Where would you invest the extra money?

[decessus]

Hi all,

I'm trying to brainstorm some ideas for investing extra money.  Let's say you rent an apartment, will max out your 401K + Roth IRA for the year, and have 6 months of emergency savings stashed in a low interest savings account.  I see three ideas to invest any extra money:

1)  Peer to peer lending (prosper.com, etc.)
2)  Stocks (index funds)
3)  A downpayment on a house

Mostly, I see having too much money in a bank account as a "bad" thing due to the low interest rates not being enough to offset inflation.    So what would you guys do?

Thanks in advance

EDIT:

My own personal goal is to have the option to retire early like Mr. Money Mustache.  Let's say you have an extra $40-70K to invest.  It seems like saving towards a 50% down payment on a house might be a good option too.

[thedayisbrave]

There is literally an infinite amount of possibilities and you will invariably get all kinds of answers based on their personal goals.  What's most important here is that you figure out YOUR goals & work on putting the money to use in those respects.  Everyone is going to have a different use for their money, and they may not all be what you would do.

Me personally, I would invest in another rental property.  I've already got most of my nest egg in index funds.  However, I just bought a primary residence home, but if I hadn't, that probably would come first before a 2nd rental.

It also depends on how much "extra" there is.  I could probably find a few good uses for it all ;)

[decessus]

Great point, I edited with some goals above.

[Joel]

I don't like p2p lending, too risky for me. I would invest in index funds in my brokerage account. If the local real estate market was more affordable, I would consider that.

[missj]

If I were in your situation I would definitely move towards owning a home.

My goals might be different than yours, but even if you don't know if you want to stay there forever; if you just buy a house that you don't mind living in that would make a good rental someday, then you have more options.

some folks will complain that real estate is not a liquid asset ....which is true....and if you didn't already have a healthy emergency fund I wouldn't recommend it.  You're in even better shape since your Roth can serve as an emergency form of liquidity, if push should come to shove.

My friend bought a house in Oregon 2006.  She wanted to relocate to California  in 2010 to pursue a better job opportunity, she was kicking herself for buying the house since she couldn't sell it (underwater) so she contracted with a rental agency and after paying their management fees earned about $70 a month income on the place.  She stayed in California 3 years, got sick of it and came back to Oregon...problem is she had renters who had 8 months left on a 12 month lease.  So she rented a cheap apartment walking distance from her new job with a 6 month lease.   This apartment was half the cost of her mortgage and she happily pocketed the difference.  She was originally expecting to kick them out after their lease was up, but decided to just go month to month until they moved out.  They're still there and she's pretty happy.

The key here is that she bought a smallish house in a desirable rental location.  If this same story happened to me I'd be Shit out of Luck because I live rurally about 30 miles outside of the city where renters are few and far between and rental agencies don't extend this far.

[joe travers]

How much do you think you need for a downpayment? Throw a portion in VTSAX and the rest for your house downpayment.

[Thespoof]

Can't you buy a house for $70K outright down there? That's what I would do if I had that kind of "extra" money lying around ;-)

[KBecks2]

A house as your primary residence is not an investment. Do you want to purchase a home? You certainly can save some of your money as a down payment on a home. However, if you want to invest, you may want to look into a rental property, or you may want to look into an owner occupied duplex as your first property.

Real estate is not as liquid of Stocks. It is a large commitments, and a large commitments to work with renters. If you prefer the stock market, you could easily get into a vanguard S&P 500 or total Stock market index fund. It's a piece of cake, and you can do automatic contributions to that type of fund. Alternatively, you could look at investing in individual companies.  If you choose to do this, I would highly recommend you getting some advice. I take advice from Motley Fool pro. It is paid advice, and it is conservative advice. You could also learned about dividend stock reinvesting, and also DR IP programs, where you buy a little bit of stock at a time and reinvest the dividends.

The key here is, when you are making investments of thousands of dollars, you have to educate yourself. Don't do it without putting thought into it. You will need to research your Stocks or your real estate thoroughly and really understand what you're getting yourself into. If you don't have a lot of time to become informed, then index fund is your easiest option.

Congratulations on your awesome savings rates. Keep up the good work!

[KBecks2]

Remember the number one rule of investing, don't lose money, ha ha.  It is easier said than done! Make sure you have a 3 to 5 year outlook in your expectations for return on your money.  I would not choose pizza pizza lending, I agree that it is difficult to vets the borrowers and know for certain that you will get your money back.

I am also a big fan of Jim Cramer's mad Money show. But be very careful. You have to know yourself and your temperament and choose carefully. Start reading about investing now even if you take a year or two to make some decisions, what you learn will help you for the rest of your life. Start with small amounts and try some stuff out and see what works for you. I also think that an index fund is so easy and so simple and you can lose money with an index fund, but the long term averages are good, and if you dollar cost average, that's even better. it is very low stress.

If you want to learn about real estate, go over to bigger pockets.com listen to their Podcasts and hang out in their forms to learn. Plan on investing hours and hours and education before making a large commitment to an investment. Or do index funds, that's okay too!

[decessus]

However, if you want to invest, you may want to look into a rental property, or you may want to look into an owner occupied duplex as your first property.

- This is the sort of thing I'm after - a vehicle that generates positive cash flow month after month.  Stocks are nice - but they tend to go up and down, I feel like with real estate you don't have that level of unpredictability, although my understanding is limited so please feel free to correct any misconceptions.  I just subscribed to bigger pockets, so thanks for the pick!

[waltworks]

*Everything* can go up and down. Stocks, houses, commodities, whatever. More risk means higher returns. Buying a rental property is in no way a guaranteed income stream - if you find the right deal, it may have a very, very high likelihood of working out that way, but there are *always* events that can wipe you out.

If you are extremely risk averse, I'd say you should find a balanced index fund of some kind that is very conservative and stick your money there.
VSCGX would be an example:
https://personal.vanguard.com/us/funds/snapshot?FundId=0724&FundIntExt=INT

Since I am *guessing* you are pretty young, you may also want to sit down and wargame some scenarios. Being super conservative is *probably* not in your best interest in the longer term, so you may need to make some decisions (ie do you want a house *for sure* in 5 years? Do you want to have kids soon?) about your non-financial life goals in order to align your investment strategy with them.

-W