Author Topic: Help me not be stupid with this $10k  (Read 3007 times)

El_Viajero

  • Stubble
  • **
  • Posts: 197
Help me not be stupid with this $10k
« on: March 04, 2018, 01:36:30 PM »
I've got $10k sitting in a money market fund. I don't need the cash right now, nor do I need it to bulk up an emergency/contingency fund.

I know I should just invest it in VTSAX/VTIAX, but...

I am worried that a gigantic market correction is just around the corner and that I should wait until the S&P drops big-time to snatch up a deal.

I also know that this fear is completely dopey market timing idiocy. Somehow, I can't get over it. Help?

Oh, and I'm also considering using the $10k to recast my mortgage. This feels like a good "in between" option for holding the cash vs. investing it. At least I get a guaranteed 4ish% return that way and lower my monthly payment a smidgeon.

FWIW, Vanguard already auto-debits a set amount from my cash accounts each month and invests it in my portfolio. I haven't totally opted out of investing or anything. I've just got this extra $10k all of a sudden and am sitting on it.

I should just quit trying to time the market and invest it all, right? Or shouldn't I?

Fields of Gold

  • 5 O'Clock Shadow
  • *
  • Posts: 55
Re: Help me not be stupid with this $10k
« Reply #1 on: March 04, 2018, 01:59:52 PM »
How about half toward the mortgage and half toward investing.  With the $5,000 you invest, plan your allocation that meets your level of risk, possibly: $3,000 to equities and $2,000 into a CD (which is 60% equities and 40% bond).
« Last Edit: March 04, 2018, 02:07:14 PM by Fields of Gold »

El_Viajero

  • Stubble
  • **
  • Posts: 197
Re: Help me not be stupid with this $10k
« Reply #2 on: March 04, 2018, 02:06:02 PM »
How about half toward the mortgage and half toward investing.  With the $5,000 you invest, plan your allocation that meets your level of risk, possibly: $3,000 to equities and $2,000 into a CD (which is 60% equities and 40% bond).

I've thought about something like this. The recast would require the whole $10k per my lender's requirements. So I could put $5k (or whatever) toward the mortgage, but I couldn't lower the payment via a recast. I have irregular income and like the idea of lower payments more than someone who has a secure job and steady, predictable paychecks.

So if I'm going to throw more money at the mortgage, the recast seems like an advantageous way to do it.

But I will be richer if I just invest in my index funds. I've just got that fear I mentioned in the first post. The bull market has just gone on soooooooooo long.

I guess people were saying the same thing 5 years ago.

Fields of Gold

  • 5 O'Clock Shadow
  • *
  • Posts: 55
Re: Help me not be stupid with this $10k
« Reply #3 on: March 04, 2018, 02:12:08 PM »
Another possibility:

Put the whole $10K toward the recast.  Get a lower monthly payment.  Then invest the monthly savings in an index etf, like Vanguard Total Market (VTI).  The minimum purchase is only one share (currently $138 or so), whereas the mutual fund requires $3K minimum buy-in.

Fields of Gold

  • 5 O'Clock Shadow
  • *
  • Posts: 55
Re: Help me not be stupid with this $10k
« Reply #4 on: March 04, 2018, 02:20:01 PM »
I saw in the original post that you were interested in two funds.  They are both available in one etf called Vanguard Total World (VT).  It's approximately 50% US equity and 50% foreign equity (unlike a Target Date fund, VT will not glide out of equity into bonds).  The minimum buy-in for VT is only one share at around $74 currently.  VT has a little higher expense ratio at 0.19% than VTI's 0.04%.  The expense is automatically taken from the etf, so it's nothing you have to pay out of your pocket. It's only 19 cents annually per hundred dollars invested in VT vs. 4 cents per $100 for VTI.  Great deals.
« Last Edit: March 04, 2018, 02:39:09 PM by Fields of Gold »

