Investing small amounts

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Thegame14
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Investing small amounts

Post by Thegame14 » Wed Jun 27, 2018 1:58 pm

For a vanguard brokerage account, I want to invest a few hundred dollars a month for a time frame of needing the money in about a year. What is the best fund to do this with to start being only $100 or so, and then as I move up to hopefully a few thousand do I sell and move it into something else like VTSAX? Looking for growth and not too much risk, but growth is always good. If there was anything "safe" where I can get like a 5% return without having to worry about a huge drop in value, that would be great. but we all know more risk = more potential return.

chevca
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Re: Investing small amounts

Post by chevca » Wed Jun 27, 2018 2:03 pm

An online savings account is all you need for that amount and time frame.

Even 5% on this amount won't make you rich... 5% of $3000 is $150... 1.65% (ally) is $49.50. And, you won't have $3000 in the until the end, so it won't even be that for either. Granted, if there's not much to be made, there's not much to lose on this amount. But, no need to take risk. Your monthly contributions will be what grows the account, not any returns.

Nothing safe is giving 5% these days.

dbr
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Re: Investing small amounts

Post by dbr » Wed Jun 27, 2018 2:07 pm

Thegame14 wrote:
Wed Jun 27, 2018 1:58 pm
For a vanguard brokerage account, I want to invest a few hundred dollars a month for a time frame of needing the money in about a year.

For that criterion you can use a money market account or just go to a bank and open a savings account. But I don't know if you really mean "needing he money in about a year."

What is the best fund to do this with to start being only $100 or so, and then as I move up to hopefully a few thousand do I sell and move it into something else like VTSAX?

If the one year criterion continues to apply you don't move into something else. VTSAX is a stock fund intended for long term, aka lifetime, investing, so you are sending a confusing message about your intent. What do you have in mind here?

Looking for growth and not too much risk, but growth is always good. If there was anything "safe" where I can get like a 5% return without having to worry about a huge drop in value, that would be great. but we all know more risk = more potential return.

Well, you can't have your cake and eat it too. Investments that don't vary in value by very much don't have 5% returns right now, so your requirement can't be met. It may be a question what your objective really is here.

delamer
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Re: Investing small amounts

Post by delamer » Wed Jun 27, 2018 2:20 pm

You are not going to get 5% without the risk of losing principal, given your short time frame.

If you understand the risk/return relationship, then you know that VTSAX could lose a lot of value quickly.

You’d be better off looking into CDs.

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Sandtrap
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Re: Investing small amounts

Post by Sandtrap » Wed Jun 27, 2018 2:27 pm

High yield savings account.
Prime Money Market.
Etc.
5% is unrealistic.
If you invested in an equity fund, would you be prepared to lose up to 30% of it in 12 months?
j

SimplicityNow
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Re: Investing small amounts

Post by SimplicityNow » Wed Jun 27, 2018 3:07 pm

Money needed in 12 months should not be invested in the stock market.

5% is not going to happen without a lot of risk which you can't afford to take because you need it in a year.

Realistically the best you can do given the limitations is a 12 month CD which can return 2 - 2.4 % and it is FDIC insured.

EDIT: Rereading your post I see you don't have the amounts to invest in higher yield CDs.

A higher yield savings account or money market is your best bet.

Thegame14
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Re: Investing small amounts

Post by Thegame14 » Wed Jun 27, 2018 3:17 pm

the main thought is that right now I have an extra few hundred dollars a month to save/invest/pay down debt, but in a year or so if we have another baby, then daycare costs will go up by about $1,500 a month and we will actually be about $1,000 a month in the hole, so I am trying to take the amount I am ahead now, and plan for a future date when there will be months I will be in the hole. But it is temporary as in about 2 years the first child will leave daycare and go to public school so we may have to pay for aftercare, but it will be a lot less than daycare, so then we will be ok again.

Or I can pay down my HELOC, which I also should probably get locked in soon, before another interest rate hike. The thought there is pay down the debt at 5.49% interest now while I can then if I have to borrow for months while we are in the hole, then at least that debt will be at a lower starting point.

