I've got $35,000 cash - what should I do with it.

[videoschoolonline]

Hi all,

I'm a newbie here, but I think I've finally found my home. I've always been passionate about money-making and money-saving. I grew up in a household riddled with debt, and have promised myself to be smarter.

My situation:
- 24 years old with a $50k/year job + another ~$25k in freelance income on the side
- I don't have any debt, thanks to paying off $23k in student loans over the past couple of years
- I live in Berkeley, CA - unfortunately super expensive part of the country and have a 'good' deal paying $800/month for shared apartment room
- I own a small hyundai accent that I paid cash for, but I bike to work every day and try to bike around to do errands as well
- My girlfriend of 5 years (whom I'd like to get married to in the next two years) is doing a Master's program at UC Berkeley and thanks to saving up for a few years before attending school, she might not have to take any loans out. She'll graduate in May of 2015
- I've maxed out my Roth IRA for the past two years ($11,000)
- I recently enrolled in my work's 401K program and will be contributing the maximum amount this year
- I have another $7,000 invested in mutual funds in an Etrade account

THE QUESTION: I have $35,000 cash in my bank account and want advice as to what I should do with it. I'm assuming some has to stay for emergencies. And I'm also planning a trip to Europe this summer to reward my girlfriend and I for a long year of working hard and being frugal. And lastly, we're planning to get married in the next couple years so that includes an engagement ring, wedding, and possibly a house in the next few years. So I also have a lot of things that I need to save up for. But I'm still saving $2-$3k per month and would like to invest that money and some of the cash I have saved up.

Any advice would be great! Specifically, if the answer is to invest in index funds, what type of account do I need for that? Can I use my Etrade account? Or open up a Fidelity account (which I use for my roth IRA and 401k)?

THANK YOU in advance!

[MDM]

First of all, keep up the good work.  Your are doing great for your age.

Good to see that you are doing the max on 401k plus Roth IRA. 

With any luck, your salary will increase over the next few years.  Learn to live on what you are making now, and invest all those increases.

A nice engagement ring is...nice, but don't think you need to spend as much as deBeers wants you to spend.  Of course, you don't want to insult your girlfriend by using an old soda can pop top (unless you know for sure that she would consider that odd enough to be romantic).  Wander through jewelry stores with her and see what she likes.

You will remember the close friends at your wedding, not any frills you may be tempted to spend on.

You may get differing advice, but I wouldn't worry about saving for a house down payment yet.  Renting while you are early in your career isn't all that bad.  In particular, it makes it easier to move if you or your spouse finds a much better job elsewhere.

To your specific question, you have a lot of flexibility.  If you google   etrade index funds   you will see not only links to Etrade but to Fidelity, Vanguard, etc.  If you want a specific Fidelity fund you should use Fidelity.  At least check Vanguard for a fee comparison.

[videoschoolonline]

Thanks MDM for the response.

So to invest in index funds like MMM says - like VTSMX - I need to have a vanguard account to do so? Or can I invest in that fund through my other accounts.


Sorry for the newb questions!

[MDM]

See, for example, http://www.bogleheads.org/forum/viewtopic.php?t=76385.

You can buy Vanguard funds from outside Vanguard, or Fidelity from outside Fidelity, etc.  But usually it costs less to buy from within. 

If you are happy with Fidelity and can get similar expense ratios for Fidelity's VTSMX analogue then you could stay with Fidelity.  Or you could try Vanguard just to see if they give you better or worse service than Fidelity.  Or flip a coin...and decide if you like the coin flip result.

You really do have the bulk of the important choices (e.g. max pre-tax) correctly in place.  Good to see that you care about details, too - but the "mistake" of buying VTSMX via ETrade would likely still be better than leaving the $35K in a checking account, so do a little homework and then trust your judgment.  Based on performance to date you'll do fine.

[Vjklander]

I'd open a cash brokerage account and put ~7K each in CHD, POM, VZ, LNCO, and COP.

