If you had 100K in savings what would you do with it

[janine]

If you had this in your personal savings, were a WOHM, already had about 40K joint extra for 'emergency fund', a reasonable mortgage (ie paying it off would not relieve 1/2 the payment which is due to taxes and rate is 3.25%), college savings taken care of - what would you do with it? Assume your house is more or less up to date as well as lanscape. Also assume HCOL so this amount can be 1/2 if you are considering it from LCOL perspective. So it's a good amount, but not enough to really change anything. Would you:

Keep saving it (cash)

Invest it conservatively

Invest it aggressively

Buy property

Stop working

Totally hypothetical question.

[mackmama]

Invest it conservatively




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[Ms B]

Are your retirement savings maxed out each year? 401K? Roth?

If you are income limited out of a traditional Roth, have you considered increasing your Roth savings by doing an annual contributory IRA to Roth rollover?

Do you have sufficient appropriate disability coverage?

If the answers to everything above are "yes", then I say it's time to retain a broker and have that person look into investment strategies for you.

FWIW -- that's the strategy DH and I took when we reached this same point. We are happy with that decision and glad that we have another substantial "nest egg" on top of our cash savings, retirement plans, and college savings for The Biscuit. Eventually, I expect that the portfolio will fund a second/vacation/retirement home.

[Jen841]

I would talk to an investment advisor and follow their advise. I may make one splurge... A trip for less than $10k. Disney?!

[123LuckyMom]

I'm a conservative investor. I would like to be a more aggressive investor. I learned conservatism in investing from my father who declined my request to buy Apple stock when I was a kid (so waaaaay before the iPhone and even before Macintosh.) He bought IBM instead. Sigh.

[vonfirmath]

How much money is left on the mortgage (I'd rather have a payment taht is 1/2 of $$ than all of $$? If you could wipe the mortgage out with savings and have other savings still for emergencies -- do it.

Otherwise, wipe out other debt and continue to save. (perhaps investing conservatively)

[janine]

Are your retirement savings maxed out each year? 401K? Roth?

If you are income limited out of a traditional Roth, have you considered increasing your Roth savings by doing an annual contributory IRA to Roth rollover?

Do you have sufficient appropriate disability coverage?

If the answers to everything above are "yes", then I say it's time to retain a broker and have that person look into investment strategies for you.

FWIW -- that's the strategy DH and I took when we reached this same point. We are happy with that decision and glad that we have another substantial "nest egg" on top of our cash savings, retirement plans, and college savings for The Biscuit. Eventually, I expect that the portfolio will fund a second/vacation/retirement home.

Yes I do max out the 17500 each year with company match as well. No on Roth though (I am income limited, I have had mixed advice on IRA to ROTH rollover). I think you are right on time for personal broker. As I am the 2nd income (and therefore the one who takes time off, slightly less secure job) I always worry about layoffs or swings in market should I invest and am generally overly conservative I think.

[cilantromapuche]

buy a second property. That is what we did and we are happy with our choice. You can rent it out, use it and it is better than just sitting not earning peanuts on interest.
Although, if you are not investing etc. i would do that first.

If you are not interested in buying you might consider helping fund a company. My brother is a venture capitalist and enjoys being involved with companies that he believes in.

[cvanbrunt]

Invest it. This was an interesting piece in the NYT:
http://www.nytimes.com/2014/04/12/your-money/start-ups-offer-financial-advice-to-people-who-arent-rich.html?src=me

[janine]

buy a second property. That is what we did and we are happy with our choice. You can rent it out, use it and it is better than just sitting not earning peanuts on interest.
Although, if you are not investing etc. i would do that first.

If you are not interested in buying you might consider helping fund a company. My brother is a venture capitalist and enjoys being involved with companies that he believes in.

Great tips. We actually do have a property - that is their college fund :). But I was thinking about another one, as income flow and long term investment - but dont' think 100K is enough plus can be high risk. I am keeping an eye open though.

[janine]

Invest it. This was an interesting piece in the NYT:
http://www.nytimes.com/2014/04/12/your-money/start-ups-offer-financial-advice-to-people-who-arent-rich.html?src=me

Ah great timing, thanks.

[lkoala]

I wouldn't pay off the mortgage if there are tax advantages and with some research you can invest in low fee mutual funds that will give you a better rate of return than 3.25%.

[Ms B]

Great tips. We actually do have a property - that is their college fund :). But I was thinking about another one, as income flow and long term investment - but dont' think 100K is enough plus can be high risk. I am keeping an eye open though.