I can increase my income in about two years by leaving my current job for another one, but I really need to stay here two more years.

chevca
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Re: Investing small amounts

Post by chevca » Wed Jun 27, 2018 3:21 pm

Thegame14 wrote:
Wed Jun 27, 2018 3:17 pm
Or I can pay down my HELOC, which I also should probably get locked in soon, before another interest rate hike. The thought there is pay down the debt at 5.49% interest now while I can then if I have to borrow for months while we are in the hole, then at least that debt will be at a lower starting point.
Um, what is there to think about here? Any extra small amounts you have should be going towards that, IMO.

Do you have an emergency fund? Soon to be $1000 in the hole each month is your biggest worry.

Investing extra money isn't even on the horizon for you yet.

Thegame14
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Re: Investing small amounts

Post by Thegame14 » Wed Jun 27, 2018 3:23 pm

chevca wrote:
Wed Jun 27, 2018 3:21 pm
Thegame14 wrote:
Wed Jun 27, 2018 3:17 pm
Or I can pay down my HELOC, which I also should probably get locked in soon, before another interest rate hike. The thought there is pay down the debt at 5.49% interest now while I can then if I have to borrow for months while we are in the hole, then at least that debt will be at a lower starting point.
Um, what is there to think about here? Any extra small amounts you have should be going towards that, IMO.

Do you have an emergency fund? Soon to be $1000 in the hole each month is your biggest worry.

Investing extra money isn't even on the horizon for you yet.
yeah we have about $50K in emergency funds, plus the HELOC and it is only temporary as the first child will go to public school in 2 years so probably only 1 year of being in the hole, and if I had to I could adjust my 401K down to lessen that as well. my company puts in 5% no matter what I put in, so absolute worst case move my 401K from 10% to nothing if we really needed the cash, that would cover most of the shortfall.
Last edited by Thegame14 on Wed Jun 27, 2018 3:26 pm, edited 1 time in total.

chevca
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Re: Investing small amounts

Post by chevca » Wed Jun 27, 2018 3:25 pm

Thegame14 wrote:
Wed Jun 27, 2018 3:23 pm
chevca wrote:
Wed Jun 27, 2018 3:21 pm
Thegame14 wrote:
Wed Jun 27, 2018 3:17 pm
Or I can pay down my HELOC, which I also should probably get locked in soon, before another interest rate hike. The thought there is pay down the debt at 5.49% interest now while I can then if I have to borrow for months while we are in the hole, then at least that debt will be at a lower starting point.
Um, what is there to think about here? Any extra small amounts you have should be going towards that, IMO.

Do you have an emergency fund? Soon to be $1000 in the hole each month is your biggest worry.

Investing extra money isn't even on the horizon for you yet.
yeah we have about $50K in emergency funds, plus the HELOC.
That sounds better than I was thinking. Where is the EF sitting/what is it earning? How much is left on the HELOC?

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Tyler Aspect
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Re: Investing small amounts

Post by Tyler Aspect » Wed Jun 27, 2018 3:44 pm

For very short term investment of money that is needed within a year you can consider 6 month US Treasury Bills. They are yielding 2.10% at this moment. You can purchase them easily from a taxable brokerage account. The minimum investment amount is usually $1000.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

Flyer24
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Re: Investing small amounts

Post by Flyer24 » Wed Jun 27, 2018 3:55 pm

Thegame14 wrote:
Wed Jun 27, 2018 3:23 pm
chevca wrote:
Wed Jun 27, 2018 3:21 pm
Thegame14 wrote:
Wed Jun 27, 2018 3:17 pm
Or I can pay down my HELOC, which I also should probably get locked in soon, before another interest rate hike. The thought there is pay down the debt at 5.49% interest now while I can then if I have to borrow for months while we are in the hole, then at least that debt will be at a lower starting point.
Um, what is there to think about here? Any extra small amounts you have should be going towards that, IMO.

Do you have an emergency fund? Soon to be $1000 in the hole each month is your biggest worry.