[NewStachian]

1 night blowout in Vegas.

Whhaattt? who said that?

A lot of good advice here. I struggle with buying large chunks of stock at a time since it ties you more heavily to how the market is doing at that particular instance in time. But, you will occasionally find yourself in these positions and it's better to get your money into the market, even though it may or may not be a little over-inflated. The goal is to get the process in place and stick to it over time (and do not, i repeat, do not sell if the market crashes).

That being said, I have my monthly allotments going to a mix of about 75% domestic stock and 25% international. Of the domestic, I have a 40/20/20 large/mid/small allocation. I do no load, low fee mutual funds, but most Mustachians will probably recommend stock ETFs which is probably better. I am thinking about transferring over, but I don't want to take the capital gains hit right now.

[fixer-upper]

Send it to me.  I'm a Nigerian prince who is in need of a small amount of funds to access my inheritance of hundreds of millions of dollars.  In return for your short term loan, I will guarantee payment of $3.5 million dollars.  :-)

[/sarc]

[soccerluvof4]

I'd open a cash brokerage account and put ~7K each in CHD, POM, VZ, LNCO, and COP.

I too would go with a 5 stock selection though if you asked 100 different people they would probably pick 5 different stocks. So I am with VJK on this but I wont make my recommendations but suggest being diversified. I also with the market being lofty would give it 30 days. Buy half or a quarter now and ave in over the next month or two BUT that again is just because I feel the market is overvalued. But as people would say thats trying to pick the top. For me I can live with that for 30-60 days.

[Eric]

I'd open a cash brokerage account and put ~7K each in CHD, POM, VZ, LNCO, and COP.

I too would go with a 5 stock selection though if you asked 100 different people they would probably pick 5 different stocks. So I am with VJK on this but I wont make my recommendations but suggest being diversified. I also with the market being lofty would give it 30 days. Buy half or a quarter now and ave in over the next month or two BUT that again is just because I feel the market is overvalued. But as people would say thats trying to pick the top. For me I can live with that for 30-60 days.

A selection of (any) 5 stocks and diversification are mutually exclusive.

[alphalemming]

Nice to see someone else in the Bay Area.  Not sure what kind of research tools E-Trade has, but you could always look to Charles Schwab.  They offer tons of research and investment options as well as services for 529's, and their own stock rating system.

To expand on Dave Ramsey's concept of envelopes, you could put $x into a date-appropriate CD fund to ensure the funds are protected while earning a little bit of interest.

[RaymondG]

I'd open a cash brokerage account and put ~7K each in CHD, POM, VZ, LNCO, and COP.

I too would go with a 5 stock selection though if you asked 100 different people they would probably pick 5 different stocks. So I am with VJK on this but I wont make my recommendations but suggest being diversified. I also with the market being lofty would give it 30 days. Buy half or a quarter now and ave in over the next month or two BUT that again is just because I feel the market is overvalued. But as people would say thats trying to pick the top. For me I can live with that for 30-60 days.

A selection of (any) 5 stocks and diversification are mutually exclusive.

That's what I am doing but using ETF funds to make it easier and more diversified. such as SPY, QQQ, EEM, VGK, TLT, GLD, GCC.

[Vjklander]

I'd open a cash brokerage account and put ~7K each in CHD, POM, VZ, LNCO, and COP.

I too would go with a 5 stock selection though if you asked 100 different people they would probably pick 5 different stocks. So I am with VJK on this but I wont make my recommendations but suggest being diversified. I also with the market being lofty would give it 30 days. Buy half or a quarter now and ave in over the next month or two BUT that again is just because I feel the market is overvalued. But as people would say thats trying to pick the top. For me I can live with that for 30-60 days.

A selection of (any) 5 stocks and diversification are mutually exclusive.

explain

[warfreak2]

5 stocks is not diversification. 500+ stocks, and some other things that aren't stocks, is diversification. Fortunately, you can buy index funds that do all of the work for you.