Author Topic: What to do with extra cash?  (Read 3180 times)

junior

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What to do with extra cash?
« on: September 04, 2013, 03:18:19 PM »
My wife and I have saved about $80,000 in cash over the last few years. That is after investing (maxing out) our 401k and dabbling in an E-Trade account. This cash though is just in our hometown bank savings account earninig next to nothing. We still have a mortgage so we would love to pay it off soon and this would go a long way to get us there (about half of our current mortageg balance). What would you other Mustachians do?

Frankies Girl

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Re: What to do with extra cash?
« Reply #1 on: September 04, 2013, 03:42:07 PM »
Several options:

1) Invest the majority in index funds. Taxable account (Vanguard highly recommended here) and look either here:
http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

or here:
http://jlcollinsnh.com/2011/06/14/what-we-own-and-why-we-own-it/

I'd hold back some in a savings account just to have handy, but the bulk of it would do well in index funds.

2) Real estate. I personally don't feel the least bit interested in managing rental property, but it is a very profitable an safe path to increase your investment if you do it right. You'll have to look around a bit here to get the idea (check the real estate section).

I am currently debating paying off my mortgage too, so I guess to know if that might be a good move for you vs. investing, you'd have to weigh the interest rate and amount against the amount of money you could earn in the stock market. Sometimes there is no clear answer on that question tho.

sol

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Re: What to do with extra cash?
« Reply #2 on: September 04, 2013, 04:40:14 PM »
I'd start dollar cost averaging into a global market index fund inside of a taxable investment account at a rate that will deplete your accumulated savings over whatever period of time you're comfortable spreading it out.  For $80k, I'd probably do at least a year.

A secondary consideration: if you have kids who will be applying to college in the near future, large liquid assets probably disqualify you for need-based financial aid.  In that case, there's some additional incentive to use  it to pay down your mortgage or buy an investment property.

Undecided

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Re: What to do with extra cash?
« Reply #3 on: September 04, 2013, 05:41:03 PM »
When someone asks this on the other forum in which I participate, the answer is always "Hookers and blow."

I'm not sure how that group is doing, financially.

beltim

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Re: What to do with extra cash?
« Reply #4 on: September 04, 2013, 07:46:40 PM »
When someone asks this on the other forum in which I participate, the answer is always "Hookers and blow."

I'm not sure how that group is doing, financially.

It's not news, it's fark?

fiveoclockshadow

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Re: What to do with extra cash?
« Reply #5 on: September 05, 2013, 08:54:20 AM »

1) Emergency fund - figure out how big this needs to be and set aside (savings account, CDs or the like, you won't get much interest but the goal here is return OF money, not return ON money).

2) Mortgage - this depends on your rate, if it is low you may decide to not pay down your mortgage early and instead invest elsewhere (see below).  If it is high or variable you may want to pay down early.  Also determine if you are actually getting any interest deduction (do you do standard deduction or schedule A, and if schedule A how much of your interest is above the standard deduction) when comparing to other options.  Finally, for some there is an emotional benefit in no mortgage so consider how you feel about it even if in theory you might get better long term return elsewhere.

3) International Fund (VXUS or equivalent ETF) - Taxable accounts are the best place for your international stock allocation.  So in your taxable space get your international (some sort of ex-US fund) and in your 401k and IRA do the rest.  Depending on how much you allocate to international you might have it both in your taxable and 401k/IRA, but the idea is fill up taxable with international first as it is the most tax efficient.