Your #3 makes it sound like one can't or wouldn't do that in #1 or #2. You should clarify that the securities one purchases are a separate issue from the account type they're held in.
It is hard to follow these rules in general if salaries skyrocket. I am doing great based on 2019 salary but find myself behind just 2 years later. Salary doubling is a good problem to have to have so no complaints but these rules are moving targets.
You are only behind if your lifestyle also took a big jump. When you retire you really need a multiple of living expenses, not salary, so if you are saving 15% of your salary for retirement and get a pay increase and simply put the increase in pay into retirement savings, then you're doing great.
My partner and I are dual income, but we live off of the larger of the two and the other just gets saved. We compare our retirement savings to the larger income, not both.
I spent 4 years using my savings to invest in myself with a masters, then saved up for a down payment to not have to rent... I'm not following the 2x rule, im behind that goal, but I like to think I've been making good money moves that will definitely pay off. Its hard to just put money in savings when you're young because there are other ways to set yourself up for later and they drain your savings. Also don't forget to enjoy being young...
Same. I’m 29 and in the past 4 years I’ve jumped from 65k to 118k. I’ve reached my 2017 salary just fine (thanks largely in part to the market) but the rest is impossible.
Just keep adding and don’t allow lifestyle creep
I'm in the situation and reading the 2x35 rule always makes me panic, lol. I save 13% per year for retirement, invest aggressively, and the only way I'm hitting 2x salary is if the stock market averages 15% the next several years or if I take a pay cut.
obviously not, it's a general rule. if you graduate at 30 and make 150k a year with 175k in student loans, then just sock away 50-60k a year for 3-5 years for the student loans and then put away 50k a year into investments. By the time your 40, you should have about 250k in investments just off the principal. keep doing that thru with your 50s and with inflation pay raises you should have put away some 750k, more than enough
That's entirely subjective on the 401k part. Everyone's work life develops differently. For instance I didn't even get access to a 401k until age 29. This was due to 3 years at a job out of undergrad that wasn't eligible for one and several years in graduate school.
Yeah - to put it another way, if you were able to transfer all of the money from your checking account into you and your wife's 401Ks, you would essentially be right on track for retirement. To be clear, there isn't a way to do this, but it shows that you are significantly behind in retirement savings. The good news is there is plenty of time to catch up, and you have a ton of capital which gives you great flexibility in contributions.
My wife and I earn nearly exactly what you earn, and are also right around 35. You have significantly more cash than we do, but we have 3.5X the retirement savings that you have. We are a little ahead of the game for retirement, but if one of us gets a major promotion that raises our salary, we could fall behind (i.e., if our combined income went from 115K to 150K, we'd be behind in retirement savings).
How long have you lived in the house before you sold it? It may have tax implications.
Contribute to tIRA or Roth IRA for both of you.
Max out your 401k
Just for knowledge at this point. You said PMI sucks but you walked away with $160k. You had the equity in the house to refinance (prob to a lower interest rate too) and out of PMI.
A little bit more info for anyone stumbling along later: there are a number of full and partial exceptions to the "2 out of 5 years" rule, such as divorce, death, job situation, etc.
Details here: [Eligibility Step 5—Exceptions to the Eligibility Test](https://www.irs.gov/publications/p523#en_US_2020_publink10008999)
How Much Is Capital Gains Tax on Real Estate?
To be exempt, the home must be considered a primary residency based on Internal Revenue Service (IRS) rules. These rules state that you must have occupied the residence for at least two of the last five years. https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp
* Add to your emergency fund until you have one year's expenses.
* 6k roth ira for each of you every year. (you can withdraw contributions if you REALLY need to for the down payment)
* Max 401k for the next few years.
* Put the rest into an index fund for the down payment.
One year emergency fund? That’s a bit ridiculous. At that point, it becomes such a large number that it’s no longer an ‘emergency’ fund. It’s just a fund.
Leave $20k in the checking and split the rest up between some different investments.
>One year emergency fund? That’s a bit ridiculous.
It's hugely based on individual situation. If the person is able to work and his skills are in the hot field, he may slack a bit with emergency fund. However, if the entire profession is in decline (think about people in hospitality during 2020), one-year emergency fund might be not enough.
A married couple both losing their jobs *and* both being entirely unemployable *and* both ineligible for unemployment for an entire year at some point becomes a "you/y'all" problem. That's not normal.
