New to Investing. 450k cash

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zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

New to Investing. 450k cash

Post by zen88 » Tue Sep 19, 2017 9:01 pm

Hello,

I recently sold my condo which I had a big cash position in and moved to a larger and more expensive house. As a result of this transaction I have about 450k in cash. I also have ~75k in 401k from my employer. Mostly allocated to stocks. I'm 40 y.o. Married.
Mortgage for the house I own now has a balance of ~781k (I put 20% down for 1M house) and rate of %3.65 which makes my monthly payment ~3600 which I can manage to pay but considering all other expenses I have this is somewhat uncomfortable for me to live this close to negative cash flow every month.

The advice I am seeking is what would be a better way to manage 450k cash that I have. Should I put more money down towards the mortgage and reduce my mortgage payment or try to keep as much mortgage as possible and invest? Also investing wise I have rather low risk tolerance and would like to use some broad index fund like s&p500. What is a good way to buy such index fund? My employer uses empower-retirement.com and they are not very good fee wise.

Sorry if I am braking some rules by posting this question. I am very new to investing and just discovered this great forum. Hopefully someone can make sense of this and give me some advice.

PFInterest
Posts: 300
Joined: Sun Jan 08, 2017 12:25 pm

Re: New to Investing. 450k cash

Post by PFInterest » Tue Sep 19, 2017 9:40 pm

no rule breaking, just confused.
if your risk tolerance is low, then s&p is the opposite of that.
you need an emergency fund first.
no reason you cant do both.
are you maxing out everything else already?

zen88
Posts: 13
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Re: New to Investing. 450k cash

Post by zen88 » Tue Sep 19, 2017 10:09 pm

I guess it is not that low. The emergency fund I was planning to keep at 50k. That leaves around 400k potentially to invest. Not sure what do you mean under maxing out everything else.

supersecretname
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Joined: Tue Sep 01, 2015 2:33 pm

Re: New to Investing. 450k cash

Post by supersecretname » Tue Sep 19, 2017 10:11 pm

you should do whatever helps you sleep best at night.

unless you refi, paying down the mortgage some won't help your cash flow.

you say you have a low risk tolerance, so, if I'm pulling numbers out of a hat:
max 401k and 2 IRAs for 2017 and again next year in 2018. 18+5.5+5.5 = 29k *2 = 58k.
emergency fund of 42k
pay down mortgage 250k and refi for lower payment. Open HELOC as a backup.
keep 100k in safe taxable account, and earmark that money for 401k in 2019/2020.

zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Tue Sep 19, 2017 10:34 pm

Sorry. Forgot to mention this. I'm contributing 3% of my salary ($4800) to 401k since my employer is matching up to 3%.

Saving$
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Re: New to Investing. 450k cash

Post by Saving$ » Tue Sep 19, 2017 11:08 pm

Welcome, and congrats on being able to put 20% down, and on having the significant equity.

Based on your post, you already bought the $1m house, so you already took out that mortgage. Even if you use all or part of the $450k to pay against the house, your monthly mortgage payment is not going to decrease - you will just pay down principle, the duration of your mortgage will be shorter, and you will pay less interest. The way to have lower monthly payments would have been to put more money down against the new house, and borrow less. At this point the only way to lower your monthly payments would be to refinance, and the transaction costs of that are probably huge.

Someone will come along and give you the link to how you are supposed to post your income/assets, etc. but I will offer a few comments:
1. You wrote that your new mortgage payment is stretching you. Thus, there is probably not much room to increase your 401k or IRA contributions out of monthly cash flow. What are the prospects of your income increasing?
2. First thing you should have is an emergency fund. You mentioned keeping $50k of the $450k. How many months expenses is that? When you say the new payment is stretching your monthly budget, does the budget have alot of discretionary spending that could be stopped if you lost your job? You wrote you are conservative, so you may want to bank $100k or so for the emergency fund. Really need to know your monthly budget.
3. How stable is the job? How long would it take you to get a new one? This could influence the emergency fund amount.
4. How big a house is this? Is it new or an older one? How much have you budgeted for repairs, etc. This could also influence the emergency fund amount.
5. Regardless of the emergency fund size you will have cash left over to invest. If you only contribute $4800 to your 401k, you want to up that to the max. If you don't take advantage of tax advantaged space you lose it forever. So take $13,200 of the cash for this year and same for the next two years, and set aside to supplement your monthly take home pay, and immediately increase you 401k contributions so you max out $18k this year and the max next year. Note this will reduce your taxes, so you won't need the entire $13,200 to offset your lower take home, because your take home will decrease less than $13,200.
6. Regardless of emergency fund size, you need to start contributing to a Roth and not lose that space. Another $5,500 year for this year, and same for the next two years.

