What to do with "new" money

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marathonwmn
Posts: 156
Joined: Tue Jul 01, 2008 1:15 pm
Location: West of the Atlantic

What to do with "new" money

Post by marathonwmn »

Emergency funds: Yes. Included below in Ally Bank
Debt: Mortgage @3.88% 40K balance
Tax Filing Status: Single
Tax Rate: 15% Federal, 5.75% State
State of Residence: NC
Age: 66.5
Desired Asset allocation: 50% stocks / 30% bonds / 20% cash
Desired International allocation: 18% of stocks
Net worth (not including home): A smidge over 7 figures

Vanguard IRA
4.50% VAIPX Vanguard Inflation-Protected Secs Adm ER 0.10%
3.25% VBISX Short Term Bond Index Admiral ER 0.10%
9.12% VBTLX Total Bond Index Admiral ER 0.07%
3.73% VTIAX Vanguard Total Intl Stock Index Admiral ER 0.14%
22.83% VTSAX Vanguard Total Stock Mkt Idx Adm ER 0.05%

Vanguard Roth IRA
2.25% VIMAX MidCap Index ER 0.09%
0.59% VBISX Short Term Bond Index ER 0.20% (will use to buy MidCap Index, Total Intl & Total Stock)
3.52% VTIAX Vanguard Total Intl Stock Index Admiral ER 0.14%
5.02% VTSAX Vanguard Total Stock Mkt Idx Adm ER 0.05%

IRA CDs at Synchrony
5.91% (5yr CDs @2.25% maturing 2020)

Inherited IRA CD at BofA
1.83% (3.2% 5 yrs remaining)

Inherited IRA at Schwab
1.36% TIYRX TIAA-CREF Hi Yld Bond ER 0.65%
0.30% Cash
(I have to take RMDs on the inherited IRAs and thus far I've used this account to fullfill the requirement)

Health Savings Account
VWELX Wellington ER 0.26%
---- 0.52% Stock component of Wellington
---- 0.22% Bond component of Wellington
1.79% Cash

Taxable
10.18% ALLY BANK CDs + MM
2.81% Cash AIG (Paying @ 1%)
3.85% I BONDS (Current rates between 0% and 1.58% w/ maturities 2041-2044)
12.88% EE BONDS (Rates 4% w/ maturities 2022-2024)
2.75% FUSVX Fidelity Spartan 500 Index Advtg ER 0.07%
0.12% SFSNX Schwab Fdmtl US Sm Co Idx ER 0.44%
0.64% PRFHX T. Rowe Price Tax-Free High Yield ER 0.68%

Current allocation
40.74% Stocks
36.43% Bonds (including I and EE Bonds)
22.82% Cash and CDs

Two questions:
1- Thanks to good advice received on this Forum I started collecting SS spousal benefits which I want to tuck away (I'm still working). I’ll start collecting my own benefit at a later date. The question is where to best put this “newly found” money. Since I already have accounts at Schwab, Fidelity, and T. Rowe Price I'd like to find a place within these houses. The Roth IRA for 2015 is fully funded. Ideas? Comments?

2- Since I have a large percentage in Cash and CDs, should I exchange the 3.25% of VBISX Short Term Bond Index Admiral I have in the IRA for additional VBTLX Total Bond Index Admiral?

Thanks in advance for your replies.
The race goes not to the swift, but to those who keep on running. . .
indexonlyplease
Posts: 1571
Joined: Thu Apr 30, 2015 12:30 pm
Location: Florida

Re: What to do with "new" money

Post by indexonlyplease »

Pay off your mortgage and you just made 3.88% on your $40,000. You will not make that in the bond market now or any fixed savings.


Cliff
BogleBoogie
Posts: 745
Joined: Tue May 13, 2014 11:15 am
Location: AK

Re: What to do with "new" money

Post by BogleBoogie »

indexonlyplease wrote:Pay off your mortgage and you just made 3.88% on your $40,000. You will not make that in the bond market now or any fixed savings.


Cliff
Couldn't have said it better myself! My mortgage is almost 1 percentage point lower and I'd be happy to be able to pay that down quicker. 3.88% is a great guaranteed return on your money right now.
Lafder
Posts: 4127
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: What to do with "new" money

Post by Lafder »

Another vote for pay off the mortgage !