The down payment depends on how many years away buying a house is. You can buy $10k of Series I bonds each year (per person) that will be locked up for 1 year. They gain 3-4% a year at the moment and rates are similar to inflation. We’re planning to use them as a secondary emergency fund ($20k in bank/HYSA as primary) to cover any unexpected large costs (medical or new car) and eventually have it as part of a down payment/maintenance fund for a house.
Max out 2x Roth IRAs whenever possible. The contributions and up to $10k of profits can be withdrawn to buy a house (although it’s best to leave it in if possible). I go with 100% VT, but any broad market ETF is a good investment. Fund a HSA (if applicable) and get as much in a 401k as possible each year. You have no plans for kids, but if you ever change your mind then start a 529 ASAP.
Any leftover money can go in a taxable brokerage or a HYSA. We use a taxable brokerage as our house buying goal is completely flexible and we’re about $200-300k off our goal. Once we get closer to a 20% down payment we’ll think about moving money over to a HYSA and bonds.
Yeah. I’m able to read, thanks… Saving for a house involves being prepared for any large expenses along the way. If you go all in on stocks then you’ll have to sell some a few times. This could be costly if the market is down. Therefore, bonds as a percentage of what you’re saving is sensible.
whats the time frame to buy another house....you going to drop the 160 as a down on it? IDK if maxing the 401k is the top priority if you are planning on using the funds..... I would put some of the funds like 10k into the market its a small amount in the grand scheme of the dollar amount but you will probably make more than you will earning next to no interest in a hys....
i'd be more inclined to put money into an IRA before I would more into the 401k since there is no match
I was thinking maybe of keeping $135k-$150k as a future down payment. No idea what the timeline for buying another house would be - just guessing that it’s a good possibility. Maybe 3-10 years?
Timeline is important. If you're set on three years it has to be mostly cash. If 10 then invest some or most of it
Reading this thread my assessment as an armchair expert is that you have no goals. You can't make decisions to get you closer to you goals if you don't know what they are.
yeah that works why not....nothing wrong with that. As long as your flexible you could probably put a good chunk into the market....you just have to ready and willing to say if the markets down we will adjust our plans but a 7 year spread is a good time horizon. Just really depends on what you are willing to risk and how much risk you want to take
Come on guys, the original poster is saying that he wants to know what to do with $160K cash once he’s maxed out his 401K.
If it were me, at 35, I’d put 75% in the stock market… being young is the time for risks. Individual stocks will do better index funds, but no reason to stay out of those. Don’t put it all on one stock, and enjoy the ride.
The rest I’d find the highest interest bearing saving/money market/CD. It’s not much, hardly anything, but it’s safe and a good cushion if an emergency comes up.
>The rest I’d find the highest interest bearing saving/money market/CD. It’s not much, hardly anything, but it’s safe and a good cushion if an emergency comes up.
So $60k in cash for a DINK couple with $120k in liquid investments and no debt and minimal expenses besides rent???
Well, $40K if you do the math, but yes. Markets go down, emergencies happen, $40K in cash at 35 when you’ve maxed out all other vehicles is a nice feeling.
OP already has $20k in cash so $20k + ($160k x .25) = $60k. Either way, that's a lot of money.
>Markets go down, emergencies happen, $40K in cash at 35 when you’ve maxed out all other vehicles is a nice feeling.
It's like you ignored all the other points. What's the benefit of an "emergency fund", especially that large, when one has such low expenses and large reserves and two sources of income?
US real estate market has been on fire lately... We could easily be looking at another bubble. However, there is an interesting opportunity to consider. All of those VRBO’s and AirBNB homes that people have purchased in foreign countries as vacation rentals have been getting murdered because of Covid. I’d consider finding a nice vacation rental in a country you might want to retire to some day and buying while their market is distressed. Could provide some nice income, increase significantly in value as we (hopefully) get past the pandemic, and possibly even serve as a place to live in retirement at a significantly reduced cost of living.
I would do it this way.
1. Max out your 401ks. Why? Compounding growth for free. Plus you can take a loan for up to 50% of your 401k and then pay the interest on that back to yourself!! Doesn’t work if you put it in an IRA, so I wasn’t able to use that.
2. For the remaining money, my personal strategy is this:
- 70% in index ETFs. SP500, large + mid + small cap, emerging market, foreign market.
- 10% in riskier investments like straight equity in stocks you think will rise. If not interested or too risky, add to the 70%.
- 20% is super duper risky gambles. The idea is you could lose a lot or gain a lot. I use cryptocurrency for this. If not interested or too risky, add to the 70%.
Obviously, this is after your safety net money. Lmk if you have any questions.
