Author Topic: How can we employ our Cash to Work Harder in this scenario?  (Read 4563 times)

heymaverick

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I'm very late to the FIRE scene but have been voraciously reading the MMM blog & listening to MMM podcast interviews, etc. , and I appreciate the wealth of helpful info here to shorten the learning curve. I can see this is a tremendously helpful community and I'm so happy to have found you and to become a part of it!!

MY SNAPSHOT:
Married, filing jointly (age 50 & 60), child in 1st year college w/about 80% of tuition paid via 4 year merit scholarship (we pay room/board, textbooks, health coverage, etc). We are almost entirely self employed (real estate broker plus part time seasonal job, small side business, & property management year round). Modest 1960's home (1400 SF, no mortgage) & 3 small 1950/60's rental homes (no mortgages, one currently vacant for necessary repairs/maintenance). We own our 2 cars, have zero debt & pay off our two credit cards in full each month. We live, work & shop mostly within a 2 mile radius.

From my vantage point our biggest issue has been very unpredictable income over the years (especially pre rentals), so out of necessity (fortunately) we became savers, but not good at putting our dollars to work for us. We have no pension, never had a job w/401K matching and we pay all of our own health insurance. Over time we have accumulated the following (keeping in mind we didn't fund our retirement - nor did we have health insurance - in our early years):

60 K Roth IRA (earning 1% at credit union)
185 K SEP (doing very little in a 'cash reserves' account at Fidelity)
93 K HSA (split between 2 HSAs doing very little w/Assurant & Wells Fargo)
240 K in cash savings at credit union (earning 1%)
130 K in a mutual fund
3 small rental homes (no mortgages) worth approx 550K total

PROGRESS THIS WEEK:
I set up a Betterment account, and a Vanguard account and they are all ready to fund w/just over 50K each from the credit union cash savings account balance above (balance would be liquid cash savings). I was thinking of doing 60 Stock/40 Bond mix in Betterment, and VTI for Vanguard - how does that mix sound?

Because we are age 50 & 60 I know we should err on the conservative side, but I'm not sure how to allocate based on our age/asset mix (esp since our rental homes are not liquid assets)? Side note: we don't want to be landlords forever. The homes are all older, require more and more maintenance and repairs as they age and we've always managed and (mostly) maintained them on our own but look forward to eventually not being landlords, though we are not ready to give up that income stream yet (and hiring a management company isn't appealing to us - we keep them up and don't want them 'trashed' which we have seen happen to some rentals that don't owner manage. Suggestions as to what our options might be to consider for the future once we decide we don't want to be landlords would also be appreciated!

I've just transferred most monthly bills (utility) to our Amazon Visa to earn 'points' (used as cash on Amazon) which we pay off monthly, and I'd like to replace our airline miles VISA we've had for eons, with a cash back credit card perhaps w/a signing bonus if possible? I would like to develop a much more streamlined automated system of investing  (not just putting in a low yield savings acct) and I'm guessing not having assets spread around to too many institutions would be a good start. I also just figured out how to deposit rent checks w/my cell phone app which I've been meaning to do for eons which will help in streamlining that process.

Another small milestone that gives a boost (PHOTO attached) - yesterday my husband hung some PVC pipe on lines from the garage rafters to make an easy way to hang laundry to dry even if raining (we did this years ago when he strung up the same pvc pipes as hanging racks for a garage sale we had, but took it down when we reconfigured the garage later to fit both cars inside and I've missed it ever since (now we can fit the hanging drying racks AND both cars in the garage).