If this is the case, then I would suggest a true financial advisor who can put together a coordinated plan for you (considering retirement, social security, college, life insurance, and other investments as a whole) rather than a broker. You may be leaving tax advantages and savings on the table by planning to use real estate as "college savings" when you could get an upside from traditional 529 or similar plans.

[larig]

I'm a conservative investor. I would like to be a more aggressive investor. I learned conservatism in investing from my father who declined my request to buy Apple stock when I was a kid (so waaaaay before the iPhone and even before Macintosh.) He bought IBM instead. Sigh.

Seriously, were you and I separated at birth!? My dad finally bought the apple stock, AFTER the iPhone.

[HannaAddict]

It isn't that much money if something goes wrong so I would not do a vacation, Disney (not my vacation of choice anyway), rather I'd invest some conservatively and some of it more aggressively for long term. I wouldn't use it to buy property unless I already knew what I was doing in that area and had done it before successfully. Finding a trustworthy financial adviser can be hard but I'd try and invest it. I would also probably bump up my emergency fund a little more.

[vonfirmath]

I wouldn't pay off the mortgage if there are tax advantages and with some research you can invest in low fee mutual funds that will give you a better rate of return than 3.25%.

The tax advantages of a mortgage are highly overrated. The standard deduction is high enough you'd have to have a LOT of things to itemize to overcome it. And you get the standard deduction even if you DON'T pay out the interest in your mortgage.

[KrisM]

If we're halving things for a LCOL, I know I would not be happy here with only $20k as an emergency fund. How many months does $40k get you? I prefer 6-8 months saved for emergency. So, I'd probably bump that up.

Then, I'd look at other places - do you have money set aside for a replacement car? Do you have any other big expenses that might come up that this would help speed up the saving pace?

After that, I'd find someone to help me invest it, if I didn't think I could myself.

[sariana]

Um, I would leave it sitting in savings.:bag

I don't recommend that as a sound strategy, though.

[janine]

Um, I would leave it sitting in savings.:bag

I don't recommend that as a sound strategy, though.

This is what I've been doing for sometime, so you are not alone. Hey at least I didn't lose anything!

[janine]

If we're halving things for a LCOL, I know I would not be happy here with only $20k as an emergency fund. How many months does $40k get you? I prefer 6-8 months saved for emergency. So, I'd probably bump that up.

Then, I'd look at other places - do you have money set aside for a replacement car? Do you have any other big expenses that might come up that this would help speed up the saving pace?

After that, I'd find someone to help me invest it, if I didn't think I could myself.

I think that's fair. As of now I'm thinking 1/2 keep in savings (doubling our emergency fund) and 1/2 invest...not sure how or where yet, some index fund maybe.

[vludmilla]

I recommend an index fund. Check out Vanguard; they generally have the lowest fees.

We are in the same position...good savings, 2 working parents, HCOL area, mortgage... We had been sitting on the savings for a long time and recently started investing some of it in Vanguard index funds and we are enjoying having our money earn money!

[Minnifer]

If this is the case, then I would suggest a true financial advisor who can put together a coordinated plan for you (considering retirement, social security, college, life insurance, and other investments as a whole) rather than a broker.

Not to hijack, but do you (or anyone else) have tips on how to find this kind of adviser? I don't know anyone who knows anyone, and I desperately need to get this kind of coordinated financial advice...

[egoldber]

Per our financial advisor, we try to keep about $50K in cash and $50K more in very liquid assets. So an emergency fund, if you will, of about 9-12 months of expenses. But DH makes the majority of our income, owns his own business, and his income fluctuates highly from quarter to quarter. So we feel better having a very large cash fund.

We found an advisor through our bank. She has worked very well for us.

[lmh2402]

i would agree with the others re: bumping your emergency fund. I think we live in the same region. we opted to use a good chunk of last bonus cycle to bump our emergency fund by $75k. DH is fairly paranoid lately that the market is riding too high. so we've been playing things very conservative.

[sweetsue98]

Invest in Roth IRA

[american_mama]

Some of you posters are very savvy, very lucky and very comfortable. Hats off to you.

For a fee-based financial advisor, check out http://www.napfa.org/

[scrooks]

Some of you posters are very savvy, very lucky and very comfortable. Hats off to you.

For a fee-based financial advisor, check out http://www.napfa.org/
Thank you for this link!

[sste]

We also have a bigger emergency fund -- I have a depression era mentality! For those who are considering what to do with emergency fund money, my new year's resolution this year was to review our finances. After a fair amount of research, talking to my very trusted accountant, etc, I ended up with Ally Bank online checking and savings for 75% (emergency fund in savings and will transfer to any account in two days but I also got free checking and it is linked to my savings so if I needed to write a huge check on the spot I could). We are gradually transferring 25% to government I-bonds (20k per year max contribution, structured to keep rate with inflation but can't withdraw without penalty for first year and then after that I think there is smaller penalty if you withdraw before year 5 IIRC -- the penalties are not huge and the rate of return is much better than what is on the market and we are shifting gradually to limit any hit to our liquidity). Accountant also liked PennFed cds but I think online and i-bonds are more liquid.