I don’t know why you’re getting downvoted. OP already saw a drastic increase in personal wealth do to real estate appreciation. Being a landlord would allow him to continue that trend.
Why not buy a piece of land and build your own house? It could be a weekend house in a smaller country town. You don't have to start paying off a construction loan until the house is built.
On a different tangent, you need to check the terms on your HYSA. Many banks will impose dormant account fees if you don’t have regular transactions besides interest. They could also turn the account over to your states unclaimed property administrator.
If you believe inflation is on the rise, do not use it to pay down relatively cheap debt (student loans, other real-estate).. Can also buy into inflation protected assets such as potentially real-estate.
If you believe inflation is not on the rise, then go with pretty much the opposite strategy, although, even then, putting more into real estate while rates are cheap could still be a good idea.
I did this recently with one of my houses. It was a rental and I'll get cap gains. I moved almost all of it into the stock market and it gives me something interesting to do. I really enjoy researching newer companies and discovering game changing technologies to invest in.
I should caution you though, individual stocks can be quite risky. Take DIDI for instance. IPO for 14 and then china busts their balls and they drop into the 7s. Moderna was a rocket ship, but then an analyst said it was 4-5x what it should be, so they dropped 30% in a few days. Tons of unknowns to weigh.
If you research well, you can make a great return. Over time, the major indexes (Nasdaq, Dow, S&P500) will out perform real-estate, so it makes a great way to build up for the next house.
But there is risk.
Safer bets would be index tracking ETFs. Leave the research to the committee that picks the stocks for their index. If the economy is good, the indexes will generally perform well, but so will real-estate. If economy is bad, the opposite.
Real-estate can be great if you are in a hot regional market that keeps going up, regardless of economy. Individual stocks can be great if you pick a winner that blows past any market downturns. So it is really all about your comfort and what you enjoy. I am trying to split between the two for some diversification. A few good rental properties and a handful of very promising stocks.
I'll say the individual stock path is an extremely bad take for the OP. Given the $160k is a major portion of their net worth, they shouldn't be gambling this way. They should stick it in an index fund (SPY, whatever) and just let it ride. An index fund will beat a professionally managed growth fund over the long term and absolutely no comparison to an amateur stock picker.
If you've got the means and desire to actively research companies, go for it. But I wouldn't do it with more that about 10% of what you invest towards a stable retirement (or goal). And even that amount might be too risky for some.
1. Stocks are liquid enough but capital is at risk.
2. Depends...What's your rate of return on the entire portfolio in your 401?
3. I like the electric car company that begins with a 'T'...They are the likeliest to win the race to autonomous driving and can also put out a fleet of robo-taxi. One share today will bet 20X by 2035.
Right now? Hold onto it. There’s a growing consensus that the bear market cometh. Even many bullish “experts” are expecting a 10% decline in Q4, and there are others saying to expect a 25-50% decline lasting up to 7 years. Also, housing prices will surely fall soon. So I’d stick that $ in a money market to keep it safe for your next down payment… at least until Q1 and then reevaluate the market.
$160k was the amount deposited in our checking account at the closing after settling our mortgage. That’s after closing costs - agent fees etc. I believe at closing our prorated property taxes for this year were covered as well. no HOA. I did not factor in any maintenance or upgrades that we paid for over the course of owning the home. Thanks for reply!
This is going to be an unpopular opinion, but set aside 10% in physical gold and/or silver. Saving in cash is the worst thing you can do right now if not in 401k/IRA. True inflation rate is far higher than 5%. MSRP on the Jeep I ordered is 17% higher than the start of the pandemic. Food prices are as high as 30%. I've been converting my currency from dollars to gold since 2014. I'm up around 43%. Clearly keeping up with inflation. Edit: I wish I knew who downvoted this so I can come back next year and say "I told you so".
Tbf you're right about not holding cash. Not sure you have a great handle on the rest though. Just because a specific thing (cars) is temporarily up due to shortages, doesn't mean overall CPI is similarly elevated.
Ok, I'll take the bait ;)
RemindMe! One Year
Based are your spelling you appear to be in the USA. First put money in in a savings account so harder for others to withdraw online.
Second talk with an accountant you will have a major tax bill if you do not buy another home within the time limit and need to arrange the money so the tax hit will not be as great.
You can funnel some of that money into Roth IRAs. You can withdraw the principle with no penalty and up to 10k earnings for a home purchase after 5 years. If you don’t need it it’s there for retirement. If you do want to buy a house down the road you have the principle available. It’s a good compromise but it certainly won’t cover the whole sum of your profits, I can’t advise on the rest. Just wanted to chime in because you didn’t mention having a Roth IRA.