Investing extra money isn't even on the horizon for you yet.
yeah we have about $50K in emergency funds, plus the HELOC and it is only temporary as the first child will go to public school in 2 years so probably only 1 year of being in the hole, and if I had to I could adjust my 401K down to lessen that as well. my company puts in 5% no matter what I put in, so absolute worst case move my 401K from 10% to nothing if we really needed the cash, that would cover most of the shortfall.
Keep in mind you lose benefit of tax deferral by adjusting your 401K down. You are going to pay more in taxes from your paycheck. I wouldn’t change the retirement contribution unless absolutely necessary.

Thegame14
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Re: Investing small amounts

Post by Thegame14 » Wed Jun 27, 2018 4:01 pm

chevca wrote:
Wed Jun 27, 2018 3:25 pm
Thegame14 wrote:
Wed Jun 27, 2018 3:23 pm
chevca wrote:
Wed Jun 27, 2018 3:21 pm
Thegame14 wrote:
Wed Jun 27, 2018 3:17 pm
Or I can pay down my HELOC, which I also should probably get locked in soon, before another interest rate hike. The thought there is pay down the debt at 5.49% interest now while I can then if I have to borrow for months while we are in the hole, then at least that debt will be at a lower starting point.
Um, what is there to think about here? Any extra small amounts you have should be going towards that, IMO.

Do you have an emergency fund? Soon to be $1000 in the hole each month is your biggest worry.

Investing extra money isn't even on the horizon for you yet.
yeah we have about $50K in emergency funds, plus the HELOC.
That sounds better than I was thinking. Where is the EF sitting/what is it earning? How much is left on the HELOC?
about half the EF is just in checking the rest at 1.6% internet banking Ally Capital One 360. The heloc was for $90K, we used about 30K for solar panels and a new roof. It is a payback of about 5 years, since we now have zero electric bill (used to be about $150 a month average) and net about $200 a month positive cash flow from 1 SREC per month. And the interest is deductible since it went towards the house. GREAT investment and helps the environment as well :sharebeer

AlwaysWannaLearn
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Re: Investing small amounts

Post by AlwaysWannaLearn » Wed Jun 27, 2018 4:06 pm

.....
Last edited by AlwaysWannaLearn on Wed Jul 18, 2018 11:16 pm, edited 1 time in total.

Thegame14
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Re: Investing small amounts

Post by Thegame14 » Wed Jun 27, 2018 4:09 pm

AlwaysWannaLearn wrote:
Wed Jun 27, 2018 4:06 pm
Thegame14 wrote:
Wed Jun 27, 2018 1:58 pm
If there was anything "safe" where I can get like a 5% return without having to worry about a huge drop in value, that would be great.
Yeah, and when you find it, let the rest of us know....

Dude, I've only skimmed the posts after the OP, but it sounds like you're playing pretty close to the line. Your forum name is duly noted, btw.
If you find the game fun, by all means knock yourself out. I'm not here to judge. If I were in your shoes, candidly I'd forget about the market and get my financial house in order. Just my $.02.

And where is my financial house NOT in order??? I am pretty sure I am doing better than most people my age.... and I need to see if I still have my notebook from my MBA when I took a class in investing where the professor who was a hedge fund manager, told me about a hedgefund that is pretty much a 5-6% return every year for last 15 years.

and my forum name is related to Triple H the wrestler BTW.....

chevca
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Re: Investing small amounts

Post by chevca » Wed Jun 27, 2018 4:14 pm

Thegame14 wrote:
Wed Jun 27, 2018 4:09 pm
and I need to see if I still have my notebook from my MBA when I took a class in investing where the professor who was a hedge fund manager, told me about a hedgefund that is pretty much a 5-6% return every year for last 15 years.
Okay then..... :|

Jack FFR1846
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Re: Investing small amounts

Post by Jack FFR1846 » Wed Jun 27, 2018 4:23 pm

Back on track with a concrete answer: Redneck Bank Megamoney account. Currently at 2%.
Bogle: Smart Beta is stupid

stevedc
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Re: Investing small amounts

Post by stevedc » Wed Jun 27, 2018 5:50 pm

some thoughts in no particular order, some of which you may have thought of already:

- only stop contributing to the 401k as an absolute last resort.