NEEDS WORK/IMPROVEMENT:
Move ROTH, SEP, combine both HSAs and move I'm guessing (where best to move?), cancel cable (we want to do this once we figure out how to make our smart Samsung tv access the internet directly (we already had the most basic cable/internet plan offered but are happy to cut the cord to cable TV, but keeping internet is vital). We do have a dvd player and often get movies from the library but would like to be able to watch some 'shows' online if possible instead of looking at a laptop screen (we are not very tech savvy so would need instructions). We also have a roku that we've not used much from when they were pretty new.
Cancel land line (we both have cell phones) but this must wait until next year I think because of an annual publication where we are the sole contact phone so we can't cut off those calls.
I will also check into lowering our cell bills but we are in a rural area w/only two providers and must have a really reliable cell service plan for business (and personal) once we ditch our landline). I appreciate any wisdom and insight you'd like to share to help us manage what we have a lot better. Thank you!!
« Last Edit: May 02, 2017, 02:19:35 PM by heymaverick »

Chrissy

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #1 on: May 01, 2017, 06:54:31 PM »
Hey Maverick, congratulations on being worth $1.2M + a paid off house!  Truly fantastic, and you did it all without the help of investment returns which is incredible.

It sounds like you're ready to start Dollar Cost Averaging (DCA), which is just the term for buying a little bit at a time, and, you've picked a conservative allocation, 60/40 stock/bond split.  Excellent choices.  I know it's scary to get started, but just do what you can, and, when you're comfortable, do a little more.  Personally, I pick a day of the month, and buy the same cash amount on that day every month.

You want to move your ROTH, SEP and HSAs.  Since you've already got an account at Vanguard, I'd move these accounts to Vanguard as well.

Hopefully, your college student can help you cut the cable, and set up your TV.

Really, you have this all figured out, and you just need to execute the plan you laid out in your post.  No additional wisdom from me.  You're going to have a great retirement!

Gone_Hiking

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #2 on: May 01, 2017, 11:06:01 PM »
The size of your stache is nothing to be ashamed of. And four paid-off houses - wow!

You haven't included your monthly expenses and how long you are in for with tuition.
Ideas to cut costs are good ones - land line phones and cable TV is where many people out there overspend.   What kind of income do you generate out of your rentals?

Your savings at credit union are substantial - I would suggest moving some of to Vanguard as well.  Move the SEP - it does nothing for you sitting in cash.

Conservative portfolio is a relative term.   I would lean towards 70/30 - is this too conservative or too risky for you?

As it is how, your holdings could generate 21K (conservative 3% withdrawal rate) to 28K (more aggressive 4% withdrawal rate) per year.  Should you sell the rentals, you would be able to add between 16 and 22K to your income from the invested proceeds, giving you between 37K and 50K per year. 

heymaverick

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #3 on: May 02, 2017, 02:18:30 PM »
Thank you Chrissy for your insight - I will read up on DCA - the way you described it makes a lot of sense (it would be easy to put a reminder on my phone for the same day each month to make that happen). I will definitely move the Roth, SEP and HSAs. Would it be smart to put them into VTI  w/Vanguard also, or better to pick something else with Vanguard so 'all of our eggs aren't in one basket' even though they are separate 'accounts' (I've seen VTSAX and VTIAX mentioned a lot here too)?

We are in for 3 more years of college living expenses, textbooks & health care at a minimum, plus about 20 % of tuition, which we are supportive of (& I would guess grad school, but don't know yet). We may get a 'pass' on room & board costs next year as our daughter has recently been offered a job as a Resident Advisor which takes a lot of time & is quite a bit of responsibility, but likely a great life experience too, and would certainly cut her education costs by a bunch next year (free dorm room & meal plan).

Thank you Gone_Hiking very much for sharing your wisdom & crunching the numbers on what our holdings might generate - I aspire to getting really good at doing that sort of calculating, as it's always been a weaker muscle that I need to exercise!

Our 2 occupied rentals are bringing in 1200/mo and 1050/mo (the vacant one we're working on was most recently bringing in 950/mo but that was for a short term rental of 3 months (and it had been 825/mo for quite awhile prior). We are contemplating selling the vacant smallest home on a great lot & exchanging into something newer w/fewer needs (just one home needing a roof is months of rent spent & the hassle factor is always higher w/dated homes). With the current administration talking about getting rid of 1031 Exchanges, we're more tempted now to exchange w/that property. The other two we would keep & likely move into ourselves before selling (living in for 2 of the past 5 years to avoid paying capital gains as our primary residence) . . . unless that goes away too!