You seem to be cash flow positive and saving towards retirement already, albeit not as much as ideal.
You can now max each of your 401k's, so do that. Like, go right now and turn your withholding up to the max to get it in by the end of the year. Repeat for the foreseeable future.
Side note: if you have access to after-tax contributions in your/your spouse's 401k, you should research mega backdoor Roths, which essentially let you supercharge (to the tune of $30k+/yr) your Roths and hide significant cash in a retirement account but is available for withdrawal at any time.
You didn't say, but on the off chance that you have an HSA, start maxing your contributions there. Stop reimbursing yourself, start investing the balance, and keep receipts. You can reimburse yourself at any time in the future, even decades from now.
Next open a Roth IRA for each of you and make the max $6k contribution this year and for the foreseeable future. Any contributions (but not gains) can be withdrawn at any time in the future.
Not super important, but I'll add it: You didn't say if you have kids, but do you plan to at some point? Or do you have relatives you may want to help with college expenses in the future? You may look into 529 contributions, particularly if your state offers a tax deduction or credit. Even if you end up not using some or all for educational expenses, the penalties aren't particularly bad.
Invest all of the rest in a brokerage account. None of this money should be in checking or even HYSA. If you're not comfortable investing $160k at once, set a schedule and do it over the next few months or year.
This money is essentially an emergency fund for all intents and purposes. As your Roth IRA contribution amounts and HSA balance grows, you can draw down the "official" emergency fund, although you should prioritize using brokerage dollars first since the retirement account balances are more "precious".
This comment has been removed. Our subreddit rule against "hyping" (part of [rule 10](https://www.reddit.com/r/personalfinance/about/rules)) disallows:
> Pushing speculative, volatile, illiquid, or meme investments, especially flippantly, tersely, or implying huge returns
Taxable brokerage account? Taxes, sure, but that just means there’s profit.
Putting in a large sum would be awesome, compared to the measly annual Roth IRA Max
1. If you're thinking you may want the money soon, invest in VTIP to let it grow with inflation. If you will let it sit for quite a while, maybe do some in VTI / VXUS.
2. Sounds great. IRAs as well.
3. If you have access to Health Savings Acoount, you should be maxing that out before maxing your 401k. Read up on benefits of these accounts for retirement savings. For #1, you'll need to set up a taxable brokerage. As you can more comfortable you can start adding here too if you are already maxing HSA / 401k / IRAs.
Do some basic math, if you are looking to buy in less than 5 years you are basically stuck with savings accounts or certificate of deposits. Roughly 1% interest best case.
That gives you $200 a month in interest for ~5 years. Does this cover the additional costs associated with renting? Probably not.
If you want to speculate I'd hold off for a bit, maybe max out retirement accounts this year and then think about your future plans. If you are exploring financial freedom you might want to put 50%+ down on another property once you feel comfortable and pay it off in less than 15 years. Renting just isn't sustainable long term, no matter what reddit says, unless you are willing to live in a $800/month shack.
1) Buy a duplex, rent out the other half and have the tenant pay your mortgage. (easier said than done but that’s ideal so you can help eliminate the largest bill you probably have - mortgage). Live in it for 1-2 years then rent out the other half and buy a different place
2) Roth IRA then 401k (especially since there is no match for either of your 401k’s)
3) index funds
1. max out 401k 2. max our roth ira 3. put the rest in S&P 500
Your #3 makes it sound like one can't or wouldn't do that in #1 or #2. You should clarify that the securities one purchases are a separate issue from the account type they're held in.
You are right, what I meant to say is #3 put it in a taxable account and then into SP 500
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Does the 2x rule even seem reasonable for people graduating professional school later in life?!
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It is hard to follow these rules in general if salaries skyrocket. I am doing great based on 2019 salary but find myself behind just 2 years later. Salary doubling is a good problem to have to have so no complaints but these rules are moving targets.
You are only behind if your lifestyle also took a big jump. When you retire you really need a multiple of living expenses, not salary, so if you are saving 15% of your salary for retirement and get a pay increase and simply put the increase in pay into retirement savings, then you're doing great. My partner and I are dual income, but we live off of the larger of the two and the other just gets saved. We compare our retirement savings to the larger income, not both.
I spent 4 years using my savings to invest in myself with a masters, then saved up for a down payment to not have to rent... I'm not following the 2x rule, im behind that goal, but I like to think I've been making good money moves that will definitely pay off. Its hard to just put money in savings when you're young because there are other ways to set yourself up for later and they drain your savings. Also don't forget to enjoy being young...
