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Good money problem: where to fund now?

402 43 December 20, 2019 at 04:02 PM
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I'm in my mid 30s now. And working on our nest egg. I think I'm funding everything correctly but just wanted to make sure. We make the average household income for the us.

So we don't have any debts aside from $8k balance on a new car with a 3% rate. We don't own a home. No children at the moment but I don't like the 529 idea. Times are changing, while college would be wonderful it might not be the future.

Order of savings currently.
0) have 6 month emergency cash sitting at bank earning a little over 1.5%
1) 5% with 4% match in 401k
2) Roth fully funded
3) fully funded HSA


At this point I wanted to have a little fun and learn so I just opened a Robinhood account. I'm doing 100$ a week on dividend stocks trying to do some passive income.

Is there anything out there that we should invest in? I'm working on reducing monthly cost and spendings, this is pretty hard. But we cut the cord. So that's a start. In a perfect world, maybe using the Robinhood funds to either cover a down payment on a home or cover cost of living.

Last time I asked people, they taught me the wonders of a HSA. I figure I asked again.

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#2
I think reading up on 529's would be a good idea. They're a great vehicle with a lot of flexibility.
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#3
Here are a couple of thoughts for you to consider.

Pay down the car loan and start saving up cash to pay for your next car. I prefer to pay for cars in cash for two reasons. It forces me to buy a car I can actually afford and then I have the freedom of not making monthly payments. Obviously at 3% interest its not that big of a deal. You could use your cash reserve to pay off the car and then begin making those monthly payments to yourself if you find that option appealing.

If you currently use the HSA to cover health expenses you could put cash aside to pay those bills and just use the HSA as a retirement fund. Be sure to keep track of eligible expenses as you can pull that money out of the HSA in the future as needed.

If you are committed to owning a house in the near future you should be careful about having that money invested in the stock market. While the stock market is historically a good investment you have to consider the possibility that your portfolio could be down 50% when you decide its time to buy a house and then you might not have enough for a down payment. If you are flexible on home ownership then you can be more aggressive in your investments.

You should consider investing in growth companies rather than dividend companies at this point in your life. Strong companies that you can hold for 5-10 years that might double or triple in value. Once you have a huge nest egg and a desire to have a more conservative portfolio it might be good to switch to dividend stocks. It really depends on how you plan to use this money and how much risk you want to take on. Just run the numbers and consider both options.

Not sure what part of the country you live in but if you can purchase a multi family home and live in it for a time that is something to consider. You will get the best possible interest rate and have to put less money down compared to buying it solely as an investment property. You could always hire a property manager if being a landlord is not your dream.
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#4
Quote from Rob_799
:
Here are a couple of thoughts for you to consider.

Pay down the car loan and start saving up cash to pay for your next car. I prefer to pay for cars in cash for two reasons. It forces me to buy a car I can actually afford and then I have the freedom of not making monthly payments. Obviously at 3% interest its not that big of a deal. You could use your cash reserve to pay off the car and then begin making those monthly payments to yourself if you find that option appealing.

If you currently use the HSA to cover health expenses you could put cash aside to pay those bills and just use the HSA as a retirement fund. Be sure to keep track of eligible expenses as you can pull that money out of the HSA in the future as needed.

If you are committed to owning a house in the near future you should be careful about having that money invested in the stock market. While the stock market is historically a good investment you have to consider the possibility that your portfolio could be down 50% when you decide its time to buy a house and then you might not have enough for a down payment. If you are flexible on home ownership then you can be more aggressive in your investments.

You should consider investing in growth companies rather than dividend companies at this point in your life. Strong companies that you can hold for 5-10 years that might double or triple in value. Once you have a huge nest egg and a desire to have a more conservative portfolio it might be good to switch to dividend stocks. It really depends on how you plan to use this money and how much risk you want to take on. Just run the numbers and consider both options.