- why not cover the 12 month shortfall with a combo of your emergency fund and some serious belt tightening? after all, if you would otherwise borrow from your HELOC at about 5.5% to make up the shortfall, then by "borrowing from yourself" you actually are getting the guaranteed return of 5.5% that you seek! :happy

- your biggest target of opportunity would be moving the entire EF into interest bearing accounts or short term treasuries, as you're getting nothing on the 20K that's sitting in checking. This is by far a bigger missed opportunity than the surplus couple of hundred dollars per month looking for a home.

A bit off topic, but regarding the hedge fund comments:
- the hedgefund comment from the b school prof is dodgy. Look at a total market ETF like Vanguard's VTI https://investor.vanguard.com/etf/profi ... rmance/vti and you'll see since *inception* (more than 15 years) it has annualized rates of return of 7+ percent, far better than the purported hedge fund returns. Also, a hedge fund returning "only" 5-6% would be viewed as a poor performer in that world. hedgie investors are typically expecting way more that 5-6% per year...

- let's assume we take the professor at his word and this special fund does that offers a guaranteed (ie, risk free) return, then I would point to something else that I would expect he also covered in his class, which is arbitrage. Think about it - if some magical fund existed that guaranteed 5-6% per year without risk, then everyone would pile into this investment until it drove the price up so its yield would match the risk free treasury yield. The market would instantly arbitrage away any such magical investment opportunity into oblivion.

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CyclingDuo
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Re: Investing small amounts

Post by CyclingDuo » Wed Jun 27, 2018 6:15 pm

Thegame14 wrote:
Wed Jun 27, 2018 1:58 pm
For a vanguard brokerage account, I want to invest a few hundred dollars a month for a time frame of needing the money in about a year. What is the best fund to do this with to start being only $100 or so, and then as I move up to hopefully a few thousand do I sell and move it into something else like VTSAX? Looking for growth and not too much risk, but growth is always good. If there was anything "safe" where I can get like a 5% return without having to worry about a huge drop in value, that would be great. but we all know more risk = more potential return.
Use M1 Finance (no fees) and buy AT&T stock. It's yielding 6.33%. :beer
"Everywhere is within walking distance if you have the time." ~ Steven Wright

AlwaysWannaLearn
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Re: Investing small amounts

Post by AlwaysWannaLearn » Thu Jun 28, 2018 9:32 pm

.....
Last edited by AlwaysWannaLearn on Wed Jul 18, 2018 11:15 pm, edited 2 times in total.

bstewie
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Re: Investing small amounts

Post by bstewie » Thu Jun 28, 2018 10:11 pm

Thegame14 wrote:
Wed Jun 27, 2018 4:09 pm
And where is my financial house NOT in order???
Technically, you took out a loan @ 5.5% to purchase things you couldn't afford to pay for out of pocket (assuming you wanted to keep your EF in tact). The interest deductions and the environmental benefits are just a nice way to justify the loan @ 5.5%. Now you are looking for a 5% return. Don't spend money you don't have, there is your 5% return. Let's say you do contribute a few hundred dollars every month for the next year... if your risk free 5% return existed, you would yield $180 before taxes ($3.6k@5%, assuming it was all invested right now). If you simply moved your checking account into a higher yield, risk free vehicle, you would yield $320-400 (20k@1.6%-2%) before taxes.

Hedge fund talk, etc. is nonsense... you are talking about a few hundred dollars a month... even though I'm sure they would love to lose it for you.

ilovetech
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Re: Investing small amounts

Post by ilovetech » Fri Jun 29, 2018 1:41 am

I have a guaranteed 5.5% return for you. Take 30k of you EF and pay off loans. Bam instant 5.5% savings actually more, cause instead of paying 5.5% for x number of years you are paying it all off now so maybe 15% savings.

You will build up you EF much faster too, now you have way more money saved monthly plus now you gain an extra 2 to 3% on top of the new money saved.

