How to invest our extra income?

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rhodnius
Posts: 65
Joined: Sat May 30, 2015 5:07 pm

How to invest our extra income?

Post by rhodnius » Thu Nov 30, 2017 8:38 am

Hello fellow Bogleheads!

We have an investing dilemma. Here's our situation: We have a $45k emergency fund in our bank account and we fully maximize our
retirement accounts every year (403b, 457b, Roth 401k, backdoor Roth IRAs and HSA). In the
beginning of the year we front load our backdoor Roth IRAs and HSA accounts and
invest them in the total stock market. For our 403b, 457b and Roth 401k they are
automatically invested per pay period in the total stock market. We maintain around
80 stocks / 20 bonds. Aside from our emergency fund, we accumulate around $15k from our paychecks every month in our bank account. We are wondering what to do with the extra $15k that comes every month. At the end of the month we look
at our asset allocation and it seems like it does not move much; it's still around
80 stock / 20 bond. So the question is: should we leave the extra $15k that
accumulates every month in our bank checking account and use it only when the ratio/asset
allocation changes OR use the monthly $15k to buy stock or bond index funds in our taxable
(still maintaining 80 stock / 20 bond). The latter approach however will likely force us to buy
municipal bond funds in our taxable account if stocks continue to perform well (we've been trying to avoid municipal bond funds in our taxable account because of higher expense ratios).

Is having a municipal bond in our taxable account the optimal way to utilize the extra $15k? What would you do? Any input much appreciated.

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Tamarind
Posts: 1118
Joined: Mon Nov 02, 2015 2:38 pm

Re: How to invest our extra income?

Post by Tamarind » Thu Nov 30, 2017 8:42 am

I would suggest you invest it in taxable (100% stocks) and adjust your AA in your retirement accounts to offset with more bonds. No need for munis yet.

guitarguy
Posts: 1761
Joined: Mon Dec 20, 2010 4:10 pm

Re: How to invest our extra income?

Post by guitarguy » Thu Nov 30, 2017 8:58 am

Invest in TSM in a taxable account and adjust your AA for more bonds in the tax deferred accounts to realign things.

Or, if you have debt, paying that down would be an option too.

:beer

User avatar
CyclingDuo
Posts: 1595
Joined: Fri Jan 06, 2017 9:07 am

Re: How to invest our extra income?

Post by CyclingDuo » Thu Nov 30, 2017 9:02 am

rhodnius wrote:
Thu Nov 30, 2017 8:38 am
Hello fellow Bogleheads!

We have an investing dilemma. Here's our situation: We have a $45k emergency fund in our bank account and we fully maximize our
retirement accounts every year (403b, 457b, Roth 401k, backdoor Roth IRAs and HSA). In the
beginning of the year we front load our backdoor Roth IRAs and HSA accounts and
invest them in the total stock market. For our 403b, 457b and Roth 401k they are
automatically invested per pay period in the total stock market. We maintain around
80 stocks / 20 bonds. Aside from our emergency fund, we accumulate around $15k from our paychecks every month in our bank account. We are wondering what to do with the extra $15k that comes every month. At the end of the month we look
at our asset allocation and it seems like it does not move much; it's still around
80 stock / 20 bond. So the question is: should we leave the extra $15k that
accumulates every month in our bank checking account and use it only when the ratio/asset
allocation changes OR use the monthly $15k to buy stock or bond index funds in our taxable
(still maintaining 80 stock / 20 bond). The latter approach however will likely force us to buy
municipal bond funds in our taxable account if stocks continue to perform well (we've been trying to avoid municipal bond funds in our taxable account because of higher expense ratios).

Is having a municipal bond in our taxable account the optimal way to utilize the extra $15k? What would you do? Any input much appreciated.
All debts paid down (outside of mortgage)?

Nothing wrong with taxable account investing once you have filled your tax deferred, and paid off your debts. Tax efficient things like Total Stock Market, Total International, Berkshire B, Vanguard Muni Fund, CD Ladders, etc... would be the place to start.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: How to invest our extra income?

Post by dbr » Thu Nov 30, 2017 9:03 am

Yep, those two guys are right.

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BL
Posts: 8189
Joined: Sun Mar 01, 2009 2:28 pm

Re: How to invest our extra income?

Post by BL » Thu Nov 30, 2017 9:06 am

Do you have any debt you could apply the extra cash to, including mortgage?

Have you considered I-Bonds? If you have less than 30 years until retirement you could defer taxes until then by waiting to cash them. They should about keep up with inflation. Some use for emergency fund (after holding 1 year).

Vanguard's intermediate term muni is 0.19 ER for investors (3k) and 0.09 ER for Admiral (50k), so maybe not so bad.

No need to keep same AA in each account. Look at total investments for retirement. Stock index funds are great for taxable account.

rhodnius
Posts: 65
Joined: Sat May 30, 2015 5:07 pm

Re: How to invest our extra income?