Now your $450k looks like this:
- $100k emergency fund
- $39k to offset increased 401k contributions over the next 3 years.
- $16.5k to fund Roth contributions over the next 3 years.
Do you have a spouse? If so, 401k & Roth advice apply to spouse as well.

Now you have just under $300k to invest. If you have a spouse, you have under $250k to invest. Post back about your income, tax bracket, etc. and you will get better advice

WanderingDoc
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Re: New to Investing. 450k cash

Post by WanderingDoc » Tue Sep 19, 2017 11:34 pm

zen88 wrote:
Tue Sep 19, 2017 9:01 pm
Hello,

I recently sold my condo which I had a big cash position in and moved to a larger and more expensive house. As a result of this transaction I have about 450k in cash. I also have ~75k in 401k from my employer. Mostly allocated to stocks. I'm 40 y.o. Married.
Mortgage for the house I own now has a balance of ~781k (I put 20% down for 1M house) and rate of %3.65 which makes my monthly payment ~3600 which I can manage to pay but considering all other expenses I have this is somewhat uncomfortable for me to live this close to negative cash flow every month.

The advice I am seeking is what would be a better way to manage 450k cash that I have. Should I put more money down towards the mortgage and reduce my mortgage payment or try to keep as much mortgage as possible and invest? Also investing wise I have rather low risk tolerance and would like to use some broad index fund like s&p500. What is a good way to buy such index fund? My employer uses empower-retirement.com and they are not very good fee wise.

Sorry if I am braking some rules by posting this question. I am very new to investing and just discovered this great forum. Hopefully someone can make sense of this and give me some advice.
Paying down your mortgage is a terrible idea. The rate of return on equity (in your primary residence) is exactly $0. Your interest rate is great. Paying down your mortgage and refinancing is just as bad an idea. Only do this if you are not confident in your ability to invest to generate a decent return.

$400K worth of down payments on investment real estate, whether they be passive or active, will yield you $40K per year in annual net income on the low end, which will likely result in a tax bill of $0 on this investment (leveraged real estate has great tax benefits). I know maybe folks will tell you to invest in a 401k, but that money is *poof* gone if you do this and won't generate any monthly income for you NOW. Your mortgage payment is high, and I bet you could use some extra income coming in every month to give you some spending money or extra money to invest.
One day it suddenly dawned on me that I had won the real estate lottery.

zen88
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Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Tue Sep 19, 2017 11:39 pm

My income is 160k. 25% tax bracket. The job is relatively secure. I work at this company for 5 years. New job with similar salary wouldn't take too long to find. This comes out as ~9700 net pay after 3% contribution to 401k all taxes. I also have +20k yearly bonus which is unreliable year to year. + ~17k my spouse income which is not very reliable either. She is looking to find a better job but it is not clear if this is going to happen or not.
The budget is: (I have a big family)
cars, utilities, real estate taxes ~3k
food, shopping, house maintenance, travel, discretionary spending ~3k The house is ~70 year old and I didn't leave through the winter here yet. So I am not fully aware of the full expenses involved.
That leaves ~3700 for everything else. Which is pretty much my current mortgage spending. This makes me a little uncomfortable. But on the other side I don't want to miss out on the investment opportunities.

Thank you very much! This is all very helpful!

zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Tue Sep 19, 2017 11:49 pm

WanderingDoc wrote:
Tue Sep 19, 2017 11:34 pm
$400K worth of down payments on investment real estate, whether they be passive or active, will yield you $40K per year in annual net income on the low end, which will likely result in a tax bill of $0 on this investment (leveraged real estate has great tax benefits). I know maybe folks will tell you to invest in a 401k, but that money is *poof* gone if you do this and won't generate any monthly income for you NOW. Your mortgage payment is high, and I bet you could use some extra income coming in every month to give you some spending money or extra money to invest.
What is the difference between passive and active real estate investment? I definitely don't want another property to manage. Thank you!

aqan
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Re: New to Investing. 450k cash

Post by aqan » Wed Sep 20, 2017 2:20 am

supersecretname wrote:
Tue Sep 19, 2017 10:11 pm
you should do whatever helps you sleep best at night.

unless you refi, paying down the mortgage some won't help your cash flow.
Inaccurate statement... I also found out not too long ago that you can recast your mortgage when you pay down a substantial amount to your principal.


https://www.thebalance.com/mortgage-rec ... nce-315658

aqan
Posts: 231
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Re: New to Investing. 450k cash

