What to do with a bunch of cash savings and bond investments

[El Gringo]

I have a couple pots of money that I want to be more aggressive with, but am also currently hesitant to do so in the current market. I know I can't time it right or recognize the top and the bottom, but still struggle with pulling the trigger. Would like to hear people's thoughts.

My wife (32) and I (32) got married two years ago and for this entire time, I've been holding on to cash because I've felt fairly vulnerable financially. We live in HCOL Washington, DC and she was in school full-time for a career switch, and I was getting a part-time MBA while working at a non-profit, earning $63k/year. Shortly after she graduated, her mom went into hospice for nine months and then passed away earlier this year. When her mom went into hospice, she put off moving into her new career to focus on her mom. We inherited a chunk of money from her mom after she passed away. We immediately paid off her school loans but the rest has been sitting in cash. I had been paying for my tuition with savings until towards the end of my degree, when I felt more comfortable taking out some loans and holding on to the cash I had, while we remained a one-income family (after her mom passed away, she's spent about 9 months just trying to grieve and recover from a few incredibly hard years in which both of her parents passed away while she was in school). She's about to start a new job in January and I really want to get more aggressive than keeping the money in cash.

We have about $70,000 total in cash, and I have about $16,000 in student loans at 6.6% interest. For now I'm moving most of the cash to a high-yield money market account that's earning 2%. Ideally, I'd like to keep $15-18,000 in cash for an emergency fund, and have the rest of the money invested in something like an S&P 500 fund. I don't have any immediate goal with the money, though it'd be nice to eventually be able to buy a house (we are renters). I've also just begun talking with my sister and her husband about co-purchasing a house in Philadelphia (where they live) as a rental property. The earliest that would be is next year.

Should I pay off all my school loans? Should I refinance to private loans that have a lower interest rate and try to invest that extra cash in something that earns more? My dilemma is that I'm hesitant to put the extra cash into the market now. I know it's a guessing game, but between how long the bull market has been going, and ongoing trade tensions, I haven't had much confidence in the market in the short/medium-term (and yet it would have been great to have been in the market the past year or three years!). So I want to have this cash in the market, but struggle with the worry that I'm getting in at the top and it's gonna drop shortly after I'm in.

The second issue is that a while ago, I learned that in her old job, her TSP retirement account was set at 75% government securities. So in that account she's got $16,707 allocated to government securities. I've been wanting to switch it over, but again, I've been hesitant. Meanwhile, we've missed out on huge run-ups over the past several years. Should I just bite the bullet and switch it over, since it's still has a long-horizon anyway?

Curious to hear people's thoughts.

[harvestbook]

I'd immediately pay off the student loans--that's a 6.6 percent return instead of 2 percent.

How can you refinance and "try to invest that extra cash in something that earns more" when you can't even invest what you already have? The math is clear--immediate lump sum is the best bet. But emotions matter, so we do what we can. Waiting might seem safe but it's probably the riskiest choice. Maybe go in with half of it split between stocks and bonds while you figure out the rest.

https://thereformedbroker.com/2019/09/20/how-to-invest-a-lump-sum/

[PDXTabs]

We have about $70,000 total in cash, and I have about $16,000 in student loans at 6.6% interest. For now I'm moving most of the cash to a high-yield money market account that's earning 2%. Ideally, I'd like to keep $15-18,000 in cash for an emergency fund, and have the rest of the money invested in something like an S&P 500 fund.

I would pay off the loans, keep enough emergency fund to make you happy, and invest the difference.

[MustacheAndaHalf]

If something horrible happens that drains your assets quickly, the school loans are the one thing you can't get rid of in bankruptcy.  So in terms of risk and worry, paying those off is a good move.  Since the money normally earns 2%, while student loans grow 6.6%, you essentially turn your savings into money that earns 6.6%.  You cancel the interest payments by paying off the balance of the student loan.

Would you miss $800/month?  If you put $800/month into mutual funds or ETFs, that would be around 1% of your net worth.  Starting sounds like a big obstacle for you, so make it into a small obstacle - start with money you consider a very small amount.

[Buffaloski Boris]

Thoughts if I woke up in your shoes:

-As fellow MMMers have pointed out, paying off the student loan is about as close to a no-brainer as you’re going to find. I’d think of it this way: is there another zero risk investment out there that’s paying 6.6%? If there one, please let me know.

-As for risk assets, that’s very much a matter of personal taste. There are a lot of folks in the MMM community who are of the “put all or almost all of your investable assets in stock index funds!” I’m not of that mindset. I think the US stock market is overpriced historically and as compared to other world markets. Does that mean it won’t go up? Not necessarily. None of us have a working crystal ball.

- Being in cash is a perfectly fine place to be based on risk tolerance, available opportunities, and the particulars of someone’s personal situation. But low risk over time usually comes at the expense of crappy returns.

-32 is pretty darn young and that typically means lots of time to grow a nest egg and recover from any mistakes.

-Ray Dallio is a much richer guy than me, and his advice in a nutshell is to diversify within and among asset classes.

-when talking about “the stock market” we usually mean the US stock market. There is a whole bunch of stocks outside the US. In my opinion right now they’re generally a better deal.

-DWs TSP was mentioned. That’s hers. Any changes should be with her full understanding and concurrence.

[BECABECA]

You’ve got to just bite the bullet and get into the stock market. This is from another post, but it’s applicable to you:

The market spends much of its time at an all time high (that's what happens to something that usually goes up). See https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/. Short version: as long as you buy and hold, even if you ONLY invested at the very peak, you'd still do pretty well.

So as others have recommended: pay off your student loan, keep a reasonable emergency fund in cash but then funnel the rest into index funds. S&P500 or total stock market index are good choices. And make investing in index funds an automatic monthly thing so you’re not again in a situation where you’ve amassed a bunch of cash that you’re trying to time the market on. Steady monthly dollar cost averaging from here on out and you’ll be much happier.