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Best way to treat extra income

Posted: Sun Feb 10, 2019 11:22 am
by johnd123
I have a unique situation, and i feel like i'm not getting the best advice on how to invest extra income. Basically, my situation is this :

49, married no kids
Home is paid for and worth $300+k
9 to 5 W2 job that pays $140k per year
other business and real estate investments which produce an extra $20k per month in taxable income
no other debt, other than a credit card, which is paid at the end of every month

I have a 401k with about $200k and an IRA with about $100k, that is where my question comes in

My current financial advisor does not provide advice other than to contribute to this IRA ... the return on average is about 3-4% but i believe i pay around $400 per quarter in fees .. I know this is a very broad question, but for someone who has extra cash, where is the best place to find advice tailored to your situation, rather than some guy who just wants to make fees every month? Is there such a thing?

Re: Best way to treat extra income

Posted: Sun Feb 10, 2019 12:20 pm
by Mike Scott
No one will ever care about your money as much as you do. Are you ready to leave your advisor and learn how to do it yourself?

Re: Best way to treat extra income

Posted: Sun Feb 10, 2019 12:24 pm
by Rus In Urbe
Mike Scott » Sun Feb 10, 2019 12:20 pm
No one will ever care about your money as much as you do. Are you ready to leave your advisor and learn how to do it yourself?
+1

The time you spend learning to make your own decisions will pay off handsomely! And it will also compound, magically.

Re: Best way to treat extra income

Posted: Sun Feb 10, 2019 12:37 pm
by 02nz
To answer your question: If you're not maxing out your 401k (your balance suggests you haven't, at least in past years), you should do that. And will you be turning 50 in 2019? If so, you already qualify for the catch-up contribution limits on 401ks (extra 6K, so 25K/year) and IRAs (extra 1K, so 7K/year).

And I agree that you should take the effort to manage your portfolio yourself. Simple and low-cost beats complex and lots of fees, and the difference can be dramatic over the long term as costs compound. It's really not hard. Start here: https://www.bogleheads.org/wiki/Getting_started

BTW there is such a thing as a fee-only advisor, who gives you advice on an hourly basis, free of any incentives to sell you anything (your "advisor" is probably more like a salesman). There's a saying on this board that by the time you know enough to be able to evaluate the quality of advice you're getting, you don't really need that advice. It can make sense to use such an advisor for specialized situations, but your situation doesn't sound particularly complex.

Re: Best way to treat extra income

Posted: Sun Feb 10, 2019 7:52 pm
by Duckie
johnd123 wrote:49, married no kids
<snip>
I have a 401k with about $200k and an IRA with about $100k, that is where my question comes in
What about your wife? Does she have an employer plan or IRA? Even if unemployed she can contribute to an IRA based on joint income.
I know this is a very broad question, but for someone who has extra cash, where is the best place to find advice tailored to your situation, rather than some guy who just wants to make fees every month? Is there such a thing?
You could always ask us. Some of us are pretty good at this.

Re: Best way to treat extra income

Posted: Sun Feb 10, 2019 7:58 pm
by miamivice
Will the extra income be there forever?

I received extra income for about 5 years from a consulting gig that I knew wouldn't be around forever. I decided to create an endowment fund, where I paid myself interest from the endowment fund to use for whatever I wanted. I knew the interest would be there for the rest of my life, so I could spend it guilt free.

Right now the endowment fund is paying $3000 a year, which lets me engage in luxuries that I wouldn't otherwise be able to engage in.

Re: Best way to treat extra income

Posted: Sun Feb 10, 2019 8:21 pm
by advice789
A few thoughts- Investing excess cash depends on your goals. Say you want to add to your emergency fund or a very short-term investment. A MMF at vanguard or schwab pays over 2%. Say you are looking to invest for the long term. A low-cost fund index S&P fund has advantages. Also, you mentioned you pay about 400 in fees. Do the fees include expenses in your IRA etc. from your broker? Some investment funds charge very high fees, which are part of the fund’s management expense. Take a look at the expense ratio of your funds and compare to vanguard, fidelity or schwab.

Re: Best way to treat extra income

Posted: Sun Feb 10, 2019 9:20 pm
by johnd123
Thank you all so much for the very useful replies! I think my best bet would be to find a "no fee" consultant and explain in detail. Also, i have to educate myself quite a bit more because alot of the terminology used (embarrasingly enough) I dont understand!

I'm going to look into maxing out my 401k for starters, i just feel like my 401k seems so volatile (especially as the years go by) , which is why i like to invest in real estate. Thank you again for all your info! ! :)

Re: Best way to treat extra income

Posted: Sun Feb 10, 2019 9:20 pm
by johnd123
Thank you all so much for the very useful replies! I think my best bet would be to find a "no fee" consultant and explain in detail. Also, i have to educate myself quite a bit more because alot of the terminology used (embarrasingly enough) I dont understand!

I'm going to look into maxing out my 401k for starters, i just feel like my 401k seems so volatile (especially as the years go by) , which is why i like to invest in real estate. Thank you again for all your info! ! :)

Re: Best way to treat extra income

Posted: Sun Feb 10, 2019 11:01 pm
by emlowe
I suggest you read the Getting Started wiki page: https://www.bogleheads.org/wiki/Getting_started

And the 3-fund portfolio page: https://www.bogleheads.org/wiki/Three-fund_portfolio

And Asset Allocation: https://www.bogleheads.org/wiki/Asset_allocation

To get some basics on investing. There is also a section on good beginner books: https://www.bogleheads.org/wiki/Books:_ ... t-up_books

My other suggestion is if any of your side business income is "earned income", you can open a solo 401(k) and the business can deposit 25% of your compensation (up to 56k) into that as a contribution.

However, since you aren't maxing your "regular" work 401(k) you should do that first.

If you include all your 401(k) choices, the board here will help you pick the best low-cost options.