Fields of Gold

  • 5 O'Clock Shadow
  • *
  • Posts: 55
Re: Help me not be stupid with this $10k
« Reply #5 on: March 04, 2018, 02:31:08 PM »
If you want bonds, US equity and Foreign equity all in one single fund, then check out Vanguard's Target Date mutual funds.  If you pick a target date closer to 2018, like Target Date 2025, then it will have more bonds and less drops in value during a market downturn than a Target Date 2055 fund, which will have much more equity.  Look at their glide paths into bonds when selecting one rather than just using the actual date on the fund.   The buy-in amount is fairly low, $1000 I think, and then you can contribute any amount starting from as little as $1.
« Last Edit: March 04, 2018, 02:42:35 PM by Fields of Gold »

theolympians

  • Stubble
  • **
  • Posts: 147
Re: Help me not be stupid with this $10k
« Reply #6 on: March 04, 2018, 03:16:13 PM »
What does it mean to "recast" a mortgage? I haven't heard that term before.

El_Viajero

  • Stubble
  • **
  • Posts: 197
Re: Help me not be stupid with this $10k
« Reply #7 on: March 04, 2018, 06:27:32 PM »
I saw in the original post that you were interested in two funds.  They are both available in one etf called Vanguard Total World (VT).

I'll check out that fund, thanks. I'm currently 70/30 between the US index fund and the international one. I'm comfortable with the allocation. I don't own any bonds and don't plan to for a long time.

What does it mean to "recast" a mortgage? I haven't heard that term before.

Google will direct you to a good resource, and there's a good bit of info on these forums about recasting. It's basically a way to lower your monthly mortgage payment by paying a large lump sump toward the principal for a modest fee. You don't get a new loan; you just re-amortize your existing one. It's better than refinancing in certain situations, although some will dispute its sagacity.

Mississippi Mudstache

  • Handlebar Stache
  • *****
  • Posts: 2162
  • Age: 36
  • Location: Danielsville, GA
    • A Riving Home - Ramblings of a Recusant Woodworker
Re: Help me not be stupid with this $10k
« Reply #8 on: March 05, 2018, 06:11:09 AM »
I'll start with the standard disclaimer that the best option for your $10K is to simply invest it now and be done with it. But if you're skittish, you could always sell covered put options on an ETF that fits with your AA. If the market drops, you'll collect the premium and buy into the market at a discount. The risk, of course, is that the market might not drop. You'll still collect the premium, but then you'll be stuck having to buy into the market at an even higher level, or continue to sell put options until the option is exercised.

RWD

  • Magnum Stache
  • ******
  • Posts: 3965
  • Location: Mississippi
Re: Help me not be stupid with this $10k
« Reply #9 on: March 05, 2018, 06:31:34 AM »
You're worried about an amount that is less than 10% of your net worth? This is small potatoes. Invest it according to your investment policy statement and move on. VTSAX/VTIAX sounds perfectly reasonable.

Lan Mandragoran

  • Bristles
  • ***
  • Posts: 274
Re: Help me not be stupid with this $10k
« Reply #10 on: March 05, 2018, 07:24:35 AM »
You're worried about an amount that is less than 10% of your net worth? This is small potatoes. Invest it according to your investment policy statement and move on. VTSAX/VTIAX sounds perfectly reasonable.

I agree :).  Follow the math's its by far the best guide we have.  Follow the matharoni's and you will end up better off than 99% of people in basically anything you try to do.  I do admit though, I struggle with trying not to over-optimize myself and totally get it, so far I've remained as disciplined as can be expected, however I often catch myself thinking... "I'd have so much dang money if I just paid off my house + rental, 3% loan or not" lol.

Just throw it in there, forget about it, and just keep swimming.

https://www.youtube.com/watch?v=0Hkn-LSh7es

Or go look up at the Stonecutters creedo.

"When nothing seems to help, I go and look at a stonecutter hammering away at his rock perhaps a hundred times without as much as a crack showing in it. Yet at the hundred and first blow it will split in two, and I know it was not that blow that did it, but all that had gone before."
« Last Edit: March 05, 2018, 07:30:20 AM by Lan Mandragoran »

El_Viajero

  • Stubble
  • **
  • Posts: 197
Re: Help me not be stupid with this $10k
« Reply #11 on: March 05, 2018, 07:35:59 AM »
I appreciate how you guys dug back to confirm that the $10K is less than 10% of my family's net worth. Adds a nice touch.

I know it makes the most sense to just toss it in the pot with everything else. I'm just used to investing relatively small sums gradually. I'm not used to having an "extra" $10k to consider, so it feels kinda weird.