Also call your retirement 401k place and see if they will run a free retirement projection for you. IME doing this they, or at least Fidelity, aimed very high and I think errs on the side of advising you to invest more in their accounts! And don't let them sell you an annuity! However, under any calculation it was clear to me that just maxing out the 401k for both dh and me was not enough for us, given our col, DH wanting option of earlier retirement, etc. I would guess your 100k is best split between emergency fund and retirement savings in low cost index fund or perhaps non-roth ira (I am also trying to sort out the back door roth and it comes down to your percentage of roth/non roth existing and is a headache).

HTH. :)

[blisstwins]

(I am also trying to sort out the back door roth and it comes down to your percentage of roth/non roth existing and is a headache).

HTH. :)


A few of you have mentioned a "back door Roth." Is there a way in for people who don't qualify for Roths?

[sste]

Yes, but it is complicated. You can call the mainstream providers (fidelity, vanguard) etc and they have people that can advise specifically on that though I am not sure of the quality of the advice. My accountant claims that he has a away of doing it that lessens the tax implications (you often end up paying taxes with this and may have to convert some/all of your existing rollover and sep and non-roth IRAs). I am still slogging though the beginning stages. If you have an accountant or financial planner I would talk to them. It doesn't make sense for everyone. While the big providers like fidelity will do this for you but my sense is they don't have a big motivation to figure out the best individual plan for each investor, they want to accomplish the conversion mechanics and get you invested in their funds.

[Ms B]

Not to hijack, but do you (or anyone else) have tips on how to find this kind of adviser? I don't know anyone who knows anyone, and I desperately need to get this kind of coordinated financial advice...

American_mama's suggestion is a good one. We found our first broker (who really was more of a true broker) by making calls, asking friends, and then interviewing three or four to see who we felt we could work with. I am involved in the investment decisions in my house (I am a big Warren Buffet fan; my first stock purchase was a Berkshire Hathaway B share) and wanted someone who would listen to me and not be patronizing. We liked that broker and he had some good strategies (diversification, stock options, etc.), but after about ten years we found we needed someone who could deal with the investment, tax, and insurance issues at the same time.

At that point, we started asking the people we knew that we considered well off (family money, etc.) who they used. We found that a couple of them used the same company here in town and from there we started researching the different advisors that work there (the internet is a great thing). It turned out that a friend used a particular advisor there and he was willing to make an exception to his usual requirements (in terms of initial dollars to invest) to work with us because we are relatively young for his clientele and have future potential.

You might want someone that has certain credentials. Our guy is a certified financial planner (CFP - www.cfp.net), a certified healthcare planning professional (ChFC - www.hfma.org), and a chartered life underwriter (CLU), as well as a broker. It gives us everything we need in one place. The links should send you to home pages that you can click through for lists of professionals in your area.

[Ms B]

Yes, but it is complicated. You can call the mainstream providers (fidelity, vanguard) etc and they have people that can advise specifically on that though I am not sure of the quality of the advice. My accountant claims that he has a away of doing it that lessens the tax implications (you often end up paying taxes with this and may have to convert some/all of your existing rollover and sep and non-roth IRAs). I am still slogging though the beginning stages. If you have an accountant or financial planner I would talk to them. It doesn't make sense for everyone. While the big providers like fidelity will do this for you but my sense is they don't have a big motivation to figure out the best individual plan for each investor, they want to accomplish the conversion mechanics and get you invested in their funds.

This. We did not know it even was an option until we started working with our current guy (who is NOT with one of the big providers). It took a fair amount of time and coordination to set up, but our guys does them all the time and handled all of the paperwork (and it was easier for DH and I than for some because we both had existing Roths that we opened when we were young). Now that it is set up, we do it annually.

Our guy did tell us that it did not make sense to do it if you have not maxed out your 401K contributions (including any catchup) and any conventional Roth eligibility that you have, so YMMV.

[Giantbear]

I can't even begin to answer this without a lot more information. I would recommend seeking professional advise which will take into account risk tolerance, life choices, personal preference, life goals as well as present and future income prospects, tax situation, your age, children's age, liquidity needs and so forth. If you have a trusted cpa, i would start there, then move on to finding a good financial adviser who will sit with you to tailor a personalized investment plan for you. I would not simply go to a broker who may give you good stock tips, but not a plan.

