Investment Planning

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Topic Author
invest8104
Posts: 19
Joined: Tue Dec 24, 2019 11:14 am

Investment Planning

Post by invest8104 »

Hi Everyone,

I wanted to get some of your opinions on an investing strategy for me. I am a big fan of the Vanguard style. Currently, I (29 y/o) own my own businesses and my wife (27 y/o) works as an optometrist. We are comfortable savings $10,000 a month. Currently, I am investing $3,000 a month into S&P500 fund, $1,000 Total Bond Fund, $1,000 in REITS & $1,000 into High Dividend Yield Funds, all with Vanguard. With the remaining going into a money market fund. My wife also has a 401K that she contributes to, which is allocated to an S&P500 fund and we both maximize our contributions to an IRA. We have about $300,000 in a money market fund.

I like to invest in physical assets, such as real estate, so I like to keep a large portion of my money in cash to do this. I also want to have a portfolio that I feel comfortable holding through a 50% downturn. My wife has $250,000 in student loans with an average interest rate of 6.5% and we plan on purchasing a large home in the near future.

My goal is to have my investments to create a steady stream of monthly income for me to invest in other business and physical real estate, while also investing a decent portion in an S&P500 fund to grow quicker. I would love to retire early (around 50) and travel with my family.

Some of my concerns:

- Have not invest through a major recession and I want to make sure I am not investing too much to where I would stop investing
- I am really concerned about the possibility of the Gov't yields going negative and decreasing the value of my "safe" assets
- Should I be investing in a Solo 401k?

Any suggestions are welcome. I know I have a unique situation.
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David Jay
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Location: Michigan

Re: Investment Planning

Post by David Jay »

Welcome to the forum!

We teach that one needs an Asset Allocation that one can hold through thick and thin. It feels to me like your concern indicates that you have not settled in on an asset allocation (Reading between the lines, the tension I see is: “don’t want too much in stocks” but “don’t want too much in bonds” - that is the AA quandry).

Tax advantaged space “expires” every year and can’t ever be recovered. Most everyone here on BH will recommend taking advantage of all tax-deferred space. So yes, get that Solo 401K set up if you qualify for one.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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retired@50
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Re: Investment Planning

Post by retired@50 »

invest8104 wrote: Tue Dec 24, 2019 11:28 am Hi Everyone,
...
My wife has $250,000 in student loans with an average interest rate of 6.5% and we plan on purchasing a large home in the near future.
...
Any suggestions are welcome. I know I have a unique situation.
I'll go ahead and say it... Why are you buying bonds at a clip of $1,000 per month with a yield near 2.25% when you could be knocking down debt at 6.5%?

This doesn't make much sense.

Regards,
This is one person's opinion. Nothing more.
livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Investment Planning

Post by livesoft »

Welcome to the forum. I don't think your situation is all that unique, sorry.

I'd start investing much more tax efficiently than you are doing now. I would recommend stepping back and reading some investment books from the Bogleheads reading list:

https://www.bogleheads.org/RecommendedReading.php

In general, I recommend that you build a portfolio from all of your accounts and instead of using an S&P500 fund, please use Total US Stock Market Index fund in taxable, plus in your tax-deferred account use [US & International] stock index funds as well as bond index funds. Start so-called backdoor Roth IRAs, too. Get your solo 401(k) going unless you have employees for your businesses.

At some point you may need to tax-exempt muni bond funds in your taxable account.

BTW, how do you know if you are investing tax efficiently? It can be simple: Look at your Form 1040 Schedule B. On the top half you should have less than $10 in interest paid to you. On the bottom half you want to have qualified dividend income for all of it. You do not want non-qualified dividend income. On your Schedule D, you don't want any net realized capital gains. That's because unrealized capital gains are tax free.

These IRAs that you are making max contributions to: Are they Roth IRAs? Are they non-deductible traditional IRAs? Are they deductible traditional IRAs?
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ruralavalon
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Re: Investment Planning

Post by ruralavalon »

Welcome to the forum :? .

invest8104 wrote: Tue Dec 24, 2019 11:28 amShould I be investing in a Solo 401k?
Yes. The annual contribution limit is on a use-it-or-lose-it basis, so contribute the maximum every year without fail.