Post by aqan » Wed Sep 20, 2017 2:31 am

zen88 wrote:
Tue Sep 19, 2017 11:39 pm
My income is 160k. 25% tax bracket. The job is relatively secure. I work at this company for 5 years. New job with similar salary wouldn't take too long to find. This comes out as ~9700 net pay after 3% contribution to 401k all taxes. I also have +20k yearly bonus which is unreliable year to year. + ~17k my spouse income which is not very reliable either. She is looking to find a better job but it is not clear if this is going to happen or not.
The budget is: (I have a big family)
cars, utilities, real estate taxes ~3k
food, shopping, house maintenance, travel, discretionary spending ~3k The house is ~70 year old and I didn't leave through the winter here yet. So I am not fully aware of the full expenses involved.
That leaves ~3700 for everything else. Which is pretty much my current mortgage spending. This makes me a little uncomfortable. But on the other side I don't want to miss out on the investment opportunities.

Thank you very much! This is all very helpful!
At your age I'd be doing maximum contribution towards 401K & IRA. You could set aside some of the cash to cover the shortfall and make a full contribution towards 401K. It will reduce your tax burden as well, so the extra $1,000/month you'll contribute will only require $750 to replace it.

advice789
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Re: New to Investing. 450k cash

Post by advice789 » Wed Sep 20, 2017 3:40 am

Encourage you to explore other options to invest in your future financial independence . For example, should the family set up or add to a health savings account? Using pretax $ is better than after tax. Are there college investment funds, where you receive a tax break and the money grows tax free to pay the kid's tuition in the future. A friend received a bonus 15 years ago,invested in a college fund and with compounding, when the two kids started college,they had enough to pay 75% of the 4 year costs. You look secure in employment. As others suggest, set up emergency fund and max out the 401k for you and spouse as employer allows.

indexonlyplease
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Re: New to Investing. 450k cash

Post by indexonlyplease » Wed Sep 20, 2017 5:48 am

With the $3600 a month can you still max out your 401k and Roth IRA.
What is your desired AA. Lets say 50 percent stocks and 50 fixed income. You could invest 200k into stocks funds and 200k into your mortgages. You just saved 3.65% on your fixed income. Also, lowered your payment.

Just an idea, I disagree with many here and like to have the house paid off as soon as possible. I always believe this can be done at the same time you are maxing out your investments. If someone could not do this than maybe they bought to much house.

It's nice in the future to have your house paid off and your investments working for you. Why, you may consider retirement younger than you thought. Maybe 55 instead of 65. Just a option that is nice to have. Hard to retire paying $3600 a month on your mortgage (for most people).

Also, is the negative cash flow on your monthly budget or on the 450k? Then you have a whole different problem.

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ruralavalon
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Re: New to Investing. 450k cash

Post by ruralavalon » Wed Sep 20, 2017 10:43 am

Welcome to the forum :) .
zen88 wrote:
Tue Sep 19, 2017 9:01 pm
Hello,

I recently sold my condo which I had a big cash position in and moved to a larger and more expensive house. As a result of this transaction I have about 450k in cash. I also have ~75k in 401k from my employer. Mostly allocated to stocks. I'm 40 y.o. Married.
Mortgage for the house I own now has a balance of ~781k (I put 20% down for 1M house) and rate of %3.65 which makes my monthly payment ~3600 which I can manage to pay but considering all other expenses I have this is somewhat uncomfortable for me to live this close to negative cash flow every month.

The advice I am seeking is what would be a better way to manage 450k cash that I have. Should I put more money down towards the mortgage and reduce my mortgage payment or try to keep as much mortgage as possible and invest? Also investing wise I have rather low risk tolerance and would like to use some broad index fund like s&p500. What is a good way to buy such index fund? My employer uses empower-retirement.com and they are not very good fee wise.

Sorry if I am braking some rules by posting this question. I am very new to investing and just discovered this great forum. Hopefully someone can make sense of this and give me some advice.
zen88 wrote:
Tue Sep 19, 2017 10:09 pm
I guess it is not that low. The emergency fund I was planning to keep at 50k. That leaves around 400k potentially to invest. Not sure what do you mean under maxing out everything else.
zen88 wrote:
Tue Sep 19, 2017 10:34 pm
Sorry. Forgot to mention this. I'm contributing 3% of my salary ($4800) to 401k since my employer is matching up to 3%.
zen88 wrote:
Tue Sep 19, 2017 11:39 pm
My income is 160k. 25% tax bracket. The job is relatively secure. I work at this company for 5 years. New job with similar salary wouldn't take too long to find. This comes out as ~9700 net pay after 3% contribution to 401k all taxes. I also have +20k yearly bonus which is unreliable year to year. + ~17k my spouse income which is not very reliable either. She is looking to find a better job but it is not clear if this is going to happen or not.
The budget is: (I have a big family)
cars, utilities, real estate taxes ~3k
food, shopping, house maintenance, travel, discretionary spending ~3k The house is ~70 year old and I didn't leave through the winter here yet. So I am not fully aware of the full expenses involved.
That leaves ~3700 for everything else. Which is pretty much my current mortgage spending. This makes me a little uncomfortable. But on the other side I don't want to miss out on the investment opportunities.