El_Viajero

  • Stubble
  • **
  • Posts: 197
Re: Help me not be stupid with this $10k
« Reply #12 on: March 05, 2018, 08:51:17 AM »
Ok, I just did the smart thing and bought the index funds. Problem solved. Chugging along.

Mississippi Mudstache

  • Handlebar Stache
  • *****
  • Posts: 2162
  • Age: 36
  • Location: Danielsville, GA
    • A Riving Home - Ramblings of a Recusant Woodworker
Re: Help me not be stupid with this $10k
« Reply #13 on: March 05, 2018, 09:49:23 AM »
Ok, I just did the smart thing and bought the index funds. Problem solved. Chugging along.

Good for you. I had trouble pulling the trigger when I invested $11,000 in IRAs for my wife and I earlier this year. Of course, the market dropped 10% the week after. Big deal. I'll save more than that on my taxes with the money.

Mr. Boh

  • Stubble
  • **
  • Posts: 122
  • Location: The Land of Pleasant Living
Re: Help me not be stupid with this $10k
« Reply #14 on: March 05, 2018, 09:51:02 AM »
Ok, I just did the smart thing and bought the index funds. Problem solved. Chugging along.

Good choice. Just remember this is a long game.

ChpBstrd

  • Handlebar Stache
  • *****
  • Posts: 1884
Re: Help me not be stupid with this $10k
« Reply #15 on: March 05, 2018, 08:36:12 PM »
In general, one has to get a rich person's mindset before one can get rich.

For a millionaire, gaining/losing an entire $10k occurs routinely because 10k is just 1% of a million dollars. If you a a two-millionaire, your net worth will almost always vary that much in a week. A millionaire does not freak out, sell everything, and go to cash when they lose $100,000 on paper, as occurred for many millionaires in the past 30 days. As we gain wealth, we gain the stomach to handle such moves and get used to them.

Mighty-Dollar

  • Bristles
  • ***
  • Posts: 408
Re: Help me not be stupid with this $10k
« Reply #16 on: March 05, 2018, 11:19:20 PM »
I know I should just invest it in VTSAX/VTIAX, but...

I am worried that a gigantic market correction is just around the corner and that I should wait until the S&P drops big-time to snatch up a deal.
Ever heard of bonds????? That's what bonds are for....
Historical performance of 50% S&P 500 index / 50% 10-year treasuries:
http://investingadvicewatchdog.com/images-new/50-50-history.jpg
Historical performance of 28% S&P 500 index / 72% 10-year treasuries:
http://investingadvicewatchdog.com/images/28-72-year.jpg

El_Viajero

  • Stubble
  • **
  • Posts: 197
Re: Help me not be stupid with this $10k
« Reply #17 on: March 06, 2018, 07:01:58 AM »
In general, one has to get a rich person's mindset before one can get rich.

For a millionaire, gaining/losing an entire $10k occurs routinely because 10k is just 1% of a million dollars. If you a a two-millionaire, your net worth will almost always vary that much in a week. A millionaire does not freak out, sell everything, and go to cash when they lose $100,000 on paper, as occurred for many millionaires in the past 30 days. As we gain wealth, we gain the stomach to handle such moves and get used to them.

Word. I know this is true. It's why I ultimately made the smart choice. See above.

I know I should just invest it in VTSAX/VTIAX, but...

I am worried that a gigantic market correction is just around the corner and that I should wait until the S&P drops big-time to snatch up a deal.
Ever heard of bonds????? That's what bonds are for....
Historical performance of 50% S&P 500 index / 50% 10-year treasuries:
http://investingadvicewatchdog.com/images-new/50-50-history.jpg
Historical performance of 28% S&P 500 index / 72% 10-year treasuries:
http://investingadvicewatchdog.com/images/28-72-year.jpg

Bonds? What are these "bonds" of which thou speakest?

Just kidding. I know what bonds are.

I want to be aggressive, so I'm all stocks right now. Although being aggressive (and being good at it) means having the ability to stomach losses/take risks. Hence, I'm hardening up. Now my extra $10K = invested in a diverse portfolio of global companies. I feel good about it.