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Learning, Sharing, and Teaching => Investor Alley => Topic started by: tipapher on June 25, 2015, 01:52:47 PM

Title: Where should I save my money after maxing out all retirement accounts?
Post by: tipapher on June 25, 2015, 01:52:47 PM
Hi guys, My wife and I are new comers to the idea of financial freedom and early retirement but we are all in now.
We are 31 and 30 y.o., and have been maxing out both of our ROTH IRA's, and max out my 401k. We are still saving for a home ( we are both from Hawaii so home prices are crazy), but my question is where do most people invest their money for early retirement after maxing out retirement accounts? Do most people just do index funds?, or real estate investments?
I would love to know what your guy's strategy is.
Alohas, Tippy
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: MacGyverIt on June 25, 2015, 02:10:54 PM
http://www.nerdwallet.com/rates/savings-account/
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: iamlindoro on June 25, 2015, 02:24:04 PM
http://www.nerdwallet.com/rates/savings-account/


Noooooooo no no no no no no no.  No!  Why would you want a savings account's returns if the stated goal is "early retirement" and taxable accounts and (possibly) HSA are still available?

OP, to answer your question, you need to assess your own goals, risk tolerance, and investment plan (hopefully through something like an Investment Policy Statement).  The correct next answer might be max out HSAs if you have the option, or it might be a taxable account with a tax-efficient investment (like a US total market fund) or real estate-- but that's up to your ability to handle risk, your interest in investing the work in real estate, and all the intangible factors that go into making a decision like that.

A fairly safe decision is to start investing in your taxable account if you're not 110% certain you want to get into real estate and all the possible complications that come with that. 

As you're in HI, if I were you and wanted to invest in Real Estate, I'd be investing out of area.  If you would want acceptable RE returns, you might need to consider that, and really be sure of the answer before you sink large amounts of cash into it.  For me, it's a resounding yes-- but it's not for everyone.

My own answer to this question is to max out 401k, then the HSA, then Taxable, with a certain amount of the remaining cash each year going towards downpayments on rental properties.  I'm growing a source of monthly cash flow with the real estate while my 401k and Taxable accounts increase.  Eventually, my safe withdrawal rate from the investments and the cash flow will combine and easily cover my annual expenses, and I'll RE.
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: GGNoob on June 25, 2015, 02:35:01 PM
Stock index funds are going to be some of the most tax efficient ways to invest in a taxable account as you'll want your bonds (if any) in your tax advantaged accounts. A (joint) brokerage account at Vanguard will work for this. I wouldn't do real estate myself as I would just prefer to invest in REITs.
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: Jeremy E. on June 25, 2015, 02:57:29 PM
A good post to read if you are looking for where to put your "house fund"
http://www.mrmoneymustache.com/2011/06/07/where-should-i-invest-my-short-term-stash/
For long term investments I would recommend a Vanguard account and investing in VTSAX. Good Luck!
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: Faraday on June 25, 2015, 03:12:52 PM
Hi guys, My wife and I are new comers to the idea of financial freedom and early retirement but we are all in now.
We are 31 and 30 y.o., and have been maxing out both of our ROTH IRA's, and max out my 401k. We are still saving for a home ( we are both from Hawaii so home prices are crazy), but my question is where do most people invest their money for early retirement after maxing out retirement accounts? Do most people just do index funds?, or real estate investments?
I would love to know what your guy's strategy is.
Alohas, Tippy

http://www.bogleheads.org/forum/viewtopic.php?f=1&t=6211
This will give you some general guidelines because the specific answer is somewhat individualized.
In my case, yes, I do index funds. I used to try to buy individual stocks and kept getting burned.
VFIFX is one of my faves. Good yields, low expense ratio.

iamlindoro, GGNoob, good answers. I was about to go off on a rant - this is the OP's FIRST POSTING EVER, with all that's been written on this on the forums and other linked forums?

I believe the posting about the savings accounts was sarcasm. A nice way to say "Lift a finger and read..." I'm sure after you've got a few years into the forums here, you see that kind of question all the time from people who are too lazy to read and will ignore any answers to their posting. Indeed, I'm looking to see if the OP engages the thread in conversation....

I myself have asked other mustachians for advice and have gotten useful, specific answers. So I felt an obligation to provide a specific answer too, lest I be hypocritical.
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: thedayisbrave on June 25, 2015, 05:00:13 PM
http://www.nerdwallet.com/rates/savings-account/


Noooooooo no no no no no no no.  No!  Why would you want a savings account's returns if the stated goal is "early retirement" and taxable accounts and (possibly) HSA are still available?

OP, to answer your question, you need to assess your own goals, risk tolerance, and investment plan (hopefully through something like an Investment Policy Statement).  The correct next answer might be max out HSAs if you have the option, or it might be a taxable account with a tax-efficient investment (like a US total market fund) or real estate-- but that's up to your ability to handle risk, your interest in investing the work in real estate, and all the intangible factors that go into making a decision like that.

A fairly safe decision is to start investing in your taxable account if you're not 110% certain you want to get into real estate and all the possible complications that come with that. 

As you're in HI, if I were you and wanted to invest in Real Estate, I'd be investing out of area.  If you would want acceptable RE returns, you might need to consider that, and really be sure of the answer before you sink large amounts of cash into it.  For me, it's a resounding yes-- but it's not for everyone.

My own answer to this question is to max out 401k, then the HSA, then Taxable, with a certain amount of the remaining cash each year going towards downpayments on rental properties.  I'm growing a source of monthly cash flow with the real estate while my 401k and Taxable accounts increase.  Eventually, my safe withdrawal rate from the investments and the cash flow will combine and easily cover my annual expenses, and I'll RE.

+1
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: milesdividendmd on June 25, 2015, 05:17:35 PM
It depends on your particulars, but my specific order goes something like this.

1 Max out workplace retirement accounts.
2. Max out HSA funds and invest in low cost index funds.  (pay for all health care costs out of pocket.)
3. max out back door roth for me and my wife.
4. Max out 529 to state tax break max.
5. taxable investment account with betterment with tax loss harvesting.
6. Pay down some of my med school debt, (interest rate 3%.)
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: forummm on June 27, 2015, 06:33:54 PM
I think a closed end fund that pays a high amount of qualified dividends would be the ticket.

Dividend funds are more risky (less diversified) that broad market index funds.
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: forummm on June 27, 2015, 07:27:27 PM
Quote
Dividend funds are more risky (less diversified) that broad market index funds

Depends on the fund, keep in mind there are all sorts of funds the seek to replicate market returns with an option writing overlay, which is a risk reducing strategy some more defensive than others, consider PDT, although a preferred stock CEF, it has a .25 beta and -21% performance in 2008 vs nearly -37% for SPY. Option income funds crush the market in everything but a raging bull market. SPXX was down 25% vs 37% for SPY in 2008. DIAX was down 25% vs 32% for DIA in 2008. All of those are throwing off more than 7%.

http://www.cefconnect.com/Details/Summary.aspx?Ticker=PDT
http://www.cefconnect.com/Details/Summary.aspx?Ticker=DIAX
http://www.cefconnect.com/Details/Summary.aspx?Ticker=SPXX

Put option writing *increases* risk. Call option writing trades away potential returns in exchange for some income. Neither is a free lunch. Both involve higher fees and higher trading costs.
Title: Re: Where should I save my money after maxing out all retirement accounts?
Post by: Tjat on June 29, 2015, 07:00:58 PM
Why would you invest in a dividend fund in a taxable account? Visas and vtiax all the way.