Spouse worried about investing more in stock market

[Livethedream]

I’m 31, wife is 27.

We have been maxing out IRA’s for a few years now. She has been ok with this because it is “only” $11k a year.

We have several rentals and she prefers that much more. When I ask what her ideal split of stocks (mutual funds) to real estate ratio is she wants like 80 rentals 20 mutual funds.

I don’t dislike rental properties, she knows and has said we just don’t have the time to purchase more right now with our little ones and my full time job.

We will have the house paid off by 2020 and will have around $40-50k to invest. Ideally I would like to put this into work 401k/457 which has above average options and decent fees. We could do $36k doing that.

Her fear is that “we will just lose it all” “the companies will just go bankrupt”. She says it’s an emotional issue for her and it just feels like we’re gambling. I’ve tried explaining the 4% rule, showed her different articles, even had a brief conversation about it with our financial advisor.

One option is to designate one of our IRA’s to use for real estate in the future when time allows.

Looking for advice

[Scrapr]

Perhaps show her an index fund. They aren't all going to zero.

And real estate can be risky too. Have a large employer go under or move out and the supply of homes goes way up. Driving down rents.

You have an emergency fund right? Maybe split the baby and add to the ER and do a index stock fund

[Slow2FIRE]

What is your spouse's plan for all of your excess cash while waiting for the opportunity to pick up another rental property?  Inflation is a SOB that makes your savings accounts whittle away over time and it sounds like you two may not have the necessary time to spend finding a good rental property.

What is your desired allocation of real estate to stocks?  Are you able to come to a compromise that is somewhere in the middle of her desired allocation and your desired allocation?
Do you guys invest in individual stocks?
Does she know what the index funds are or does she feel as if the ticker symbol (VTI or VTSAX) represents a single company (i.e. -> vanguard goes bankrupt and you lose all your money invested in VTSAX/VTI -or- does she really feel as if all 3500+ publicly traded companies making up those index funds will go bankrupt at around the same time)?  Just trying to understand better what her fear is.

I will state that I've gone to a brief seminar put on by a local bank that discussed self-directed IRAs for investing in real estate and it was NOT GOOD.  Must use commercial loans (25% down or more, bank reviews your numbers, unlikely to get a good interest rate), all repairs, downpayments, mortgage payments, insurance payments, capital improvements, etc must come from within the IRA, must use a property manager as all transactions must be kept at "arms length" and you could still trip up and trigger special IRS rules that will try to tax you inside of your SDIRA if you aren't very careful.  On top of all that, you get to pay annual fees to the administrator of your SDIRA.


My spouse is the opposite.

She worries constantly about our rental properties and is always trying to come up with reasons to call the property managers, request photos, ask a 1000 questions about every nook and cranny.  She is 1000x more comfortable just putting everything into the stock market (index funds) and owning all the publicly traded companies where she doesn't have to worry about it.  She really hates the emails where a maintenance concern needs to be addressed -> it feels to her that all our money drains away and the renters are ruining the houses whenever this happens.

[Livethedream]

Thanks for the responses.

We keep $20k for personal emergencies, and keep around $25k in our rental accoun for expenses.

Yes, it would be mutual funds. No, we do not invest in single stocks. I’ve asked her if she really thinks 100 companies would all go out of business to sink 1 fund and she begrudgingly agrees with me.

She envisions a scenario: $1m in IRA, market crashes down to $500k. She is the type of person who would then pull it out rather then leave it in to enevitiably go back up.

I don’t know how to describe my desired allocation. I plan to FIRE in 14 years and for 11 of those would like to max out my tax advantaged accounts for $36k a year and continue our IRAS. At 14 years we would continue our IRAS and dump the rest towards rentals/ flip. My goal would be probably more a flat figure of income coming from rentals, say $60k take home.


My FIL has self directed Ira and is pretty happy with it, has rental property in it. He has talked to me about the fees and added requirements. Either way, this would be a ways away.

[Catbert]

Would your wife feel comfortable investing in a REIT or even better a REIT mutual fund?  That might be a decent interim compromise (not that I would ever have an 80% allocation in REITs).

Be very careful about owning real estate in an IRA (other than a REIT).   Problem 1:  Your IRA probably can't get a mortgage.  Problem 2: all costs associated with the rental must come from IRA funds. If it needs a new roof for 15K and you don't 15K in an IRA that's a problem!  If you use personal funds for the roof that screws up the IRA.  You also lose some tax benefits (like writing off losses and  capital gains rates when you sell) 

[Livethedream]

Good idea about a REIT. Have some good solid options to bring forward now.

Thanks for the help

[Tom Bri]

You could do what my inlaws did, and split the money. They had very different investment ideas and could never agree, so some went mom's way and some dad's. It sounds like you are already doing that with you having rentals and IRAs, so why not make it a plan. 50% her way and 50% your way?