Author Topic: How would you allocate money in this scenario  (Read 1231 times)

eddieryan

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How would you allocate money in this scenario
« on: December 25, 2017, 07:49:20 PM »
Sitting on $400k. Age 33. 350k mortgage, house worth 500k. 120k yearly income. No holdings. No kids. Not planning on having kids. No debt besides mortgage. Plan on working until mid 50s. Obviously you max all tax deferred accounts going forward and max Roth. Do you pay down half the mortgage, drop 100k in a taxable vtsax, 25k in bonds, then dca 100k into taxable vanguard index over a few years? Do you pay off mortgage then dca the rest in a taxable acct? There are many options and no wrong answers, but curious on the board's opinions considering high valuations today. Its a great position to be in but tough to pull trigger. Been sitting on 400k too long. Risk tolerance is high.

Sarah Saverdink

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Re: How would you allocate money in this scenario
« Reply #1 on: December 25, 2017, 08:05:14 PM »
What is the interest rate on your mortgage?

Indexer

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Re: How would you allocate money in this scenario
« Reply #2 on: December 25, 2017, 09:44:36 PM »
What is the interest rate on your mortgage?

This^

We need to know the mortgage rate to give you an answer. If you come back and tell us the mortgage rate is 2.75% many people here will tell you to invest the money and just make the monthly payment on the mortgage. If the rate is 6.75% people will probably tell you to look into a refinance and/or pay off the mortgage.

Quote
Obviously you max all tax deferred accounts going forward and max Roth.

Unless the mortgage rate is obscene this is a safe assumption.

ysette9

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Re: How would you allocate money in this scenario
« Reply #3 on: December 26, 2017, 04:32:23 PM »
If I were in your position I would take all of the $400k and invest it immediately in the asset allocation laid out in my investment policy statement. For me that would be 60/40 VTSAX/VTIAX. My overall AA has some bonds but I keep those in tax-advantages accounts like a 401(k). Unless you have some crazy interest rate on your mortgage I would keep that thing for the full life of the loan.

When I have run simulations for my own situation using cFIREsim I always end up being able to retire earlier if I keep a mortgage versus paying it off early or paying for the house in cash.

eddieryan

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Re: How would you allocate money in this scenario
« Reply #4 on: December 26, 2017, 08:09:46 PM »
Ysette, thanks for your response. Interest rate on mortgage is about 3.5%. If bonds are a small part of your portfolio, are you buying mostly vtsax and vtiax in your tax advantaged space or is it a decent chunk of bonds? I understand the tax relief provided by holding conservative investments there but struggling to set a balance of how to do this. Tax loss harvesting is too complicated to me. Lets assume I commit to a 65 (us equity) 25 (international) 10 (bonds) AA. Would it make sense to build 401k and Roth with all bonds for now and then purchase vtsax and vtiax in taxable act (400k now = 260k vtsax and 140k vtiax)? There is a roth 401k option at work to consider utilizing up to the 53k max after the 18,500 is maxed in 401k going forward. I think having the roth 401 nullifies the mega backdoor roth conversion that has been discussed here. So ideally investing about 60k per year by utilizing up to 53k in 401k, roth 401k, roth ira and hsa. The taxable account will be holding the 400k and just let that ride and make adjustments along the way to keep the 65/25/10 AA in place  over time. If its possible to invest over 60k a year, funds would go in the taxable. Does that sound like a good strategy?