Does you wife make maximum contributions to her 401k account?

invest8104 wrote: Tue Dec 24, 2019 11:28 amWe have about $300,000 in a money market fund.
. . . . .
My wife has $250,000 in student loans with an average interest rate of 6.5%
This is an obvious "investing" priority in my opinion. Make accelerated pay off of this debt a top priority.

You could use the cash in the money market fund to pay off this debt.

invest8104 wrote: Tue Dec 24, 2019 11:28 am . . . Currently, I (29 y/o) own my own businesses and my wife (27 y/o) works as an optometrist. . . .
. . . . .
My goal is to have my investments to create a steady stream of monthly income for me to invest in other business and physical real estate, while also investing a decent portion in an S&P500 fund to grow quicker. I would love to retire early (around 50) and travel with my family.

Some of my concerns:

- Have not invest through a major recession and I want to make sure I am not investing too much to where I would stop investing
- I am really concerned about the possibility of the Gov't yields going negative and decreasing the value of my "safe" assets
Start planning by deciding on an asset allocation (stock/fixed income mix) to use. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation"; and
3) Morningstar (8/10/2019), "The Best Diversifiers for Your Equity Portfolio".

I suggest that you read one or two books on investing. Wiki article, "Books: recommendations and reviews".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
invest8104
Posts: 19
Joined: Tue Dec 24, 2019 11:14 am

Re: Investment Planning

Post by invest8104 »

Hi Everyone,

I really appreciate the responses. I think I should of been a little more detailed when I wrote my original post.

1. We are paying $3,500 a month towards my wife student loans. She has just graduated 6 months ago. I am not paying down quicker, in the slim chance that a democrat gets elected and provides a some sort of student loan forgiveness. I think it is worth waiting until November before making larger payments.

2. My wife is maxing out her 401K. She is currently not eligible for a Traditional IRA and contributes to a Roth.

3. I am trying to keep a solid amount of money in liquid funds for my real estate investments. I am a real estate broker, property manager and own a contracting company. I do a lot of work in the real estate field and would like to add more passive income through rentals.

4. I know I am not being as tax efficient as possible. I want to start an investing strategy that I can stick to for the next 20-30 years and not worry about it.

I plan on getting a Solo 401k set up next year and continuing to max out my wife 401k. Most of the books I have read have stated that an S&P500 fund is diversified enough stock fund, since the majority of companies operate on a global scale.

My main questions:

1. Should I be focusing on income at this stage? ie. REITS, Bond Funds, High Dividend Funds.
2. Is there a better investment vehicle for the cash I am sitting on in the money market fund?
3. What would be your monthly allocation for the $10,000 i am investing, given my age and situation?
Freetime76
Posts: 411
Joined: Wed Jun 26, 2019 8:26 pm

Re: Investment Planning

Post by Freetime76 »

invest8104 wrote: Tue Dec 24, 2019 10:14 pm Hi Everyone,

I really appreciate the responses. I think I should of been a little more detailed when I wrote my original post.

1. We are paying $3,500 a month towards my wife student loans. She has just graduated 6 months ago. I am not paying down quicker, in the slim chance that a democrat gets elected and provides a some sort of student loan forgiveness. I think it is worth waiting until November before making larger payments.

That’s your call. After having a chunk of cash for at least 6 months of expenses, we would pay off that loan as fast as possible. That means $10,000 PLUS your $3500 PLUS anything else we can scraper together, 250000/13500 = 18 mos, not counting interest. 16K/year interest is it? counts as a lot in my book.

2. My wife is maxing out her 401K. She is currently not eligible for a Traditional IRA and contributes to a Roth.

3. I am trying to keep a solid amount of money in liquid funds for my real estate investments. I am a real estate broker, property manager and own a contracting company. I do a lot of work in the real estate field and would like to add more passive income through rentals.
That’s your call. Again, we would do his after the student debt is gone. Wait the whopping 2 years. Do not get yourselves into the position of being hyper-leveraged (aka in debt up to your eyeballs) in a market downturn.

4. I know I am not being as tax efficient as possible. I want to start an investing strategy that I can stick to for the next 20-30 years and not worry about it.