Thank you very much! This is all very helpful!
Age 40, married, large family, $75k in your 401k, 37% of net pay going to mortgage note. Contributing only $9.6k per year (including the employer match) toward retirement simply will not do the job.

What is the term of your current mortgage note? (E.g. 15 years, 30 years?)

Set aside $50k or so for an emergency fund in a federally insured savings account or federally insured short-term CDs. For rate shopping see -- www.bankrate.com .

I suggest that you use the other $400k to refinance or recast your mortgage to a lower monthly payment.

What funds are you currently using in your 401k? What are the 4-5 funds offered in your 401k that have the lowest expense ratios? Please give fund names, tickers and expense ratios. If the funds offered in your 401k are good then increase your employee contributions to the 401k to $18k per year.

Do you have any retirement or investing accounts other than your 401k?

If the funds offered in your 401k are not good then open two IRAs, one for you and one for your wife, at a low cost provider like Vanguard. You can contribute up to $5.5k each in the IRAs. Then invest there in broadly diversified index funds with low expense ratios.

In the 25% tax bracket traditional IRAs, rather than Roth IRAs, will likely be better for you.

Always contribute enough to your 401k to get the full employer match each year. That's a minimum, not a maximum to contribute.

You should strive to contribute the maximum to your 401k and to both IRAs. That may be practical if you refinance or recast your mortgage.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

WhiteMaxima
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Re: New to Investing. 450k cash

Post by WhiteMaxima » Wed Sep 20, 2017 11:18 am

pay down your mortgage. 450k is too much to invest in lump sum. Open a line of credit (450k I assume) upon your house. DCA $xxx a month to put into index fund or just BRKB (no tax until you sell). If market crush 50% (if 2008 happens again), pull remaining line credit and lump sum it.

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Toons
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Re: New to Investing. 450k cash

Post by Toons » Wed Sep 20, 2017 11:36 am

"Should I put more money down towards the mortgage"

Without going in to all the details as to why.
For Me,,,without a shred of doubt Yes.
Start with 100k
Get The "Feel Of It"
Today :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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bligh
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Re: New to Investing. 450k cash

Post by bligh » Wed Sep 20, 2017 11:59 am

Personally I would pay the mortgage down to the point where the monthly payment was a more comfortable number for me. The rest I would invest. I would keep 20-30K as cash reserves and invest the rest at a 70/30 or 60/40 asset allocation. Your taxable portfolio IS your emergency fund.

zen88
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Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Wed Sep 20, 2017 12:25 pm

Thank you all very much!

I just checked my 401k. It is 81k as of today with 100% allocated to "Great-West S&P 500 Index Fund Inv". Expense ratio is %0.56

zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Wed Sep 20, 2017 12:28 pm

WhiteMaxima wrote:
Wed Sep 20, 2017 11:18 am
pay down your mortgage. 450k is too much to invest in lump sum. Open a line of credit (450k I assume) upon your house. DCA $xxx a month to put into index fund or just BRKB (no tax until you sell). If market crush 50% (if 2008 happens again), pull remaining line credit and lump sum it.
Isn't that a huge risk?

zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Wed Sep 20, 2017 12:49 pm

ruralavalon wrote:
Wed Sep 20, 2017 10:43 am
Welcome to the forum :) .
Age 40, married, large family, $75k in your 401k, 37% of net pay going to mortgage note. Contributing only $9.6k per year (including the employer match) toward retirement simply will not do the job.
Set aside $50k or so for an emergency fund in a federally insured savings account or federally insured short-term CDs. For rate shopping see -- www.bankrate.com .
I suggest that you use the other $400k to refinance or recast your mortgage to a lower monthly payment.