I am definitely in favor of the 70 stocks/30 bonds you mentioned and in fact that is very close to what betterment recommended too, but my husband was leaning toward 60/40 so we will decide very soon! I don't even know how it works w/Betterment - if you change your allocation I would guess it would trigger costs (to sell off, then make buys to change what you held but that may be included in their annual fee deducted monthly as I think that would fall under no transaction fees). We have our account all set up and money ready to transfer but figured we'd need to decide that first rather than fund our account and change our allocation a few days later if we changed our mind. So much to learn!
I really appreciate all of your help and I will keep up with the forum and blogs as much as I can.
« Last Edit: May 03, 2017, 08:25:50 AM by heymaverick »

Chrissy

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #4 on: May 02, 2017, 04:26:48 PM »
HeyMaverick, I feel obligated to tell you that Lump Sum Investing (loading in all your cash into stocks in one go) is the proven "best" way of investing.  However, very few people have the stomach for that sort of thing... including me!  And, when you said you had $50k in Betterment and $50k in Vanguard ready for investment, it sounded like you were set to DCA, even though you maybe didn't know that was a named strategy.  The most important thing is to just get started.

Yes, VTI is a great way to go.  So is VTSAX and VTIAX.  These are broadly diversified funds, so there's no need to buy anything else--you're not putting all your eggs in one basket by choosing just one.  VTIAX is focussed on international companies, but, in my opinion, you get plenty of international exposure in either of the other two.  For instance, Johnson & Johnson and Apple, which are owned in VTI and VTSAX, are international companies. 

I agree with Gone Hiking, 70/30 is conservative, too!  Maybe get yourselves to 60/40 and see how your husband feels.  Stocks should outperform the bonds anyway, so, if you just let everything sit, eventually the stocks will pull ahead in the allocation.

heymaverick

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #5 on: May 02, 2017, 10:25:07 PM »
That  makes sense, Chrissy - thank you for that clarification! I'm going with 70/30 tomorrow and then will add whatever chunks we can to our Betterment and Vanguard accounts to further build them as we go along. I do like the idea of at least having a reminder once a month to transfer funds into Betterment & Vanguard accounts, as that will make it easier not to skip a few months w/out realizing it as I don't want more cash sitting in low return savings that isn't needed for our emergency fund. If I think of it before the reminder, I will go ahead and add to the accounts before I get the reminder. Thanks again!

Morning Glory

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #6 on: May 03, 2017, 06:50:32 AM »
I found the j Collins stock series helpful. He provides a lot more detail on the investing strategies mentioned in MMM.

 http://jlcollinsnh.com/stock-series/

Also check out this article on asset allocation.

http://www.gocurrycracker.com/path-100-equities/

I will choose good over perfect when it comes to asset allocation. It is better to get it into something now than let it sit around in cash, and you can worry about optimizing later.

It should be easy to find a cheap prepaid phone company that uses one of the networks available to you. I use Republic Wireless (Sprint Network), but I am grandfathered into a cheaper plan than is available now, so it is worth shopping around.  If you are switching phone companies, why not port your landline number to one of your cell phones? This will require one of you to give up your existing mobile number, but it will allow you to get rid of the landline sooner.

For TV, we bought a cheap desktop computer, and plugged in our (dumb) TV as a monitor. We have a Netflix account, but we can also watch free video on YouTube, Yahoo TV, etc. We bought a good wireless mouse and keyboard to control it from the couch.  Hubby likes using it to do "computer " things on the bigger screen. The "smart" TVs and the Roku can access the internet, but I think they are programmed to block some of the free content. It is worth trying since you have them already.

Depending on your location, an HD antenna might be a good idea as well. When I lived in town I got about 10 channels over the air this way, but at my new location I only get 2 channels so I gave it up. I think it depends on topography rather than distance.

GetSmart

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #7 on: May 03, 2017, 08:27:52 AM »
Quote
Cancel land line (we both have cell phones) but this must wait until next year I think because of an annual publication where we are the sole contact phone so we can't cut off those calls.

