estate agents fees, repairs, investment capital gains, etc presented itself.

I had no mortgage on my previous residential home so I now have a healthy sum of money to invest.

I have been researching, educating myself, talking with experienced real estate investors for the past year because I am considering investing part of the money in one, two, or possibly three duplexes if properties become available that I would feel comfortable working with (I am not a plumber, electrician, carpenter, etc and I need to feel safe going to my rental property).

My tentative plan is:

Starting this month to invest $400/week/fund into five different Vanguard Index Funds:

Large Cap:  Institutional Index Fund
Mid Cap:     Mid-Cap Index Fund
Small Cap: Small-Cap Index Fund
International Stock: Total International Stock Index Fund
Bond: Total Bond Market Index Fund

Annually, I also plan to invest $5500 into a Roth IRA.

If I follow this formula, I will have my sum of money fully invested in three years.

(I started this calendar year maxing out my 401K plan contributions from my paycheck, as well.)

I understand the concept of dollar cost averaging which explains my strategy for spreading out my contributions over a few years.

I am nervous though about having all of my savings in the stock market which is why I keep studying about real estate investments.

At the same time, in my region of the U.S., over the past year, I have not found any investment properties that are within the parameters that investors recommend (monthly rent about 1% of sales price).  Typical scenario examples are:
Monthly Rent $1500, Asking Price $190,000 with owner paying some or all utilities.

Finally, my partner and I are trying to keep an equal amount of money invested in our current house.  He does not have extra money to put into our current house so it isn't really an option to "pay off" my half of the house early.  Therefore, I am looking for ways to invest my money that will earn more than the 4.75% mortgage rate on my current residence.

I work full time and plan to work 7-8 more years before I retire.  I do like my job so I am not counting down days or anything like that.  However, I am 48 years old and I see people around me with health issues developing, so I realize that I may decide that I want to retire earlier and work longer.

I do have a retirement plan and money invested in Large Cap Mutual Funds (mostly) at this point in my life.

My Main Questions are:

1.  Is it wise if I end up investing almost all of my money in Mutual Funds?
2.  Is spreading out the dollar cost averaging concept over three years long enough for a larger sum of money?
3.  Is there another form of investing that I should seriously consider?

Thanks for your input,
Ms. Frugal



pbkmaine

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Re: Seeking Advice/opinion on Investing Strategy
« Reply #1 on: September 01, 2013, 01:38:39 PM »
The Vanguard Target Retirement funds have the investments you indicated, plus an international bond index fund in them. (Also just noting that the Vanguard Total Stock Market Index = large cap + midcap + small cap US indexes.) The advantage of the Target Retirement funds is that they gradually reduce the % you have in equity over time, which is what a financial planner would recommend. Pick the target date nearest your age 65. You might also want to look into ETFs. Exchange Traded Funds are bought and sold like stocks, and like stocks, you do not have to realize income and capital gains until you sell. Vanguard has ETF clones of many of its mutual funds. My recommendation is that you call Vanguard and talk through this with one of their phone counselors. I have found them to be very good.  They are not paid commission (there are no commissions on Vanguard products), so they have no motive to sell you any particular investment.

kh

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Re: Seeking Advice/opinion on Investing Strategy
« Reply #2 on: September 02, 2013, 12:51:45 PM »
If you're looking to get into real estate investing without the hassle of being a landlord/risk of having to buy all in on one or a couple of properties, look into an REIT.  It's a way to diversify your portfolio beyond standards stocks/bonds, without being on-call when someone's pipe bursts at 3am.  Just a thought.  Vanguard has some decent options here.

Otherwise agree with the advice to go with a target retirement date type portfolio for automatic rebalancing.  If you want a more or less aggressive portfolio, pick one that has a date that doesn't match when you intend to retire.  In general, later dates = more stocks/more volatility, earlier dates = more bonds/less volatility.

arebelspy

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Re: Seeking Advice/opinion on Investing Strategy
« Reply #3 on: September 02, 2013, 01:28:04 PM »
Welcome to the forums!

I have been researching, educating myself, talking with experienced real estate investors for the past year because I am considering investing part of the money in one, two, or possibly three duplexes if properties become available that I would feel comfortable working with (I am not a plumber, electrician, carpenter, etc and I need to feel safe going to my rental property).

I personally am not handy at all, so I build buffers in to my rental numbers so I can pay plumbers, electricians, etc. to fix the issues.  As long as it's something you're aware of, and plan for, there's no reason not feeling comfortable doing those things personally should stop you.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

icefr

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Re: Seeking Advice/opinion on Investing Strategy
« Reply #4 on: September 02, 2013, 11:18:44 PM »
Large Cap:  Institutional Index Fund
Mid Cap:     Mid-Cap Index Fund
Small Cap: Small-Cap Index Fund
International Stock: Total International Stock Index Fund
Bond: Total Bond Market Index Fund

Annually, I also plan to invest $5500 into a Roth IRA.

I do have a retirement plan and money invested in Large Cap Mutual Funds (mostly) at this point in my life.

Comments on these specific funds:
1) I would consider Vanguard Extended Market Index Fund instead of Mid-Cap and Small-Cap separately. Its purpose is to 'complete' the S&P 500 index fund.
2) If you're looking at a taxable account, I would consider a tax-exempt bond fund for your state or a regular one if one doesn't exist for your state instead of TBM.

What I would try to do is look at all of your accounts as one portfolio and try to put funds in the best spots, see http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

Do you have any other good index funds in your retirement plan than just the large cap mutual fund?

1.  Is it wise if I end up investing almost all of my money in Mutual Funds?

These mutual funds you're picking are index funds and they are about as diversified as you can go with index funds. The first one on your list tracks the top 500 companies in the US by market capitalization and the next two track the rest. Similar with TBM. You are essentially buying shares of every publicly traded company in the US when you buy these index funds.

2.  Is spreading out the dollar cost averaging concept over three years long enough for a larger sum of money?

It really depends on your comfort level: http://www.bogleheads.org/wiki/Dollar_cost_averaging