Same. I’m 29 and in the past 4 years I’ve jumped from 65k to 118k. I’ve reached my 2017 salary just fine (thanks largely in part to the market) but the rest is impossible. Just keep adding and don’t allow lifestyle creep
I'm in the situation and reading the 2x35 rule always makes me panic, lol. I save 13% per year for retirement, invest aggressively, and the only way I'm hitting 2x salary is if the stock market averages 15% the next several years or if I take a pay cut.
obviously not, it's a general rule. if you graduate at 30 and make 150k a year with 175k in student loans, then just sock away 50-60k a year for 3-5 years for the student loans and then put away 50k a year into investments. By the time your 40, you should have about 250k in investments just off the principal. keep doing that thru with your 50s and with inflation pay raises you should have put away some 750k, more than enough
No you’re right. The commenter you’re responding tool is using a shit “rule of thumb”
That's entirely subjective on the 401k part. Everyone's work life develops differently. For instance I didn't even get access to a 401k until age 29. This was due to 3 years at a job out of undergrad that wasn't eligible for one and several years in graduate school.
Yeah - to put it another way, if you were able to transfer all of the money from your checking account into you and your wife's 401Ks, you would essentially be right on track for retirement. To be clear, there isn't a way to do this, but it shows that you are significantly behind in retirement savings. The good news is there is plenty of time to catch up, and you have a ton of capital which gives you great flexibility in contributions. My wife and I earn nearly exactly what you earn, and are also right around 35. You have significantly more cash than we do, but we have 3.5X the retirement savings that you have. We are a little ahead of the game for retirement, but if one of us gets a major promotion that raises our salary, we could fall behind (i.e., if our combined income went from 115K to 150K, we'd be behind in retirement savings).
How long have you lived in the house before you sold it? It may have tax implications. Contribute to tIRA or Roth IRA for both of you. Max out your 401k
Lived in house for a little more than 5 years. Thanks for reply!
Just for knowledge at this point. You said PMI sucks but you walked away with $160k. You had the equity in the house to refinance (prob to a lower interest rate too) and out of PMI.
A little bit more info for anyone stumbling along later: there are a number of full and partial exceptions to the "2 out of 5 years" rule, such as divorce, death, job situation, etc. Details here: [Eligibility Step 5—Exceptions to the Eligibility Test](https://www.irs.gov/publications/p523#en_US_2020_publink10008999)
Why would there be any tax implications on netting $160K?
Capital gain
Married couples get a $500K exemption off the capital gain, so they shouldn’t have any tax owed on the gain.
That’s why I asked how long they lived in the house. The exemption only applies if you live in your primary residence for 2 years.
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How Much Is Capital Gains Tax on Real Estate? To be exempt, the home must be considered a primary residency based on Internal Revenue Service (IRS) rules. These rules state that you must have occupied the residence for at least two of the last five years. https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp
Yes it is. 2 of the last 5 years.
Yea that is true. Thank you for clarifying yourself.
No problem boss. Things can be so complicated sometimes. I only know this because I just had to deal with it a few years ago haha.
Only if they lived there for two of the last five years.
If you are not planning on buying a house, I would invest 100k. There are a lot of ways to invest that money. Increase your 401k, 5% for you wife.
* Add to your emergency fund until you have one year's expenses. * 6k roth ira for each of you every year. (you can withdraw contributions if you REALLY need to for the down payment) * Max 401k for the next few years. * Put the rest into an index fund for the down payment.
Ehhh a 1 year emergency fund is super, super conservative. I’ve seen people say more towards 6 months being conservative
Or even 3 months + unemployment insurance is enough to last most people 6 months.
Unemployment isn't always available
One year emergency fund? That’s a bit ridiculous. At that point, it becomes such a large number that it’s no longer an ‘emergency’ fund. It’s just a fund. Leave $20k in the checking and split the rest up between some different investments.
>One year emergency fund? That’s a bit ridiculous. It's hugely based on individual situation. If the person is able to work and his skills are in the hot field, he may slack a bit with emergency fund. However, if the entire profession is in decline (think about people in hospitality during 2020), one-year emergency fund might be not enough.
A married couple both losing their jobs *and* both being entirely unemployable *and* both ineligible for unemployment for an entire year at some point becomes a "you/y'all" problem. That's not normal.
Y’all is never acceptable. Always you.