Your accounts overall could be simplified to hold less funds :)

lafder
lack_ey
Posts: 6701
Joined: Wed Nov 19, 2014 10:55 pm

Re: What to do with "new" money

Post by lack_ey »

You don't really seem to have that much immediate liquidity needs while still working and having all those investments. That mortgage should definitely be gone ASAP. Take from cash or bonds somewhere right now. Don't even wait for new money to come in. It just doesn't make sense to me how many people carry mortgage balances and own an excess of bonds and cash at the same time (more than needed for liquidity, handling emergencies). Why borrow at 3.88% (on the mortgage) to turn around and invest in bonds or cash instruments at ~2%?

After that, invest in stocks/bonds/cash according to desired allocation.
Jack FFR1846
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Location: 26 miles, 385 yards west of Copley Square

Re: What to do with "new" money

Post by Jack FFR1846 »

I agree to pay off the mortgage.

Are you attempting to keep your AA in each of your accounts? There is no need to do this and I think the resulting hodge podge of funds are making things undoley complicated and costly.

I woul list each fund at each account with $$ invested. ER and actual cost per year in excel. Next, sell to buy so you have less total funds and focus on keeping low cost ones that satisfy your desired AA.
Bogle: Smart Beta is stupid
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marathonwmn
Posts: 156
Joined: Tue Jul 01, 2008 1:15 pm
Location: West of the Atlantic

Re: What to do with "new" money

Post by marathonwmn »

Thanks to everyone who has responded.

I've thought about paying off the mortgage... 1/2 of the mortgage is for the rental side of a duplex and I take it as a deduction. Would you still recommend paying off the mortgage?

Thanks again!
The race goes not to the swift, but to those who keep on running. . .
southbay
Posts: 471
Joined: Thu Apr 16, 2015 2:40 pm

Re: What to do with "new" money

Post by southbay »

marathonwmn wrote:Thanks to everyone who has responded.

I've thought about paying off the mortgage... 1/2 of the mortgage is for the rental side of a duplex and I take it as a deduction. Would you still recommend paying off the mortgage?

Thanks again!
Yes. If I was you I'd pay off the mortgage tomorrow.
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: What to do with "new" money

Post by inbox788 »

Same thing you did with "old" money!

Funny how people answer differently based on how things are phrased. You have money in a savings account. Do you go to the ATM and withdraw $20 and spend it? Probably not. What if you found $20 in the street? Sure, it's "new" money. Now, yesterday, you found $20 in the street, went to the ATM and deposited yesterday. Today, do you go to the ATM and withdraw it and spend it?

The truism is that money is fungible.

http://www.bogleheads.org/wiki/Paying_d ... _investing

Now, why did you choose to invest in taxable account vs. mortgage with "old" money? You could have been paying down the mortgage with "old" money or were you (in what proportion)? If you have better use for cash, why not take some out of taxable investments and not just "new" money?

Now since your allocation is 40/60, you could buy 40% FUSVX and use 60% to pay down mortgage, since paying down mortgage is somewhat equivalent to buying bonds, and in your case pay 3.8% guaranteed, and I don't see a better bond option in your portfolio (except maybe EE bonds at 4% tax-free?).
jnet2000
Posts: 320
Joined: Tue Mar 19, 2013 4:22 pm

Re: What to do with "new" money

Post by jnet2000 »

Another vote for,paying off your mortgage. It's a great psychologically to have a clear and paid off home plus you can't get that return on your money, as other have stated, on fixed income right now.
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing" Warren Buffet
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marathonwmn
Posts: 156
Joined: Tue Jul 01, 2008 1:15 pm
Location: West of the Atlantic

Re: What to do with "new" money

Post by marathonwmn »

As many of you recommended I plan on going forward and paying off the mortgage.

Would you all think it advisable to keep the HELOC that's tied to it? Or would I be better off keeping the HELOC as back-up? There's a -0- balance on the HELOC.

Thanks!
The race goes not to the swift, but to those who keep on running. . .
Lafder
Posts: 4127
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: What to do with "new" money

Post by Lafder »

I would keep it :)

My heloc had an annual 50$ fee but it was worth the piece of mind to have it.

As others may point out, in a big financial market fiasco, some people'e HELOCs were frozen and inaccessible. It may happen. But you can always use credit cards or pull from taxable if that happened and you needed cash.

For me the HELOC was useful for planned bigger purchases so I could get the tax credit on the interest myself.

When my heloc matured, and is in payback mode I did not get a new one. But I figure why give it up once you have already gone through the hassle of getting the documentation to have it :)

I am guessing some will tell you to shut it down to insure a zero balance.

lafder
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