What is the term of your current mortgage note? (E.g. 15 years, 30 years?)
I know it is not enough. That's why I'm trying to do something :) My current mortgage is 30 year term at 7/1 ARM %3.65. Was going to refi to the same
7/1 ARM just at a lower rate %3.25 and paying down the balance as I refinance.
What funds are you currently using in your 401k? What are the 4-5 funds offered in your 401k that have the lowest expense ratios? Please give fund names, tickers and expense ratios. If the funds offered in your 401k are good then increase your employee contributions to the 401k to $18k per year.
Do you have any retirement or investing accounts other than your 401k?
Not sure if it is any good. I have currently 81k 100% allocated to "Great-West S&P 500 Index Fund Inv". Expense ratio is %0.56. No other savings.

If the funds offered in your 401k are not good then open two IRAs, one for you and one for your wife, at a low cost provider like Vanguard. You can contribute up to $5.5k each in the IRAs. Then invest there in broadly diversified index funds with low expense ratios.

In the 25% tax bracket traditional IRAs, rather than Roth IRAs, will likely be better for you.

Always contribute enough to your 401k to get the full employer match each year. That's a minimum, not a maximum to contribute.

You should strive to contribute the maximum to your 401k and to both IRAs. That may be practical if you refinance or recast your mortgage.
That does sound like a very reasonable approach. Not sure if my current 401k is worth putting more money in.

Thank you for your help!

zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Wed Sep 20, 2017 12:51 pm

indexonlyplease wrote:
Wed Sep 20, 2017 5:48 am
With the $3600 a month can you still max out your 401k and Roth IRA.
What is your desired AA. Lets say 50 percent stocks and 50 fixed income. You could invest 200k into stocks funds and 200k into your mortgages. You just saved 3.65% on your fixed income. Also, lowered your payment.

Just an idea, I disagree with many here and like to have the house paid off as soon as possible. I always believe this can be done at the same time you are maxing out your investments. If someone could not do this than maybe they bought to much house.

It's nice in the future to have your house paid off and your investments working for you. Why, you may consider retirement younger than you thought. Maybe 55 instead of 65. Just a option that is nice to have. Hard to retire paying $3600 a month on your mortgage (for most people).

Also, is the negative cash flow on your monthly budget or on the 450k? Then you have a whole different problem.
Agree on all points. Negative flow on the monthly budget makes me worried. Not sure what do you mean under negative cash flow on 450k.

WanderingDoc
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Re: New to Investing. 450k cash

Post by WanderingDoc » Wed Sep 20, 2017 1:05 pm

zen88 wrote:
Tue Sep 19, 2017 11:49 pm
WanderingDoc wrote:
Tue Sep 19, 2017 11:34 pm
$400K worth of down payments on investment real estate, whether they be passive or active, will yield you $40K per year in annual net income on the low end, which will likely result in a tax bill of $0 on this investment (leveraged real estate has great tax benefits). I know maybe folks will tell you to invest in a 401k, but that money is *poof* gone if you do this and won't generate any monthly income for you NOW. Your mortgage payment is high, and I bet you could use some extra income coming in every month to give you some spending money or extra money to invest.
What is the difference between passive and active real estate investment? I definitely don't want another property to manage. Thank you!
I looked at it like this based on my own experience.

Passive = K-1 partnerships, ie. as an investor in large apartment syndications, agricultural real estate, etc. I spend less time on this that folks spend on their mutual funds in retirement accounts (on the order of minutes per year).
Semi-passive = properties managed by a property manager (I spend 15-30 minutes per month on this, usually a call or two emails per month to a property manager)
Active = you manage. I have a few properties like this, thousands of miles away. Of course, I have folks on the ground to help me if need be. I spend a total of 3-4 hours per month, across the entire portfolio).

Many folks spend the same amount of time tinkering with their stocks and mutual funds, or on the phone with Vanguard that I do investing in real estate. I am a practicing staff physician so you could imagine. I for sure spend less time than even the average indexer on my passive investments as I outlined above.

For my active investments, I am seeing > 40% IRR, for semi-passive 15-20% IRR, and for passive, 8-20% IRR (long-term, annualized numbers). Due to the numbers being so close in the two latter, I am focusing a lot more on the passive investments and probably won't be purchasing any more semi-passive real estate with property management in place. I will be looking at more properties in coastal/island markets as soon as there is a market correction.
One day it suddenly dawned on me that I had won the real estate lottery.

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ruralavalon
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Re: New to Investing. 450k cash

Post by ruralavalon » Wed Sep 20, 2017 3:19 pm

zen88 wrote:
Wed Sep 20, 2017 12:49 pm
ruralavalon wrote:
Wed Sep 20, 2017 10:43 am
Welcome to the forum :) .
Age 40, married, large family, $75k in your 401k, 37% of net pay going to mortgage note. Contributing only $9.6k per year (including the employer match) toward retirement simply will not do the job.
Set aside $50k or so for an emergency fund in a federally insured savings account or federally insured short-term CDs. For rate shopping see -- www.bankrate.com .
I suggest that you use the other $400k to refinance or recast your mortgage to a lower monthly payment.