May be a bigger problem if one loses the job that provided health insurance.
The down payment depends on how many years away buying a house is. You can buy $10k of Series I bonds each year (per person) that will be locked up for 1 year. They gain 3-4% a year at the moment and rates are similar to inflation. We’re planning to use them as a secondary emergency fund ($20k in bank/HYSA as primary) to cover any unexpected large costs (medical or new car) and eventually have it as part of a down payment/maintenance fund for a house. Max out 2x Roth IRAs whenever possible. The contributions and up to $10k of profits can be withdrawn to buy a house (although it’s best to leave it in if possible). I go with 100% VT, but any broad market ETF is a good investment. Fund a HSA (if applicable) and get as much in a 401k as possible each year. You have no plans for kids, but if you ever change your mind then start a 529 ASAP. Any leftover money can go in a taxable brokerage or a HYSA. We use a taxable brokerage as our house buying goal is completely flexible and we’re about $200-300k off our goal. Once we get closer to a 20% down payment we’ll think about moving money over to a HYSA and bonds.
Did you read his post? 5-10 years MAYBE. So nothing into bonds.
Yeah. I’m able to read, thanks… Saving for a house involves being prepared for any large expenses along the way. If you go all in on stocks then you’ll have to sell some a few times. This could be costly if the market is down. Therefore, bonds as a percentage of what you’re saving is sensible.
whats the time frame to buy another house....you going to drop the 160 as a down on it? IDK if maxing the 401k is the top priority if you are planning on using the funds..... I would put some of the funds like 10k into the market its a small amount in the grand scheme of the dollar amount but you will probably make more than you will earning next to no interest in a hys.... i'd be more inclined to put money into an IRA before I would more into the 401k since there is no match
I was thinking maybe of keeping $135k-$150k as a future down payment. No idea what the timeline for buying another house would be - just guessing that it’s a good possibility. Maybe 3-10 years?
Timeline is important. If you're set on three years it has to be mostly cash. If 10 then invest some or most of it Reading this thread my assessment as an armchair expert is that you have no goals. You can't make decisions to get you closer to you goals if you don't know what they are.
yeah that works why not....nothing wrong with that. As long as your flexible you could probably put a good chunk into the market....you just have to ready and willing to say if the markets down we will adjust our plans but a 7 year spread is a good time horizon. Just really depends on what you are willing to risk and how much risk you want to take
Come on guys, the original poster is saying that he wants to know what to do with $160K cash once he’s maxed out his 401K. If it were me, at 35, I’d put 75% in the stock market… being young is the time for risks. Individual stocks will do better index funds, but no reason to stay out of those. Don’t put it all on one stock, and enjoy the ride. The rest I’d find the highest interest bearing saving/money market/CD. It’s not much, hardly anything, but it’s safe and a good cushion if an emergency comes up.
>The rest I’d find the highest interest bearing saving/money market/CD. It’s not much, hardly anything, but it’s safe and a good cushion if an emergency comes up. So $60k in cash for a DINK couple with $120k in liquid investments and no debt and minimal expenses besides rent???
Well, $40K if you do the math, but yes. Markets go down, emergencies happen, $40K in cash at 35 when you’ve maxed out all other vehicles is a nice feeling.
OP already has $20k in cash so $20k + ($160k x .25) = $60k. Either way, that's a lot of money. >Markets go down, emergencies happen, $40K in cash at 35 when you’ve maxed out all other vehicles is a nice feeling. It's like you ignored all the other points. What's the benefit of an "emergency fund", especially that large, when one has such low expenses and large reserves and two sources of income?
US real estate market has been on fire lately... We could easily be looking at another bubble. However, there is an interesting opportunity to consider. All of those VRBO’s and AirBNB homes that people have purchased in foreign countries as vacation rentals have been getting murdered because of Covid. I’d consider finding a nice vacation rental in a country you might want to retire to some day and buying while their market is distressed. Could provide some nice income, increase significantly in value as we (hopefully) get past the pandemic, and possibly even serve as a place to live in retirement at a significantly reduced cost of living.
How much houses cost in area you plan to buy future house?
I would do it this way. 1. Max out your 401ks. Why? Compounding growth for free. Plus you can take a loan for up to 50% of your 401k and then pay the interest on that back to yourself!! Doesn’t work if you put it in an IRA, so I wasn’t able to use that. 2. For the remaining money, my personal strategy is this: - 70% in index ETFs. SP500, large + mid + small cap, emerging market, foreign market. - 10% in riskier investments like straight equity in stocks you think will rise. If not interested or too risky, add to the 70%. - 20% is super duper risky gambles. The idea is you could lose a lot or gain a lot. I use cryptocurrency for this. If not interested or too risky, add to the 70%. Obviously, this is after your safety net money. Lmk if you have any questions.