I plan on getting a Solo 401k set up next year and continuing to max out my wife 401k. Most of the books I have read have stated that an S&P500 fund is diversified enough stock fund, since the majority of companies operate on a global scale.

My main questions:

1. Should I be focusing on income at this stage? ie. REITS, Bond Funds, High Dividend Funds.
2. Is there a better investment vehicle for the cash I am sitting on in the money market fund?
3. What would be your monthly allocation for the $10,000 i am investing, given my age and situation?
Late to the party...I found this thread after a newer one you posted about houses. :D
So...my feel is you’ll get further if you simplify. You’re doing new practice + student debt + saving for rentals + retirement + new bigger house maybe. This is too many minds.

1. You’ll get further by paying off that albatross of a loan that’s hanging around your necks.
2. (How much have you got?) No. Except, hoard it by dumping If on that loan!!
3. 100% student loan debt payments. LOL :shock: Bet you’re surprised.

You can read all kinds of ideas and AAs on this forum. Ours is: We have no debt, and we do all index funds, not focusing on income (reinvest dividends and cap gains, right?). I was personally cured of REITs after living in one apartment complex and seeing how badly the new buildings were mismanaged by the builder, GC and low end trades work. Can I just say that “nobody cared” about the dollars being hemorrhaged all over this massive project. But that’s me :wink:

Perhaps I am naive...what stock, mutual fund, REIT, rental, superspecialflipbusiness etc do you suppose is going to beat a sure thing 6.5% per year? Spend a year on the loan, and use that time to watch the market during an election cycle. It may help you select a strategy.
earlywynnfan
Posts: 110
Joined: Thu Nov 08, 2018 2:46 pm

Re: Investment Planning

Post by earlywynnfan »

I am very sorry, maybe I'm cranky this morning, but I cannot get past this:
Your wife took loans so she could get a degree leading to a (seemingly) great job where she, along with her husband, has the ability to not only put money away for retirement, but actually save $10K per month? And you're hoping Uncle Sam steps in and allows us taxpayers to pay them off for her?? Come on, man, you took the debt, you should pay it back.

Unless she happens to be providing free eye care to the needy? Giving away glasses to the homeless?? In which case, forgive my above rant.
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fredflinstone
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Re: Investment Planning

Post by fredflinstone »

earlywynnfan wrote: Sun Jan 26, 2020 10:25 am I am very sorry, maybe I'm cranky this morning, but I cannot get past this:
Your wife took loans so she could get a degree leading to a (seemingly) great job where she, along with her husband, has the ability to not only put money away for retirement, but actually save $10K per month? And you're hoping Uncle Sam steps in and allows us taxpayers to pay them off for her?? Come on, man, you took the debt, you should pay it back.

Unless she happens to be providing free eye care to the needy? Giving away glasses to the homeless?? In which case, forgive my above rant.
Interesting post, and I thank you for your perspective.

This reminds me of well-to-do people who chose to walk away from underwater mortgages in 2008-09. It also reminds me of wealthy people who deliberately lower their income in order to qualify for Affordable Healthcare Act subsidies. I can understand why such actions offend some peoples' sense of ethics and/or justice. However, I generally think it is ethically acceptable to do what is in one's financial self-interest, provided no laws are broken.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
Topic Author
invest8104
Posts: 19
Joined: Tue Dec 24, 2019 11:14 am

Re: Investment Planning

Post by invest8104 »

earlywynnfan wrote: Sun Jan 26, 2020 10:25 am I am very sorry, maybe I'm cranky this morning, but I cannot get past this:
Your wife took loans so she could get a degree leading to a (seemingly) great job where she, along with her husband, has the ability to not only put money away for retirement, but actually save $10K per month? And you're hoping Uncle Sam steps in and allows us taxpayers to pay them off for her?? Come on, man, you took the debt, you should pay it back.

Unless she happens to be providing free eye care to the needy? Giving away glasses to the homeless?? In which case, forgive my above rant.
I am not hoping for it, but I would be ignorant to pay it in full when half of the democratic nominees are screaming to forgive some portion, if not all, student loans... We can go into what is fair and what is not fair. I can tell you it is not fair that I am a healthy 29 year old male and my health insurance costs $800 a month thanks to the government.
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