What is the term of your current mortgage note? (E.g. 15 years, 30 years?)
I know it is not enough. That's why I'm trying to do something :) My current mortgage is 30 year term at 7/1 ARM %3.65. Was going to refi to the same
7/1 ARM just at a lower rate %3.25 and paying down the balance as I refinance.
What will the monthly payment be on that new 3.25% 7/1 ARM?

An Adjustable Rate Mortgage would scare me.

What interest rate and monthly payment will they give you on a 30 year fixed rate mortgage, if you pay down the balance? On a 15 year fixed rate mortgage?

zen88 wrote:
What funds are you currently using in your 401k? What are the 4-5 funds offered in your 401k that have the lowest expense ratios? Please give fund names, tickers and expense ratios. If the funds offered in your 401k are good then increase your employee contributions to the 401k to $18k per year.
Do you have any retirement or investing accounts other than your 401k?
Not sure if it is any good. I have currently 81k 100% allocated to "Great-West S&P 500 Index Fund Inv". Expense ratio is %0.56. No other savings.
It is worthwhile using Great-West S&P 500 index Fund Investor Class (MXVIX) ER 0.56%, in spite of the expense ratio.

What are the 4-5 other funds offered in your 401k which have the lowest expense ratios? Please give fund names, tickers and expense ratios.

You said that you have "a fairly low risk tolerance". You could reduce your risk by adding another fund, such as a bond fund, or an international stock fund, or both. That may largely depend on what else is offered in your 401k.

zen88 wrote:
If the funds offered in your 401k are not good then open two IRAs, one for you and one for your wife, at a low cost provider like Vanguard. You can contribute up to $5.5k each in the IRAs. Then invest there in broadly diversified index funds with low expense ratios.

In the 25% tax bracket traditional IRAs, rather than Roth IRAs, will likely be better for you.

Always contribute enough to your 401k to get the full employer match each year. That's a minimum, not a maximum to contribute.

You should strive to contribute the maximum to your 401k and to both IRAs. That may be practical if you refinance or recast your mortgage.
That does sound like a very reasonable approach. Not sure if my current 401k is worth putting more money in.
Yes it is worth it to contribute more to your 401k. The tax deduction and the tax-deferred growth are both worth quite a lot. The 0.56% expense ratio on Great-West S&P 500 Index Fund Investor Class (MXVIX) is not high enough to destroy the tax benefits.

For what it's worth, I had a similar high expense S&P 500 index fund in my 401k. I used it as my only fund in the 401k, because there was no better U.S. stock fund, and no bond fund or international stock fund offered in my 401k with a similar expense ratio.

I still suggest opening two traditional IRAs at Vanguard, and contributing $5.5k per year to each.

To "jump start" your additional retirement investing you could take $22k of that $400k, and invest $11k now in the IRAs for your 2017 contributions and then add another $11k to the IRAs in January for your 2018 contributions.

Contribute at least enough to your 401k as needed to get the full employer match every year, and contribute more to your 401k if practical.

Please see the wiki article "prioritizing investments".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Wed Sep 20, 2017 6:26 pm

ruralavalon wrote:
Wed Sep 20, 2017 3:19 pm

What will the monthly payment be on that new 3.25% 7/1 ARM?
An Adjustable Rate Mortgage would scare me.
What interest rate and monthly payment will they give you on a 30 year fixed rate mortgage, if you pay down the balance? On a 15 year fixed rate mortgage?
If I put 380k towards the house my payment will be $1800. If I put 180k it will be $2600.

30 y fixed rate is 3.87-4%. So If put down 380k towards the house I'll be paying $1900.
It is worthwhile using Great-West S&P 500 index Fund Investor Class (MXVIX) ER 0.56%, in spite of the expense ratio.

What are the 4-5 other funds offered in your 401k which have the lowest expense ratios? Please give fund names, tickers and expense ratios.

You said that you have "a fairly low risk tolerance". You could reduce your risk by adding another fund, such as a bond fund, or an international stock fund, or both. That may largely depend on what else is offered in your 401k.
Here is the list of everything that is lower than 0.8 expense ratio.
  • Great-West S&P SmallCap 600® Index Inv MXISX  0.56 / 0.56
  • Great-West S&P MidCap 400 Index Fund Inv MXMDX  0.56 / 0.55
  • Great-West Real Estate Index Fund Inv MXREX  0.75 / 0.70
  • Great-West International Index Fund Inv MXINX  0.68 / 0.67
  • Great-West Bond Index Fund Inv MXBIX  0.50 / 0.50
  • Great-West US Govt Securities Fund Inv MXGMX  0.64 / 0.60
  • Great-West S&P 500 Index Fund Inv MXVIX  0.54 / 0.54
  • PIMCO Total Return Admin PTRAX  0.76 / 0.71
Please see the wiki article "prioritizing investments".
Will do!