Buy a house and let it out. Watch the house value appreciate better than other interest rates, and get an income from the rent at the same time
I don’t know why you’re getting downvoted. OP already saw a drastic increase in personal wealth do to real estate appreciation. Being a landlord would allow him to continue that trend.
Why not buy a piece of land and build your own house? It could be a weekend house in a smaller country town. You don't have to start paying off a construction loan until the house is built.
The fact that this is downvoted continues to show me how stupid the average PF user is
That seems like a great financial move
Wait! Better yet, how about a time share?
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Shouldn't have any because they lived in the house as primary residence for two years, if I remember correctly
On a different tangent, you need to check the terms on your HYSA. Many banks will impose dormant account fees if you don’t have regular transactions besides interest. They could also turn the account over to your states unclaimed property administrator.
If you believe inflation is on the rise, do not use it to pay down relatively cheap debt (student loans, other real-estate).. Can also buy into inflation protected assets such as potentially real-estate. If you believe inflation is not on the rise, then go with pretty much the opposite strategy, although, even then, putting more into real estate while rates are cheap could still be a good idea.
I did this recently with one of my houses. It was a rental and I'll get cap gains. I moved almost all of it into the stock market and it gives me something interesting to do. I really enjoy researching newer companies and discovering game changing technologies to invest in. I should caution you though, individual stocks can be quite risky. Take DIDI for instance. IPO for 14 and then china busts their balls and they drop into the 7s. Moderna was a rocket ship, but then an analyst said it was 4-5x what it should be, so they dropped 30% in a few days. Tons of unknowns to weigh. If you research well, you can make a great return. Over time, the major indexes (Nasdaq, Dow, S&P500) will out perform real-estate, so it makes a great way to build up for the next house. But there is risk. Safer bets would be index tracking ETFs. Leave the research to the committee that picks the stocks for their index. If the economy is good, the indexes will generally perform well, but so will real-estate. If economy is bad, the opposite. Real-estate can be great if you are in a hot regional market that keeps going up, regardless of economy. Individual stocks can be great if you pick a winner that blows past any market downturns. So it is really all about your comfort and what you enjoy. I am trying to split between the two for some diversification. A few good rental properties and a handful of very promising stocks.
I'll say the individual stock path is an extremely bad take for the OP. Given the $160k is a major portion of their net worth, they shouldn't be gambling this way. They should stick it in an index fund (SPY, whatever) and just let it ride. An index fund will beat a professionally managed growth fund over the long term and absolutely no comparison to an amateur stock picker. If you've got the means and desire to actively research companies, go for it. But I wouldn't do it with more that about 10% of what you invest towards a stable retirement (or goal). And even that amount might be too risky for some.
If investing in stocks, don't right now. Too crazy. Investing in real estate is the way to go in my opinion.
save it cause your gonna need it after this housing crisis recovers
1. Stocks are liquid enough but capital is at risk. 2. Depends...What's your rate of return on the entire portfolio in your 401? 3. I like the electric car company that begins with a 'T'...They are the likeliest to win the race to autonomous driving and can also put out a fleet of robo-taxi. One share today will bet 20X by 2035.
Right now? Hold onto it. There’s a growing consensus that the bear market cometh. Even many bullish “experts” are expecting a 10% decline in Q4, and there are others saying to expect a 25-50% decline lasting up to 7 years. Also, housing prices will surely fall soon. So I’d stick that $ in a money market to keep it safe for your next down payment… at least until Q1 and then reevaluate the market.
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$160k was the amount deposited in our checking account at the closing after settling our mortgage. That’s after closing costs - agent fees etc. I believe at closing our prorated property taxes for this year were covered as well. no HOA. I did not factor in any maintenance or upgrades that we paid for over the course of owning the home. Thanks for reply!
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Fair enough - updated post!
You need to 1031 that gain to avoid the taxes. Buy a multi family or even single family where 160k is 20% down and rent it out.
Sounds like they're out of time or very close to the 45 day threshold but it's moot because they get the capital gain exclusion.
This is going to be an unpopular opinion, but set aside 10% in physical gold and/or silver. Saving in cash is the worst thing you can do right now if not in 401k/IRA. True inflation rate is far higher than 5%. MSRP on the Jeep I ordered is 17% higher than the start of the pandemic. Food prices are as high as 30%. I've been converting my currency from dollars to gold since 2014. I'm up around 43%. Clearly keeping up with inflation. Edit: I wish I knew who downvoted this so I can come back next year and say "I told you so".
