Author Topic: What to do with $25,000?  (Read 7185 times)

benjenn

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What to do with $25,000?
« on: November 22, 2014, 06:09:24 AM »
Hubby and I have only recently discovered MMM but we've actually been working toward early retirement for awhile now.  Since discovering MMM we've moved our retirement up by 2 1/2 years because we now realize all we need is enough - and we'll have enough by the end of 2015 instead of the middle of 2018.  Hooray!  :)  At that point, we will be moving into our beautiful beach condo on the Gulf of Mexico (that will be paid off in July 2015) and living life on our terms for a change.  We will be 51 and 52 years old.

Our question is about what to do with some of the cash we will accumulate between paying off the condo (our only debt) and the end of the year when we retire.  We expect to have about $45,000 by then.

We will both receive pensions that will more than cover our monthly living expenses but we want to keep about $20,000 completely liquid and easy to get to just in case we needed it for something.  We both have 401Ks, too, but won't access those until 59 1/2 (and only then if we need to).  That leaves us with $25,000 that we don't expect to need and we definitely want to earn interest on it (we want to earn interest on the $20,000, too, of course!).  So we've thought about mutual funds and I have one I really like (Homestead Funds... look into it), but we thought you guys, being the great resource you are, might have other ideas, too.

Would love to hear what you think!  Thanks for your help.

fartface

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Re: What to do with $25,000?
« Reply #1 on: November 22, 2014, 09:21:11 AM »
I've got $40,000 in savings right now.

We're putting 11K ($5500 each) into Roth IRAs on Jan. 1st: $5500 into VYM and $5500 into VDADX (did the same thing in 2013 and 2014 with our savings surplus).

$10,000 into At&T DRiP via Computershare for their 5% dividend payout.
 
$5000 into VTSAX in my brokerage account bringing the overall balance to about 17K (it's a 10K minimum investment)

I'm keeping $15,000 in the 1% savings account.

I also like REITs...purchased two last year w/our savings surplus. SNH pays a 6% dividend. I also bought admiral shares of the Vanguard REIT (VGSLX).

Great job on your ER, pensions, and beach living!
« Last Edit: November 22, 2014, 09:45:42 AM by fartface »

GlassStash

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Re: What to do with $25,000?
« Reply #2 on: November 22, 2014, 09:50:01 AM »
Index funds, preferably in tax-advantaged accounts. $11k to both Roth IRAs (or trad'l IRAs if you have a marginal tax rate > 15%). The remaining $14k should be put into your 401k, assuming you do not currently make the maximum contribution. There are ways to get the money put if needed before 59.5 (see the plethora of threads here or madfientist.com).

As to which index funds, I'm partial to vanguard. Low-costs, investor owned company. There are other companies and funds, just make sure the expense ratios are equally low. The type of fund depends on your desired asset allocation.

benjenn

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Re: What to do with $25,000?
« Reply #3 on: December 30, 2014, 10:48:37 AM »
Our income exceeds the limits for Roth IRAs.  I hadn't thought of adding the money to our 401K.  Thanks for the suggestions!

tomsang

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Re: What to do with $25,000?
« Reply #4 on: December 30, 2014, 10:56:17 AM »
How about a new ring?

http://forum.mrmoneymustache.com/welcome-to-the-forum/$25k-for-engagement-ring/

mxt0133

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Re: What to do with $25,000?
« Reply #5 on: December 30, 2014, 10:59:44 AM »
Looking at the cost of the Homestead funds at http://www.homesteadfunds.com/funds-2/costs/  their expenses run from .5-1% which is much higher that you would pay with Vanguard funds.  Any other reasons why you favor them vs Vanguard funds?

benjenn

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Re: What to do with $25,000?
« Reply #6 on: December 30, 2014, 11:09:50 AM »
The Homestead Funds are operated through NRECA, the National Rural Electric Cooperative Association - the national organization for the cooperative I've worked for the last 23 years.  Cooperatives are not investor-owned, they are member owned.  I believe in them, I know the people making the decisions there and I trust them implicitly.

James

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Re: What to do with $25,000?
« Reply #7 on: December 30, 2014, 11:16:18 AM »
I agree, dump it into index funds and forget about it. I don't do Betterment, but if you wanted the simplicity of it being balanced for you automatically that is an option. But personally I would just throw it in Vanguard.

Another option is to find an investment idea that works best for you. Is there a rental property around your beach front home that would generate great income? Again, I would personally throw it in an index, but if you are retiring and want a hobby, you could use this money to fund a hobby that could generate some good cash on the side. There can be other financial benefits of tax deductions, etc. Not a recommendation since I don't know you, just something to consider.


Nothing wrong with Homestead Funds if you know and trust them, but consider what you are getting in return for the extra expense. Vanguard is also investor-owned, and if you are just investing in index funds I'm not sure why you wouldn't go with the lowest cost. But that decision isn't going to make a huge difference obviously.

benjenn

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Re: What to do with $25,000?
« Reply #8 on: December 30, 2014, 02:40:10 PM »
Yes, Vanguard is investor-owned but Homestead Funds are not... they're a cooperative so they're member owned.  I like that.

Eric

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Re: What to do with $25,000?
« Reply #9 on: December 30, 2014, 02:45:48 PM »
Yes, Vanguard is investor-owned but Homestead Funds are not... they're a cooperative so they're member owned.  I like that.

What's the difference?  Vanguard is also member owned.  It just happens to be that their members are their investors. 

http://jlcollinsnh.com/2012/09/07/stocks-part-x-what-if-vanguard-gets-nuked/

dandarc

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Re: What to do with $25,000?
« Reply #10 on: December 30, 2014, 03:08:54 PM »
Our income exceeds the limits for Roth IRAs.  I hadn't thought of adding the money to our 401K.  Thanks for the suggestions!
No it doesn't - search Backdoor Roth IRA.  That being said, the higher your income is, the more traditional makes sense any way, so favor the 401K if you still have room to contribute there.

Grid

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Re: What to do with $25,000?
« Reply #11 on: December 30, 2014, 04:37:50 PM »