Not sure what part of the country you live in but if you can purchase a multi family home and live in it for a time that is something to consider. You will get the best possible interest rate and have to put less money down compared to buying it solely as an investment property. You could always hire a property manager if being a landlord is not your dream.
The car thing, I see your point but at the same time, this one is the wife's car. I'm a cash buyer as well. So this one I rather let time run its course. I did the numbers when we took out the loan. We are not saving much paying it off early.

Currently, my HSA is exactly what you suggested, its a retirement account. Maybe have the SP500 index funds.

In the home buying part, we are not 100% committed. We like the thought of "planting roots down" but our current rent situation also works. The multi-unit home is actually something I really want. 3-5 units and live in one would be super ideal.


Dividend vs Growth companies. I'm really sold on the dividend idea, in most cases its pullback/recession-proof. You have stocks that never lowered or stopped their dividends in the last 40 years. I can somewhat lock in X amount yearly. Granted i've just started this in robinhood.

But Growth stocks that can double, triple makes sense as well. Maybe i'll do a little of both.
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#5
lucky you don't hit the MAGI limits for roth.
save yourself trouble and just buy a dividin index fund or total stock index fund, dont worry about pullback or recesssions, keep funding it, you are in your 30s, start divesting in another 30 years
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#6
Start investing in a whole market fund while you're learning the ropes of investing, like VOO. If you track the sp500, you'll be good. Even after you learn the ropes, this is a good move to make. Downside is your can't predict how much money you'll have at a given time like you can with a CD or bank account. Upside is that the returns are way better in the long run. Downside is that your money won't triple in a few months like it may with a hot stock. Upside is that it likely won't collapse over a long time scale. Regular investing in a market fund is the easiest way to get rich in the long run.
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I would do the following in order.

1. pay car loan off and become debt free. Investing while you are in debt does not make sense.
2. put as much into 401k as possible (5% is not enough) and invest in all stock index fund.
3. start 529 under your own name with financial vehicles such as vanguard so you have total control of the funds you invest in. I contribute $300 a month but you may need to do this based on how much you have left after 401k contribution.
4. save money to buy a house/apartment/condo.

I am not sure why you are against 529 while you fully fund your HSA. To me both are useful and 529 can be used by you, your family, your secondary family members for higher education expenses. It doesn't compute for me when the next generation the only job opportunity is something that needs lots of principled education. Few will be labor or service oriented because those jobs will be done by robots. Or maybe you are thinking your kids will be in the entertainment field?
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Last edited by teetee1 December 25, 2019 at 04:34 PM.
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#8
Agree with most of the above comments. Pay off the debt, max out 401k, save for home/investment property.
If you don't have children then there's no need to currently invest in a 529. Cross that bridge when you get there; 18 years is plenty of time to save for college.
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Quote from teetee1
:
I would do the following in order.

1. pay car loan off and become debt free. Investing while you are in debt does not make sense.
2. put as much into 401k as possible (5% is not enough) and invest in all stock index fund.
3. start 529 under your own name with financial vehicles such as vanguard so you have total control of the funds you invest in. I contribute $300 a month but you may need to do this based on how much you have left after 401k contribution.
4. save money to buy a house/apartment/condo.

I am not sure why you are against 529 while you fully fund your HSA. To me both are useful and 529 can be used by you, your family, your secondary family members for higher education expenses. It doesn't compute for me when the next generation the only job opportunity is something that needs lots of principled education. Few will be labor or service oriented because those jobs will be done by robots. Or maybe you are thinking your kids will be in the entertainment field?
1. Debt isn't the end of the world. He's at 3%. If he invests and can get more than that, then its even better. Recently, the stock funds have been way over that, but of course, there's additional risk he doesn't make 3%.
Another option is if you have excellent credit, sign up for a 0% balance transfer card with no BT fees. Use that to pay off your car. There's two cards that have long 0%, AMEX and a BofA card, 15-18 months. If you have a high money market 1.75% bank account, you save 3% and in addition, make 1.75%. After the time period is over, transfer to another CC with 0%. Of course, banks could always get rid of these offers. Already the available 0% BT cars with 0 fees is quite limited.