Valuethinker
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Re: Investing small amounts

Post by Valuethinker » Fri Jun 29, 2018 5:47 am

Thegame14 wrote:
Wed Jun 27, 2018 4:09 pm
AlwaysWannaLearn wrote:
Wed Jun 27, 2018 4:06 pm
Thegame14 wrote:
Wed Jun 27, 2018 1:58 pm
If there was anything "safe" where I can get like a 5% return without having to worry about a huge drop in value, that would be great.
Yeah, and when you find it, let the rest of us know....

Dude, I've only skimmed the posts after the OP, but it sounds like you're playing pretty close to the line. Your forum name is duly noted, btw.
If you find the game fun, by all means knock yourself out. I'm not here to judge. If I were in your shoes, candidly I'd forget about the market and get my financial house in order. Just my $.02.

And where is my financial house NOT in order??? I am pretty sure I am doing better than most people my age.... and I need to see if I still have my notebook from my MBA when I took a class in investing where the professor who was a hedge fund manager, told me about a hedgefund that is pretty much a 5-6% return every year for last 15 years.

and my forum name is related to Triple H the wrestler BTW.....
If you did an MBA with a finance concentration then your question seems at odds with your background? It's the kind of thing MBAs in Finance drink in.

As to the professor. Well Madoff made the same claim (10% pa in Madoff's case). And of course that was fraud - it was a classic Ponzi scheme (inflows financed outflows).

But what your professor was almost certainly doing was legal, and amounted to "picking up nickels in front of bulldozers". Pursuing a strategy which paid small positive returns in most market conditions, but every so often would produce an implosion. See Andrew Lo's classic (slightly satirical) piece "Capital Decimation Partners" - there's option writing strategies which are simple, and will do precisely that.

Even Jim Simon's fabled Renaissance Technologies may turn out to have been guilty of same - at least if the IRS wins its tax case.

At the heart of this is another concept beloved of MBA finance classes - the Principal-Agent problem. If you are a HF manager, getting paid 150 bps + 10% perf fee, the above strategy is a nice living. Every so often it will fail explosively, the fund will shut, but by that time you either retire and go teach at some business school ( ;-)) or go start another hedge fund. The Agent does alright, it's not so great for the Principals (ie the fund investors).

To answer your question, and again this is classic MBA/ CFA stuff, paying down 5.5% debt gives an absolutely guaranteed return-- risk free, post tax. US Treasury bonds yield over 10 years c. 2.9%, and so the equivalent risk free investment has inferior (pre tax) returns. With quite a bit of risk in that.

Thegame14
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Re: Investing small amounts

Post by Thegame14 » Fri Jun 29, 2018 8:41 am

bstewie wrote:
Thu Jun 28, 2018 10:11 pm
Thegame14 wrote:
Wed Jun 27, 2018 4:09 pm
And where is my financial house NOT in order???
Technically, you took out a loan @ 5.5% to purchase things you couldn't afford to pay for out of pocket (assuming you wanted to keep your EF in tact). The interest deductions and the environmental benefits are just a nice way to justify the loan @ 5.5%. Now you are looking for a 5% return. Don't spend money you don't have, there is your 5% return. Let's say you do contribute a few hundred dollars every month for the next year... if your risk free 5% return existed, you would yield $180 before taxes ($3.6k@5%, assuming it was all invested right now). If you simply moved your checking account into a higher yield, risk free vehicle, you would yield $320-400 (20k@1.6%-2%) before taxes.

Hedge fund talk, etc. is nonsense... you are talking about a few hundred dollars a month... even though I'm sure they would love to lose it for you.
The solar panels are more than paying off the interest. I pay $105 in interest each month, but save $166 on my electric bill each month and get a check every month for $200 for an energy credit, so I am cash flow positive $250 each month plus I can deduct the interest in the loan and the payback period is about 5 years, I don't see how anyone can say that was a bad investment. In 5 years (or less since I pay more each month) the loan is paid off and I have a positive about $350 a month in cash flow for another 10 years, and that doesn't include the electric bill cost going up in the future which it will. Plus the cost includes a brand new roof with a 30 year warranty. Then after that 10 years I lose the energy credit but still have my electric bill paid for each month

stevedc
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Re: Investing small amounts

Post by stevedc » Fri Jun 29, 2018 2:53 pm

I think what folks are latching on to is the fact that you expect to have cash shortfalls for a year and that seemed to be a big part of your reason for posting the question in the first place.

