What should I do with my extra $$?

[jbell255]

Hello,

Just looking for some ideas or suggestions on how to get my cash working for me.  It's just literally sitting in accounts (savings,checking, couple different banks) doing absolutely nothing but earning more money for those institutions.   Obviously since I'm here asking, I don't have enough knowledge to comfortably invest myself so any suggestions or recommendations of companies specializing in this area would be appreciated. 

Quick Info

- 28m, married

- Fico: 815, wifes is 790

- Savings sitting in banks (not incl. retirement): $91k

- Retirement accounts: I'm saving 10%/month and wife is maxing hers as well

- Debt: Only debt is mortgage, $188k remaining on $250k - no car pmts, no loans, nothing besides mortgage

We do have a very healthy monthly cash flow (our budget estimates around $2000-3000/month left over after expenses depending on our discretionary spending/fun money) and neither of us are big spenders.  We'd like to see this money actually doing something for us rather than diminishing in value due to inflation....

thanks!!

[Anonymous]

There are many Saving/Checking accounts with 1% on the market. "$910/year - tax" is better than nothing.

If your mortgage is 3.5% and it is 10y left, than paying it could potentially save (assuming 2% inflation ratio) ~$6800. With 0% inflation ratio it will be ~$15900.  I calculated it on eye, so could be wrong.

Index fund S&P500 (I believe it is safest) earned 0% from 09/12/2014 till today. It is kind of bad period, but still - it is like a gambling. Return on stocks/mutual funds/bonds investment is not guaranteed. But majority of people do it (401k, Roth).

There are some other risky investment like lending clubs.

You can also invest in rental, but it is not passive but active investment. 

The other way is to invest in yourself, get additional education, medical treatment, leisure etc.

One more option is to open your own business.

I'm almost in the same situation, but no mortgage. I'm also interested in extra options.

[Anonymous]

Hey there, if yall plan to have kids or do already consider a 529 plan. If you are in a high tax bracket some states will even give you a deduction for your contribution. You have to use it for education (either yourself, the kid, or someone else) unless you do not mind paying a penalty (think its 10%).

If you are up for it, maybe invest in a rental property. Now is a great time to buy, and it never hurts to diversify your income streams.

What is the interest rate on the mortgage? Nothing is wrong with paying it down, but this may not be your best option if you do not mind leveraging debt. 

[jbell255]

Thanks for the suggestions.  I've been looking into the 529 plans and they look like a good idea.  We have a 6 month old so it'd be great to get started early saving for her college.

Our mortgage rate is 4.15%.  We currently put an extra $400 towards it each month. I know we'd be better off if we instead took that money and invested it as long as it earned more % return than the interest rate on the mortgage.  What are your thoughts about money management businesses i.e. Edward Jones, Vanguard, Fidelity, etc..?

[wa3more]

i would start contributing monthly to an S&P index fund and just dollar cost average every month. Over the long term, virtually no mutual fund, money manager or hedge fund will even come close to beating the index.

Do not let anyone else manage your money and stay away from any a managed type of account. Don't listen to noise on TV like CNBC or Cramer.

Keep it simple with monthly contribution to index fund.

I

[Anonymous]

Ally bank has 1% APY on their savings, also a pretty good .10% on their checking accounts.  I just switched over from Chase and their measly .01.

[Anonymous]

My thoughts are that investment brokerages and managers are definitely not all created equally. Some people enjoy having a financial manager that works for them based on commission like at Edward Jones. Personally I do not want my advisor selling me anything! There are commission based and fee-based, I lean towards doing everything on your own or going fee-based advisor. Today you can set things up on your own very easily. Vanguard is a great company, with some of if not the lowest fees out there. I set Roth IRAs up for me and my spouse there last year in about 30minutes.

Now that I think about it the Roth IRA would be the perfect investment vehicle for you two if you’re not over the income limits. You can even still think of it as a sort of emergency fund, because you can withdraw contributions (not earnings) at any time tax and penalty free. You just can’t put it back in after withdraw. In addition the Roth IRA would grow tax-free because you pay tax on the money before putting it in unlike a 401k that is pre-tax money. This means that in retirement you would have a pre & post tax pile of money to draw on.

What state are you in? With a 6m old I would definitely look at a 529 although if you are not going to max them out a Roth IRA may actually be the better place to accomplish this goal. Sometimes you are better off investing in a 529 plan in another state too, depending on what your state has to offer.

[Anonymous]

In our Roth IRAs we invest in index funds too and only index funds. Our two major holdings are vgtsx and vtsmx, we will throw in some bonds too as we get older. I have heard you should have your age in bonds, but feel this advice is far too conservative and I doubt I will buy my first bond until age 35 or older. If you want to just set it and forget it though go for a target retirement fund (aka lifecycle fund) as these will reallocate automatically over time based on the retirement year you pick. 

[wa3more]

be careful of blanket rules like your age minus whatever should be in bonds. The OP is in an enviable position where equities are the best vehicle to invest long term. With rates like to be going up for a while, bonds will likely underperform.

I'm a big fan of rental properties, 2- 4 units. Single family if your tenant moves out you are screwed. Put down 20% on a property with positive cash flow and you should de well. But you need to have the temperment for rental property.

[Anonymous]

I would agree with many of the posts above, namely:

-Invest what you can in accounts where you receive a tax advantage such as a Roth IRA and 529 plan

-Take the funds in your IRA and individual brokerage and put the majority in an S&P 500 index fund. I have always been a fan, listen to the recent Planet Money episode (NPR show) where they discuss the bet ($1MM bet) Warren Buffet made that he could outperform any hedge fund in 2008 over a ten year period. They are now 8 years in and Warren is up forty something percent while the hedge fund is up twenty something. 

-Put some funds aside in a liquid online savings account. They don't earn much but it sure is better than a brick and mortar bank. You are far too young to put it all in type of account, follow the rule of 6-8 months of expenses. 

-Check out alternative investments like lending club/prosper for a small portion of the funds. I have been an investor with lending club for about 2 years now and have averaged an 11% return in that time. I have had charged off loans but you know that will happen going in. 

-If you do use an advisor (you can do a lot yourself online, never hurts to educate yourself on the options) definitely seek out a fee based advisor. The advisor I usually recommend actually uses TD Ameritrade for his clients so they hardly pay any fees for trades.