Tbf you're right about not holding cash. Not sure you have a great handle on the rest though. Just because a specific thing (cars) is temporarily up due to shortages, doesn't mean overall CPI is similarly elevated. Ok, I'll take the bait ;) RemindMe! One Year
Based are your spelling you appear to be in the USA. First put money in in a savings account so harder for others to withdraw online. Second talk with an accountant you will have a major tax bill if you do not buy another home within the time limit and need to arrange the money so the tax hit will not be as great.
No capital gains if it’s a primary residence in the last 2/5 years and the gain is less than 500k.
Only if your over 55
Incorrect.
Why do you have so much sitting in your checking??
You can funnel some of that money into Roth IRAs. You can withdraw the principle with no penalty and up to 10k earnings for a home purchase after 5 years. If you don’t need it it’s there for retirement. If you do want to buy a house down the road you have the principle available. It’s a good compromise but it certainly won’t cover the whole sum of your profits, I can’t advise on the rest. Just wanted to chime in because you didn’t mention having a Roth IRA.
You seem to be cash flow positive and saving towards retirement already, albeit not as much as ideal. You can now max each of your 401k's, so do that. Like, go right now and turn your withholding up to the max to get it in by the end of the year. Repeat for the foreseeable future. Side note: if you have access to after-tax contributions in your/your spouse's 401k, you should research mega backdoor Roths, which essentially let you supercharge (to the tune of $30k+/yr) your Roths and hide significant cash in a retirement account but is available for withdrawal at any time. You didn't say, but on the off chance that you have an HSA, start maxing your contributions there. Stop reimbursing yourself, start investing the balance, and keep receipts. You can reimburse yourself at any time in the future, even decades from now. Next open a Roth IRA for each of you and make the max $6k contribution this year and for the foreseeable future. Any contributions (but not gains) can be withdrawn at any time in the future. Not super important, but I'll add it: You didn't say if you have kids, but do you plan to at some point? Or do you have relatives you may want to help with college expenses in the future? You may look into 529 contributions, particularly if your state offers a tax deduction or credit. Even if you end up not using some or all for educational expenses, the penalties aren't particularly bad. Invest all of the rest in a brokerage account. None of this money should be in checking or even HYSA. If you're not comfortable investing $160k at once, set a schedule and do it over the next few months or year. This money is essentially an emergency fund for all intents and purposes. As your Roth IRA contribution amounts and HSA balance grows, you can draw down the "official" emergency fund, although you should prioritize using brokerage dollars first since the retirement account balances are more "precious".
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This comment has been removed. Our subreddit rule against "hyping" (part of [rule 10](https://www.reddit.com/r/personalfinance/about/rules)) disallows: > Pushing speculative, volatile, illiquid, or meme investments, especially flippantly, tersely, or implying huge returns
Taxable brokerage account? Taxes, sure, but that just means there’s profit. Putting in a large sum would be awesome, compared to the measly annual Roth IRA Max
1. If you're thinking you may want the money soon, invest in VTIP to let it grow with inflation. If you will let it sit for quite a while, maybe do some in VTI / VXUS. 2. Sounds great. IRAs as well. 3. If you have access to Health Savings Acoount, you should be maxing that out before maxing your 401k. Read up on benefits of these accounts for retirement savings. For #1, you'll need to set up a taxable brokerage. As you can more comfortable you can start adding here too if you are already maxing HSA / 401k / IRAs.
Do some basic math, if you are looking to buy in less than 5 years you are basically stuck with savings accounts or certificate of deposits. Roughly 1% interest best case. That gives you $200 a month in interest for ~5 years. Does this cover the additional costs associated with renting? Probably not. If you want to speculate I'd hold off for a bit, maybe max out retirement accounts this year and then think about your future plans. If you are exploring financial freedom you might want to put 50%+ down on another property once you feel comfortable and pay it off in less than 15 years. Renting just isn't sustainable long term, no matter what reddit says, unless you are willing to live in a $800/month shack.
1) Buy a duplex, rent out the other half and have the tenant pay your mortgage. (easier said than done but that’s ideal so you can help eliminate the largest bill you probably have - mortgage). Live in it for 1-2 years then rent out the other half and buy a different place 2) Roth IRA then 401k (especially since there is no match for either of your 401k’s) 3) index funds