Look up voipo dot com -- you can move your landline numbers to them for very little money - right now they have 2 years for $149.  Works just fine and you still get all the features like call waiting, caller ID, fax capabilities (via computer) - they send you a box that plugs into your router.  And they will walk you through the whole setup if it seems daunting -but it's easy!  If I can set it up (older than you :) )-- anybody can. 

Also - you might want to look into a Chase business credit card -- if you use your phone and internet primarily for business - run them through this card -- it's 5x points/cash back for those.

heymaverick

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #8 on: May 03, 2017, 04:10:25 PM »
Really excellent advice, MrsWolfeRN and GetSmart - Thank you! Once I tackle moving a SEP And Roth IRA (now that new Vanguard and Betterment accounts are up and running - YAY!), I will definitely move on to your great suggestions regarding phone options and non cable tv setup options - I sure appreciate you sharing what worked for you and I will definitely also check out both of the links on investing strategies you provided. I am amazed at how incredibly helpful this forum is, and how nice everyone is to share their experiences!

kenaces

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #9 on: May 03, 2017, 11:02:39 PM »
I agree with others that you aren't going to go wrong with betterment or vanguard.  That said I would still suggest you learn more about these kinds of investments mostly so you are prepared intellectually/emotionally for the market swings that all investors experience.  You don't have to be expert just understanding the basics and a little market history might help you stick with the plan when the waters get rough.

I think you said you do most everything within 2 miles of your home - have you thought about going with one car?

heymaverick

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #10 on: May 05, 2017, 05:42:49 PM »
Thank you kenaces - I'm enjoying the process and have learned a lot the past few weeks already here at the MMM forum, though I'm sure plenty of market lows & highs are ahead, and I have lots to learn for sure (at every turn, I realize how much more I have to learn)! You are spot on asking about our 'need' for 2 cars. I'm sure we will pare down to one eventually as we each work (offices) w/in a 2 mile radius of home, but my husband especially does need to drive around our (rural) county regularly for work related business, sometimes w/very little notice - and often I go with him when my work schedule permits (which is a business expense on our taxes) but I see getting down to 1 shared car in the next few years for sure. We still have insurance for our home, 3 rentals & both cars w/a local agent that we've had a relationship with for years, so haven't even called Geico, etc for comparison shopping, but I know I should do some comparison shopping there soon too.

Now that I have our Betterment and Vanguard accounts going, I'm debating about whether to put our Roth IRA and/or SEP into Betterment, or into Vanguard - what differences would there be -  (and if so, into what mutual fund or ETF, or allocation in Betterment). We are currently (just this week) 70/30 in Betterment w/our NON Roth/SEP account and our NON Roth/SEP new Vanguard account is in VTSAX. I want to move our Roth IRA and SEP soon, as they are both sitting in cash accounts (one w/Fidelity and one in a credit union earning very little, but I'd rather not keep the SEP in Fidelity (even moving it to a mutual fund there) since it seems to make more sense to streamline and have it in either Betterment or Vanguard where we also plan to keep our other two new accounts long term). I called Vanguard today and they said that basically we could fill out their form and provide our most recent SEP/Roth statements, and they could get the paperwork processed and contact Fidelity about transferring our SEP to Vanguard as well as the credit union w/our Roth IRA (I would imagine Betterment would say the same?). I've never done this before but I haven't initiated anything yet as I'm in the gathering information process. I wonder how much Tax Lost Harvesting would come into play? And is that better at Betterment? It really feels good to be making progress on getting our assets into better places though, and getting what cash we have to work harder for us, with the idea of making things easier to manage in the big picture.

Also, the one mutual fund we've had and held for years is the Sequoia Fund (SEQUX) and it seems like a stand alone fund, so something not to transfer to to make management easier (though I honestly don't know if that's the case yet)? I called and talked to them to get some information and was told how to connect a joint bank account we have to make purchasing and/or redeeming more streamlined  (via a 'medallion signature guarantee' paperwork) which I'll need to learn a lot more about before pursing that. Thanks again for your insight, kenace and others! I'm really getting a lot out of this MMM forum, and I appreciate everyone involved and the wisdom shared all along the way!
« Last Edit: May 05, 2017, 06:21:32 PM by heymaverick »

Lady SA

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #11 on: May 08, 2017, 08:48:10 PM »
medallion signatures are basically super certifications of finances. Its almost like a notary signature but more rigorous and recognized in the financial business. An actual notary doesn't work. My DH and I have had to do a few medallion signature bits of paperwork to move some of our accounts around from one financial firm to Vanguard.