Post by rhodnius » Thu Nov 30, 2017 10:04 am

Tamarind wrote:
Thu Nov 30, 2017 8:42 am
I would suggest you invest it in taxable (100% stocks) and adjust your AA in your retirement accounts to offset with more bonds. No need for munis yet.
Thank you for your input! =)

rhodnius
Posts: 65
Joined: Sat May 30, 2015 5:07 pm

Re: How to invest our extra income?

Post by rhodnius » Thu Nov 30, 2017 10:04 am

guitarguy wrote:
Thu Nov 30, 2017 8:58 am
Invest in TSM in a taxable account and adjust your AA for more bonds in the tax deferred accounts to realign things.

Or, if you have debt, paying that down would be an option too.

:beer
Thank you for your input! =)

rhodnius
Posts: 65
Joined: Sat May 30, 2015 5:07 pm

Re: How to invest our extra income?

Post by rhodnius » Thu Nov 30, 2017 10:05 am

CyclingDuo wrote:
Thu Nov 30, 2017 9:02 am
rhodnius wrote:
Thu Nov 30, 2017 8:38 am
Hello fellow Bogleheads!

We have an investing dilemma. Here's our situation: We have a $45k emergency fund in our bank account and we fully maximize our
retirement accounts every year (403b, 457b, Roth 401k, backdoor Roth IRAs and HSA). In the
beginning of the year we front load our backdoor Roth IRAs and HSA accounts and
invest them in the total stock market. For our 403b, 457b and Roth 401k they are
automatically invested per pay period in the total stock market. We maintain around
80 stocks / 20 bonds. Aside from our emergency fund, we accumulate around $15k from our paychecks every month in our bank account. We are wondering what to do with the extra $15k that comes every month. At the end of the month we look
at our asset allocation and it seems like it does not move much; it's still around
80 stock / 20 bond. So the question is: should we leave the extra $15k that
accumulates every month in our bank checking account and use it only when the ratio/asset
allocation changes OR use the monthly $15k to buy stock or bond index funds in our taxable
(still maintaining 80 stock / 20 bond). The latter approach however will likely force us to buy
municipal bond funds in our taxable account if stocks continue to perform well (we've been trying to avoid municipal bond funds in our taxable account because of higher expense ratios).

Is having a municipal bond in our taxable account the optimal way to utilize the extra $15k? What would you do? Any input much appreciated.
All debts paid down (outside of mortgage)?

Nothing wrong with taxable account investing once you have filled your tax deferred, and paid off your debts. Tax efficient things like Total Stock Market, Total International, Berkshire B, Vanguard Muni Fund, CD Ladders, etc... would be the place to start.
Yes. No debts. No mortgage. Thank you for your input! =)

rhodnius
Posts: 65
Joined: Sat May 30, 2015 5:07 pm

Re: How to invest our extra income?

Post by rhodnius » Thu Nov 30, 2017 10:10 am

BL wrote:
Thu Nov 30, 2017 9:06 am
Do you have any debt you could apply the extra cash to, including mortgage?

Have you considered I-Bonds? If you have less than 30 years until retirement you could defer taxes until then by waiting to cash them. They should about keep up with inflation. Some use for emergency fund (after holding 1 year).

Vanguard's intermediate term muni is 0.19 ER for investors (3k) and 0.09 ER for Admiral (50k), so maybe not so bad.

No need to keep same AA in each account. Look at total investments for retirement. Stock index funds are great for taxable account.
No debts/mortgage. We plan to use I bonds in a taxable account when we need inflation protection down the road and TIPS in a tax-advantaged account. We don't keep the same AA in each account. We view all accounts as one asset allocation. Thank you for your input! =)

chevca
Posts: 1789
Joined: Wed Jul 26, 2017 11:22 am

Re: How to invest our extra income?

Post by chevca » Thu Nov 30, 2017 10:54 am

Any plans to buy a house/save for a down payment?

If not, do as they said above.

rhodnius
Posts: 65
Joined: Sat May 30, 2015 5:07 pm

Re: How to invest our extra income?

Post by rhodnius » Fri Dec 01, 2017 8:50 am

chevca wrote:
Thu Nov 30, 2017 10:54 am
Any plans to buy a house/save for a down payment?

If not, do as they said above.
Not at the moment. Thank you for your input!

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ruralavalon
Posts: 13500
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: How to invest our extra income?

Post by ruralavalon » Fri Dec 01, 2017 11:27 am

This is a nice dilemma to have. It's good to see that you have no debt.
Tamarind wrote:
Thu Nov 30, 2017 8:42 am
I would suggest you invest it in taxable (100% stocks) and adjust your AA in your retirement accounts to offset with more bonds. No need for munis yet.
I agree with this suggestion.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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