Thank you!

indexonlyplease
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Location: Pembroke Pines, FL

Re: New to Investing. 450k cash

Post by indexonlyplease » Wed Sep 20, 2017 6:56 pm

zen88 wrote:
Wed Sep 20, 2017 12:51 pm
indexonlyplease wrote:
Wed Sep 20, 2017 5:48 am
With the $3600 a month can you still max out your 401k and Roth IRA.
What is your desired AA. Lets say 50 percent stocks and 50 fixed income. You could invest 200k into stocks funds and 200k into your mortgages. You just saved 3.65% on your fixed income. Also, lowered your payment.

Just an idea, I disagree with many here and like to have the house paid off as soon as possible. I always believe this can be done at the same time you are maxing out your investments. If someone could not do this than maybe they bought to much house.

It's nice in the future to have your house paid off and your investments working for you. Why, you may consider retirement younger than you thought. Maybe 55 instead of 65. Just a option that is nice to have. Hard to retire paying $3600 a month on your mortgage (for most people).

Also, is the negative cash flow on your monthly budget or on the 450k? Then you have a whole different problem.
Agree on all points. Negative flow on the monthly budget makes me worried. Not sure what do you mean under negative cash flow on 450k.
Was not 100% sure if you meant monthly neg cash flow or the neg cash flow from not collecting interest on the 450k. But I do see you meant monthly.

Is a cheaper house a option.

zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Wed Sep 20, 2017 7:09 pm

indexonlyplease wrote:
Wed Sep 20, 2017 6:56 pm
Is a cheaper house a option.
I had a cheaper house. This is a new one.

zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Wed Sep 20, 2017 11:42 pm

So my current plan is:
Refinance with putting down 300k towards the mortgage. That makes my monthly payments decrease to 2200 from 3500. Remaining 150k I will use as emergency fund and to max out my 401k, traditional IRA for me and my spouse going forward. This will take about 24k/year since I was putting down 5k already. So I should be fine for the 2017, 2018 and 2019. And hopefully by then I will be able to max those out by myself without getting into my emergency fund.

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Shackleton
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Re: New to Investing. 450k cash

Post by Shackleton » Thu Sep 21, 2017 6:46 am

Good plan. I would also suggest you read "The Boglehead's Guide to Investing" (available from Amazon or your library) and the wiki page here on "Getting Started"
“Superhuman effort isn't worth a damn unless it achieves results.” ~Ernest Shackleton

jaj2276
Posts: 307
Joined: Sat Apr 16, 2011 5:13 pm

Re: New to Investing. 450k cash

Post by jaj2276 » Thu Sep 21, 2017 7:22 am

zen88 wrote:
Wed Sep 20, 2017 11:42 pm
So my current plan is:
Refinance with putting down 300k towards the mortgage. That makes my monthly payments decrease to 2200 from 3500. Remaining 150k I will use as emergency fund and to max out my 401k, traditional IRA for me and my spouse going forward. This will take about 24k/year since I was putting down 5k already. So I should be fine for the 2017, 2018 and 2019. And hopefully by then I will be able to max those out by myself without getting into my emergency fund.
With your 3.625% rate and where rates are now, and since it seems like you are early on in your mortgage, I would recast your mortgage as opposed to refi. You will likely save on fees.

My lender (SunTrust) offers unlimited recast for a $250 fee so maybe yours might offer something similar. With a recast you don't extend the term (you will with a refi) but they amortize the remaining amount over the remaining life of the loan.

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ruralavalon
Posts: 11281
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Location: Illinois

Re: New to Investing. 450k cash

Post by ruralavalon » Thu Sep 21, 2017 11:13 am

zen88 wrote:
Wed Sep 20, 2017 11:42 pm
So my current plan is:
Refinance with putting down 300k towards the mortgage. That makes my monthly payments decrease to 2200 from 3500. Remaining 150k I will use as emergency fund and to max out my 401k, traditional IRA for me and my spouse going forward. This will take about 24k/year since I was putting down 5k already. So I should be fine for the 2017, 2018 and 2019. And hopefully by then I will be able to max those out by myself without getting into my emergency fund.
That sounds plausible. It looks like you will substantially decrease your monthly cash needs, and probably enable maximum or near maximum contributions to your 401k and two traditional IRA accounts.