Your solar panel/roof project indeed sounds NPV positive and makes made financial sense in a vacuum. But the fact you mentioned you expect cash shortfalls for a year in your “operating expenses” is why I believe folks are making these comments.

If it were me I would focus exclusively on one thing: building a cash stockpile to see you through the lean year with the goal of 1) not having to borrow anything and 2) fully funding the 401k. I would stop overpaying the HELOC immediately and hold that cash for the lean year. Start a belt tightening budget immediately to help stockpile cash and get it it all into interest bearing accounts, including all EF money. “Borrow” prudently from your emergency fund if needed during the lean year to see you through. Look for part time opportunities or gigs to supplement core income. After the lean year, use any leftover cash then to address the HELOC.

Your primary concern should be how to weather the lean year without taking on additional debt WHILE keeping the 401k fully funded. Saving, budgeting, belt tightening and planning are the only ways to do that.

ilovetech
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Re: Investing small amounts

Post by ilovetech » Fri Jun 29, 2018 3:05 pm

Numbers on solar look good to me. I love solar and want then... Hate hoas...

Solar for you does not look good. 90k in debt is pretty big. That 90k is taking money from you at 5.5 percent.

Your solar is paying off 3% percent of your debt in year one. You are charged 5.5%. to me the numbers don't work. And when you know you will be in the hole for 1k a month, taking on extra debt does not seem to work.

If I were you I would aggressivly pay down the 90k. And take no more loans.

Thegame14
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Re: Investing small amounts

Post by Thegame14 » Fri Jun 29, 2018 3:05 pm

stevedc wrote:
Fri Jun 29, 2018 2:53 pm
I think what folks are latching on to is the fact that you expect to have cash shortfalls for a year and that seemed to be a big part of your reason for posting the question in the first place.

Your solar panel/roof project indeed sounds NPV positive and makes made financial sense in a vacuum. But the fact you mentioned you expect cash shortfalls for a year in your “operating expenses” is why I believe folks are making these comments.

If it were me I would focus exclusively on one thing: building a cash stockpile to see you through the lean year with the goal of 1) not having to borrow anything and 2) fully funding the 401k. I would stop overpaying the HELOC immediately and hold that cash for the lean year. Start a belt tightening budget immediately to help stockpile cash and get it it all into interest bearing accounts, including all EF money. “Borrow” prudently from your emergency fund if needed during the lean year to see you through. Look for part time opportunities or gigs to supplement core income. After the lean year, use any leftover cash then to address the HELOC.

Your primary concern should be how to weather the lean year without taking on additional debt WHILE keeping the 401k fully funded. Saving, budgeting, belt tightening and planning are the only ways to do that.
Right the heart of the issue is how do I take an about $500 a month surplus now and best use it for the next about one year, for when I expect to be in a monthly deficit? Is it better to invest the monthly amount and hope it grows to draw from during those deficits.

we already have about 50K in EF, but my wife and I split our finances somewhat so she has about 20K in cash, I have 20K in cash and we have about 10K in checking for joint bills, so I handle only my part and her hers when it comes to cash, so I cant for example take 40K of the EF and put it in a high yield checking, I can only control my portion and she controls hers. It may not be the best for finance theory but she needs to be able to have her money and know how to manage it as well.

Is it better to pay off HELOC at 5.5% and variable, which I should look into locking in) and then if I need to borrow later, the HELOC has been paid down and I have avoided the interest payments. Side gig would be tough, the fuel efficient car we have is too old for lyft or uber, I already work overtime and try to spend the rest with my wife and our toddler, so not a ton of free time. I have thought of starting a home based accounting business, and have seen a course for about $2K but not sure I will have spare time to start a small business, but love the idea longer term...

Thegame14
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Re: Investing small amounts

Post by Thegame14 » Fri Jun 29, 2018 3:06 pm

ilovetech wrote:
Fri Jun 29, 2018 3:05 pm
Numbers on solar look good to me. I love solar and want then... Hate hoas...