2. Does your work offer a Roth 401(k)? And what tax bracket are you in? If company offers Roth 401(k), max it out if you don't need traditional 401(k) for tax deductions. (I would look at the difference in your effective tax rate if you do traditional 401k vs not doing it... if the savings are low for tax deduction, and believe that tax rates when you retire are going to be higher, Roth wins hands down. Also, Roth can be passed down in case you don't need the money when you retire).

3. What area do you live in? That will determine if its worth buying or renting. There are bunch of rent vs. buy calculators, but you can run your own numbers.
Definitely start building cash reserves for a down payment (whether its for your home or a multifamily).
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Quote from dpid
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1. Debt isn't the end of the world. He's at 3%. If he invests and can get more than that, then its even better. Recently, the stock funds have been way over that, but of course, there's additional risk he doesn't make 3%.
Another option is if you have excellent credit, sign up for a 0% balance transfer card with no BT fees. Use that to pay off your car. There's two cards that have long 0%, AMEX and a BofA card, 15-18 months. If you have a high money market 1.75% bank account, you save 3% and in addition, make 1.75%. After the time period is over, transfer to another CC with 0%. Of course, banks could always get rid of these offers. Already the available 0% BT cars with 0 fees is quite limited. .
This is the exact mentality that causes people to file bankruptcy by excluding risks out of the equation and thinking they can get away by shifting their debt from card to card. Both are dumb moves by handing your finance well-being over to banks/lenders.
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Last edited by teetee1 December 30, 2019 at 07:14 PM.
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Quote from dpid
:
1. Debt isn't the end of the world. He's at 3%. If he invests and can get more than that, then its even better. Recently, the stock funds have been way over that, but of course, there's additional risk he doesn't make 3%.
Another option is if you have excellent credit, sign up for a 0% balance transfer card with no BT fees. Use that to pay off your car. There's two cards that have long 0%, AMEX and a BofA card, 15-18 months. If you have a high money market 1.75% bank account, you save 3% and in addition, make 1.75%. After the time period is over, transfer to another CC with 0%. Of course, banks could always get rid of these offers. Already the available 0% BT cars with 0 fees is quite limited.

2. Does your work offer a Roth 401(k)? And what tax bracket are you in? If company offers Roth 401(k), max it out if you don't need traditional 401(k) for tax deductions. (I would look at the difference in your effective tax rate if you do traditional 401k vs not doing it... if the savings are low for tax deduction, and believe that tax rates when you retire are going to be higher, Roth wins hands down. Also, Roth can be passed down in case you don't need the money when you retire).

3. What area do you live in? That will determine if its worth buying or renting. There are bunch of rent vs. buy calculators, but you can run your own numbers.
Definitely start building cash reserves for a down payment (whether its for your home or a multifamily).
I would like to add on #3. Although buying houses/condos/apartments is a good investment you also need free time for that. When I worked for my current employer he bought some properties and the times I would be near him I would see him on the phone with the rental agency that he needs to buy a new fridge etc, since hes not their it cost a bit more because the rental agencies really don't care since they arent putting from their own money (they get their cut when getting the rent etc). My old man not having a good overall retirement invested in real estate, but hes retired so he has time to maintain his properties and fix little things he can. If you don't have the time and much knowledge of fixing the basics I would not get into the real estate business. It does depend on the area if rent is in demand or not honestly. It can be time consuming is what I am getting into when it comes to renting.
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Quote from bowlofturtle
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Dividend vs Growth companies. I'm really sold on the dividend idea, in most cases its pullback/recession-proof. You have stocks that never lowered or stopped their dividends in the last 40 years. I can somewhat lock in X amount yearly. Granted i've just started this in robinhood.

But Growth stocks that can double, triple makes sense as well. Maybe i'll do a little of both.
I am new to stocks and need some guidance. Which is the best website/forum to research the dividend stocks and see the diividend yield for last 10 years or so. I have a Robinhood account
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#13
There is no reason to be getting 1.5% on your savings, there are CDs and savings accounts with 5% and 3.3% APY respectively, even a Money Market account with 2% is better than 1.5%. Visit Doctor of Credit site.
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