We just go into our local wells fargo branch (they want you to have a wells fargo account, we have a savings account with them with like $200 in it for this purpose) and theres a guy there who does the medallion signatures. Call your local bank branch to see if they have someone certified to do the medallion signatures there. We bring in statements and the paperwork, he makes copies of everything to cover his ass, then does the stamp and signature and then we send it off in the mail. Kind of a hassle because we have to find the time to physically go to the branch and such, but whatever.

Our vanguard accounts are linked with our bank accounts and its very nice -- we have automatic bank withdrawals that we don't even have to think about.

Another Reader

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #12 on: May 09, 2017, 05:58:32 AM »
A lot of the advice given on this forum is appropriate for people under 40 with long time horizons for the growth of their asset bases.  At your age, you need to be more conservative.  I would skip Betterment and stick with Fidelity (best website and local offices with customer service) or Vanguard.  Fidelity offers low cost index funds and commission-free ETF's that are very similar to Vanguard's offerings.  Markets are in nosebleed territory and I would not dump everything in at once, as you cannot tolerate a 50 percent haircut followed by years of recovery at your age.  Look up "sequence of returns risk."  It could gut your retirement and it needs to be considered.

You need to take a hard look at the income and expenses of the rentals.  The 2 out of 5 year plan no longer applies to rental properties.  The capital gains are prorated under current rules.  If you live in the house for the two years before you sell and you have owned it for 10, 80 percent of the net gain is taxable.  There is also the ugly depreciation recapture to consider.  IF you can find a more productive rental, an exchange might be appropriate, especially if the vacant house is difficult to rent.  That's a big if, as most real estate markets are priced above the level where rentals make sense to purchase.

I would not do anything until I had read and understood more about investing.  I would also post over at early-retirement.org, a forum comprised primarily of people of similar age and asset base.  It's a more conservative crowd with concerns similar to yours.  While the enthusiasm in this forum can be motivating, perspective from folks your age may be more helpful.


Another Reader

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #13 on: May 09, 2017, 06:14:43 AM »
One more question - What are your estimated Social Security payments?  As self employed people, you would have paid into the system.  If you have not already done so, set up accounts at the Social Security website and look at your estimated payments at various ages.    One of you is close to the minimum age to collect and it helps to understand how Social Security works and when it makes the most sense to collect.

heymaverick

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Re: How can we employ our Cash to Work Harder in this scenario?
« Reply #14 on: May 16, 2017, 08:57:45 AM »
Thank you, Another Reader - I really appreciate your thoughtful input! I am currently reading up on "sequence of returns risk" and it certainly seems to be something very relevant to our current position and something to consider thoughtfully as to how we move forward - thank you! This coming weekend I am setting aside time to  visit early-retirement.org and become familiar with what's going on there and how that could be helpful as well. Yes we have both been paying into social security and I will check into those accounts as well (still need to set up one of us for online access , the other was set up awhile ago which will be the first one requiring pay out).

We are now taking a second look at renting vs. selling our vacant rental, despite the 'hassle factor' of its age, location, upkeep/maintenance (and we agree that we need to take a closer look at getting rents up to market rate - certainly one and probably 2 will take a tick up which will help over time). I got a great book from the library called, "Landlording: A Handymanual for Scrupulous Landlords and Landladies Who Do It Themselves" by Leigh Robinson and it seems to cover every scenario possible w/a nice index in the back for easy reference, including raising the rents (generally we've done this at transition between tenants).

We are very fortunate to have long time solid tenants in two of our rentals that are conscientious, pay on time, keep the properties up and have had very little turnover on those two properties which is wonderful, (and they are easier to rent than our vacant one that has had a lot more turnover and hassle factor).  Thanks again!