[AnnieW625]

Honestly jump for joy and be very happy with myself! I would probably start ear marking more money for college tuition.

[sdoyle]

I think as we have "extra" money, we are going to look into a plan like this one:

http://jlcollinsnh.com/2011/06/14/what-we-own-and-why-we-own-it/

I've started to read some investing blogs and find them really interesting.

It's funny that sste mentions government I-bonds for emergency fund. We have been thinking about doing the same thing with ours a little bit at a time. It just seems so crazy to have a big hunk of money in a savings account. I haven't figured out how you buy them though. Any insight? Do you have to go through a broker?

[sste]

sdoyle, you set up an online account with treasury direct to buy the ibonds -- can be done very easily, all on-line.

For funds, I love vanguard and own vanguard, including total stock market, but I think (?) that standing alone the total stock market can leave you under-represented in international relative to alot of planner's recommendations and also of course in bonds. I have been shifting some but not all of my assets to the age-adjusted vanguard and tiaa funds that automatically shift your asset allocation in terms of stocks/bonds based on your projected retirement. And I have been adding international funds after I realized I was underweighted there. The expense ratio is a little higher for age-adjusting funds but the shifting is an advantage. Also my work subsidizes this one so the expense ratio is lower than normal when I use it for my 401k, pretty close to the straight index fund. You may want to check with your employer.

[sdoyle]

Thanks! I'm going to set it up today. It's been on my to-do list for a while.

You are right- international funds are not represented well in the funds in that blog and should really be included. A lot happening there as well :)

[KrisM]

Thanks! I'm going to set it up today. It's been on my to-do list for a while.

You are right- international funds are not represented well in the funds in that blog and should really be included. A lot happening there as well :)

The part of the interest on I Bonds that is tied to the inflation rate is most likely going to go up on May 1. They change the rate on May 1 and Nov. 1. No idea what the fixed part will do though. It's at a whopping .2% right now :). But, I've read you'll get .5% more due to the inflation part starting on May 1. Not sure I'd wait or buy now.

[sste]

Yes, I think Kris is right about that! We are new to the ibond world but we are going to make our second investment this summer.

Here is an explanation page, my understanding is that even buying now your total rate is around 1.4 which was higher than anything else I found out there except the pennfed cds (but those are less liquid). But I am waiting too.

http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

[KrisM]

Yes, I think Kris is right about that! We are new to the ibond world but we are going to make our second investment this summer.

Here is an explanation page, my understanding is that even buying now your total rate is around 1.4 which was higher than anything else I found out there except the pennfed cds (but those are less liquid). But I am waiting too.

http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

I've read a couple places that the inflation part will be 1.82% on May 1. So, even if you lose the .2% you're ahead. But, you've forever lost the .2%, so if the inflation then goes to 2.5% in November and you buy today, you'd be at 2.7% and if you bought in May, you'd only be at 2.5% (assuming it goes back to 0% fixed).. Not sure how to decide!

We have a bunch of EE bonds that were inherited, so are making decent interest now. Good enough to call it part of our emergency fund.

[janine]

I've read a couple places that the inflation part will be 1.82% on May 1. So, even if you lose the .2% you're ahead. But, you've forever lost the .2%, so if the inflation then goes to 2.5% in November and you buy today, you'd be at 2.7% and if you bought in May, you'd only be at 2.5% (assuming it goes back to 0% fixed).. Not sure how to decide!

We have a bunch of EE bonds that were inherited, so are making decent interest now. Good enough to call it part of our emergency fund.

Is there any penalty to selling these or is it liquid like cash. I have my savings in a high yield bank account (whopping .9%), so that's why these instruments hadn't been too appealing so far. Plus I work at a firm where all must be disclosed investing can at times be more pain than it's worth.

Thanks for all the feedback though, very helpful.

[sste]

Yes, check out that link I posted. There is a penalty for selling in the first five years - - it is more significant if you sell in the first year, if you sell in years 2-4 it is pretty minor. For this reason, we are gradually shifting our "extra padding" emergency money to i-bonds rather than making it the core of our emergency fund. I would aim to shift in small yearly increments or every other year to lessen the liquidity concerns. Once you are outside of the five year holding period there is no penalty.

[KrisM]

Is there any penalty to selling these or is it liquid like cash. I have my savings in a high yield bank account (whopping .9%), so that's why these instruments hadn't been too appealing so far. Plus I work at a firm where all must be disclosed investing can at times be more pain than it's worth.

Thanks for all the feedback though, very helpful.

You can cash them in after 1 year, so not a good place to tie up all your money at once. After 1 year and before 5 years, you will lose 3 months of interest if you cash them in. After that, you're good to go.