It has been a long time since we had a mortgage, so I will leave it to others to suggest any tweaks to your plan about the mortgage.

For a calculator you can use to analyze the likely long-term results of your retirement investing program try firecalc.com .


Fund selection.
In selecting funds to use strive for a good combination of broad diversification (to decrease your risk) and low expense ratios (to increase your net return).

To simply and easily achieve those two goals I suggest the three-fund portfolio. Please see the wiki article "three-fund portfolio" and the forum discussion "the three-fund portfolio".

There is a decent set of funds offered in your 401k, the funds offered are above average for a 401k. In your 401k the funds to consider using include:
1) Great-West S&P 500 index Fund Investor Class (covers stocks of larger companies, 81% of U.S. stock market) (MXVIX) ER 0.54%
2) Great-West International Index Fund Investor Class (uses the MSCI EAFE Index, stocks of larger companies in developed markets except Canada) (MXINX) ER 0.67%
3) Great-West Bond Index Fund Investor Class (uses the Bloomberg Barclays U.S. Aggregate Bond Index, the most diversified domestic bond index) (MXBIX) ER 0.50%

In my opinion the most significant omission in the funds offered in your 401k is the lack of an investment in emerging markets. You could consider putting part of the IRA money in Vanguard Emerging Markets Index Fund (VEIEX) ER 0.32%.

Or instead of using the international fund in your 401k you could use Vanguard Total International Stock Index Fund Investor Shares (VGTSX) ER 0.18% in the IRAs. That fund covers stocks of both larger and smaller companies, in both emerging and developed markets including Canada.


Asset allocation.
You will need to decide on an asset allocation to use. At age 40 I suggest around 25-30% in bonds. Please see the wiki article "asset allocation" and the wiki article Bogleheads Investment Philosophy part 3 "never bear too much or too little risk".

I suggest around 20-30% of stocks in international stocks. Historically that international allocation would have captured about 84-99% of the maximum historical diversification benefit from adding international stocks to the allocation. For a pdf of a Vanguard paper on this you could Google "Considerations for Investing in Non-U.S. Equities" (see pp.5-6).

That would work out to about 25-30% bonds, 15-20% international stocks, and 40-50% domestic stocks. Asset allocation is a very personal decision which you must make, based on your own ability, willingness and need to take risk.

If you have any questions just ask.

. . . . .

I suggest that you read one or two books on general investing. Please see the wiki article "books: recommendations and reviews".
Last edited by ruralavalon on Thu Sep 21, 2017 12:01 pm, edited 9 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

CantPassAgain
Posts: 426
Joined: Fri Mar 15, 2013 8:49 pm

Re: New to Investing. 450k cash

Post by CantPassAgain » Thu Sep 21, 2017 11:42 am

Zen88, whatever you do, understand that real estate investing is not what this forum generally espouses and anyone pushing hard for that at the expense of traditional investing in mutual funds should be viewed with a very skeptical eye.

Also, Ruralavalon knows what he is talking about.

Good luck.

tampaite
Posts: 348
Joined: Wed Feb 18, 2015 9:29 pm

Re: New to Investing. 450k cash

Post by tampaite » Thu Sep 21, 2017 12:01 pm

zen88 wrote:
Tue Sep 19, 2017 9:01 pm


The advice I am seeking is what would be a better way to manage 450k cash that I have.
Also investing wise I have rather low risk tolerance and would like to use some broad index fund like s&p500.
My 2cents. Take $450K and pay down mortage. No brainer.

zen88
Posts: 13
Joined: Tue Sep 19, 2017 8:44 pm

Re: New to Investing. 450k cash

Post by zen88 » Thu Sep 21, 2017 12:52 pm

How do I contribute to a tax deductible way to IRA if I already max out my 401k?

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ruralavalon
Posts: 11281
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Location: Illinois

Re: New to Investing. 450k cash

Post by ruralavalon » Thu Sep 21, 2017 1:26 pm

zen88 wrote:
Thu Sep 21, 2017 12:52 pm
How do I contribute to a tax deductible way to IRA if I already max out my 401k?
Ability to deduct an IRA contribution depends on your MAGI (modified adjusted gross income). I don't know what the MAGI is for you, but it's probably too high for a full deduction on your IRA contributions.

The income limit for contributing to a Roth IRA is higher, so use a Roth IRA if your MAGI is too high to deduct IRA contributions.

Since your wife has no work-based plan the income limit is higher for her to make deductible IRA contributions. If she also is above the MAGI limit to make deductible IRA contributions, then use a Roth IRA for her too.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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