What to do with over 200k

[noviceatinvesting]

My husband and I are in our mid-30s. I am a stay at home mom. We just moved to an expensive area, currently renting. We have quite a bit of cash sitting in a low interest bearing bank account. I recently thought about using Fidelity's Portfolio advisory service but am scared off by their high fees. Should I go ahead and use them to help invest my funds or stick with index funds and do it myself? Here is a not super detailed breakdown of our financial situation:

Income: HHI 128k. Our HHI income recently dropped significantly because my husband was laid off and started a new lower paying job. I am trying to be more frugal now and found this awesome website!

Current expenses: total to about a little over 5k a month (largest expense is rent at $2500). So we have a little less than 1K left over each month if we are lucky. If we buy a house our expenses should go up, plus we would need to buy another car since my husband walks to work now. We are hoping to buy a house that is not more than 500k and would be a good fit, but that could be wishful thinking.

Assets: $378k in a savings account earning less than 1%
            $60k in S&P 500 index fund
            $260K in combined 401(k)s
            Brand new Toyota Camry, paid with cash

No liabilities/debt.

If we end up buying a house next year, we would need a chunk of the money we have in savings, obviously. But what should I do with the over 200K that would be left over if we did buy? I am hoping to invest over 200k now and leave the rest in savings for an emergency fund/possible down payment. Is it worth using a portfolio advisory service that could have a 0.9%-1.0% expense ratio? Or should I just divvy up the 200K into index funds myself? Any recommendations? So far I like the Fidelity S&P 500 index fund. Should I add a lot more money to that? I am feeling overwhelmed but I don't want that to lead to inaction.

Thank you for your time and insights.

[Tyler]

At this point, I honestly think it's in your best interest to learn about investments on your own.  You're very good at accumulating money, so the next step is knowing what to do with it without an expensive adviser.  I'd start here:

http://www.bogleheads.org/wiki/Lazy_portfolios

This is a good overview of several popular "Lazy Portfolios", complete with book references, that will most likely outperform what a lazy professional will do for you but with much lower fees. 

As an aside, if you have less than $1k left over right now after expenses, I would strongly reconsider your desire to buy a house. 

[Glenstache]

1. Do the math on if you are better off renting than buying. It can often come out that renting is better, and can leave you more flexibility if the job situation is fluid.
2. You can hire a financial adviser on an hourly basis to provide nitty-gritty financial advice. If you go this route, make sure that you are clear that  they have an explicit fiduciary duty to you, and are not at a company that will just steer you towards their products. This can be a person not associated with where you will ultimately put your $$. There are some threads on the forum about how to select a financial adviser; search for them. This will cost money, but will provide more certainty as it sounds like you are still on the learning curve. You can always adjust things later as you learn more, or your strategy changes.
3. Get knowledgeable by reading books. The books by William Bernstein are very accessible and a good place to start. One of the key factors of Mustachianism is being in a position to make informed decisions.
4. Make a more detailed budget so you know exactly where your $$ is going. It may be that nothing needs to change, or that you decide to change how you are spending.

Regardless, it sounds like you have done a great job of saving. Kudos! Now to put those soliders (dollars) to work!

I'm sure others will have plenty of good recommendations, many probably better than mine.

[LisaCO]

I agree that you can manage this yourself.  You guys have done an amazing job of accumulating money.

One of my friends uses Fidelity’s advisor services and they have her in 20 different funds.  I doubt that after their fees, she's doing any better than she would investing in low cost index funds on her own.  jlcollins' stock series has a lot of great info too.  http://jlcollinsnh.com/stock-series/

I have my money invested in Vanguard’s Total Stock Market Index Fund (VVIAX).  I prefer this to the S&P 500 fund for the diversity; it tracks the broader market including small, and mid-cap stocks rather than just the S&P 500.

I agree with the other posters on the house.  You really need to think about the costs and if you can afford it.  It sounds like not only will you housing costs go up but your transportation costs will too.   

[RichMoose]

You can easily manage this money yourself. Most financial advisers will cost you at least 1%. Many also make money off hidden fees. If you have maxed out your tax advantaged accounts such as 401(k) and Roth IRA, you should open an investment account with Vanguard. Put your money in VTSAX. Its a total market index so you benefit from diversity and very low fees.

I would do a serious evaluation on whether or not you should buy a home in your area. You can use simple method, basically if your monthly rent multiplied 110 is less than the cost of a home then consider buying. If not, rent. Generally renting is better in high cost areas.

After evaluating a home purchase, you may want to put over $300k into an investment account and just keep a small amount (3 - 6 months expense) in a high interest savings account / money market fund as an emergency fund.

Read jlcollins blog on house purchasing as well. It will open your eyes quite a bit to the true cost of home ownership.

[brizna]

I'd echo what everyone is saying and just read a book and put it in a few vanguard index funds. Personally, I do a value fund, s&p 500, and a bond fund: 37.5, 37.5, 25. It's pretty much that simple. People here seem to do an international fund as well, but I don't have much faith in most foreign markets and I'm not comfortable with the currency risk.

That being said, I'd close out your savings, put $5K in a checking account and put the rest into vanguard. That's just me though. I can see why you might want to preserve capital for a down payment, but I'd just invest the lot.

[Tyler]

Just a small point -- assuming you're already with Fidelity, you don't necessarily need to transfer your money to Vanguard. The Fidelity Spartan index funds directly compete with the Vanguard options and are just fine.

[johnny847]

The Bogleheads wiki has all sorts of information to help you get started. The three fund portfolio is what I use--simple, well diversified, and extremely low cost.
Before mid March, I had absolutely no idea how to invest. After reading the Bogleheads wiki and lurking on their forums, I learned basically all I need to know. It will take you time to read through all the important bits. But it's well worth your time, and afterwards you can just set up automatic investments and just let it run without you thinking about it (recently I logged into my Vanguard account and was like how on earth did I accumulate this much? And it wasn't investment returns either - returns only accounts for about 2% of my account value).

Just a small point -- assuming you're already with Fidelity, you don't necessarily need to transfer your money to Vanguard. The Fidelity Spartan index funds directly compete with the Vanguard options and are just fine.

They're competitive at the moment. However, Fidelity could decide at any time in the future to raise the expenses on their funds. If that were to happen, and you held the funds in a taxable account, you would incur capital gains tax to switch to Vanguard's funds.
Vanguard is structured to operate at cost because the clients are also the shareholders of Vanguard. It would be incredibly difficult, unless Fidelity purposely took a loss on Spartan funds and hoped to make it up elsewhere, for Fidelity to beat Vanguard's expenses, because Fidelity needs to make a profit to please shareholders. Vanguard does not.
What's the probability that Fidelity would raise the expense ratio enough for it to be a concern in comparison to Vanguard?  Pretty small. But given Vanguard's structure, I would always recommend that when you have the choice, choose Vanguard, because they are designed so they won't try to screw you.

[penguin456]

Have you considered putting a larger downpayment on the home with the money?  If you only have $1k left over each month renting and buying will cost more that is pretty tight. I might put some or all of it into the house to lower the payments and make it more affordable.

I would invest yourself, but would be sure to take advantage of all tax preferred accounts. I would do $11k in roths this year (combined for you and husband) and the same next year. Do you have an HSA?  I would max that and pay out of pocket for medical.

[Ambergris]

+1 for doing the investing yourself. Investment managing is one of the areas in life where you usually get the opposite of what you pay for.

You can learn everything you need to know for basic investing on the internet in a few hours or days of reading and poking about.

I also recommend Vanguard, because they are shareholder owned (as above). This means they have to be low cost. However, Fidelity is OK if you really want to stay with them.