Solar for you does not look good. 90k in debt is pretty big. That 90k is taking money from you at 5.5 percent.

Your solar is paying off 3% percent of your debt in year one. You are charged 5.5%. to me the numbers don't work. And when you know you will be in the hole for 1k a month, taking on extra debt does not seem to work.

If I were you I would aggressivly pay down the 90k. And take no more loans.
90K is the total AVAILABE HELOC, we only have a balance of $26.5K took out about $40K to pay for the solar panels, new roof and electric panel upgrade and have paid it down to $26.5K now

ilovetech
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Re: Investing small amounts

Post by ilovetech » Fri Jun 29, 2018 3:50 pm

Wow! Much better! I would still pay it off.

10k from you
10k from her
6k from joint account

Then you get 350 per month extra cash flow.

150 to you
150 to her
50 to joint

Invest yours as needed.

bstewie
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Re: Investing small amounts

Post by bstewie » Fri Jun 29, 2018 4:39 pm

Thegame14 wrote:
Fri Jun 29, 2018 8:41 am
bstewie wrote:
Thu Jun 28, 2018 10:11 pm
Thegame14 wrote:
Wed Jun 27, 2018 4:09 pm
And where is my financial house NOT in order???
Technically, you took out a loan @ 5.5% to purchase things you couldn't afford to pay for out of pocket (assuming you wanted to keep your EF in tact). The interest deductions and the environmental benefits are just a nice way to justify the loan @ 5.5%. Now you are looking for a 5% return. Don't spend money you don't have, there is your 5% return. Let's say you do contribute a few hundred dollars every month for the next year... if your risk free 5% return existed, you would yield $180 before taxes ($3.6k@5%, assuming it was all invested right now). If you simply moved your checking account into a higher yield, risk free vehicle, you would yield $320-400 (20k@1.6%-2%) before taxes.

Hedge fund talk, etc. is nonsense... you are talking about a few hundred dollars a month... even though I'm sure they would love to lose it for you.
The solar panels are more than paying off the interest. I pay $105 in interest each month, but save $166 on my electric bill each month and get a check every month for $200 for an energy credit, so I am cash flow positive $250 each month plus I can deduct the interest in the loan and the payback period is about 5 years, I don't see how anyone can say that was a bad investment. In 5 years (or less since I pay more each month) the loan is paid off and I have a positive about $350 a month in cash flow for another 10 years, and that doesn't include the electric bill cost going up in the future which it will. Plus the cost includes a brand new roof with a 30 year warranty. Then after that 10 years I lose the energy credit but still have my electric bill paid for each month
I didn't say it was a bad investment, I said you couldn't afford it. If you had the capital on hand for both purchases, you could have simply delayed one or both of the purchases and covered your upcoming shortfall without trying to reach for returns. You and your wife can cover the upcoming shortfall given the combined EF. Don't reach for returns and lose the few hundred dollars a month you can save between now and then.

stevedc
Posts: 12
Joined: Sat Jun 23, 2018 11:37 pm

Re: Investing small amounts

Post by stevedc » Fri Jun 29, 2018 5:06 pm

Thegame14 wrote:
Fri Jun 29, 2018 3:05 pm
Right the heart of the issue is how do I take an about $500 a month surplus now and best use it for the next about one year, for when I expect to be in a monthly deficit? Is it better to invest the monthly amount and hope it grows to draw from during those deficits.
You've gotten some good advice in this thread -- ranging from pay off the HELOC to stockpile the cash. But I think a consistent message is don't go chasing returns with the $500/mo surplus to try to "overcome" the future monthly deficits. The math just won't work. The important part of your text above is "hope it grows" -- there is no hoping, especially if you want a chance of preserving your principal.

I have an MBA, too - so I know you can run these numbers:

Imagine you have access to a magical investment with a guaranteed 10% annualized return (that would really exceed your best hopes for growth, right?), and you are contributing $500 monthly for 1 year. After taxes, how much have you made off your principal? Report back the result of your calculation. Seriously - not trying to be glib. I think the exercise will show you that this is really not an avenue worth pursuing in order to fully cover your deficit years. A one-year time horizon just isn't enough time.

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