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October 10, 2007


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as he said

529s/college savings?
Pay down my mortgage?
Mutual funds or other taxable investments?

I will do all three if possible.

I would just pay down the mortgage.

10% or to the Church :)

Oops, 10% or MORE to the Church is what I meant....

Can we find out what occupation this guy has?

buy gold , oil , a harley , a second house pay off my IRS debt please

Take the 60k in cash and buy a 2-unit duplex and rent it out. After that is paid for, you'll have a steady income stream from the rent.

1. I would keep the $60,000 in cash--that's enough to cover your next car, a few vacations/shopping sprees, and/or any serious emergencies or unexpected expenses that might arise.

2. I would use the extra $1200 a month for 2 things:

A) start paying extra on my mortgage each month--nothing crazy, but enough to add up to 1-2 extra payments a year.

B) f you already have kids, obviously you should start saving for their education costs now (if you plan to help pay for that).

3. Reserve the bonus checks for your wealth-building strategy of choice. A well-paying job is great, but what about rental real estate? Stock trading? Commodities? Options/futures? Starting a business?

Whatever you think you might want to do one day, start funneling money into a designated account now. If it'll be awhile, put it in stocks. If it'll be ASAP, keep it in cash. Then get educated. Once the perfect time/opportunity arises, you'll have plenty of money to get started!

I'm in the same boat. I max out my 401k and make too much for the Roth. Instead I put 4k a year into a non-deductible traditional IRA. I do this because in 2010, you can convert this over to Roth regardless of income.

Invest in Mutual Funds, college, then house.

Remember with the real estate, remember that:

1. You'll pay it off in 20 years
2. It will be worth more than it is today (assume you bought it at 300k with 60k down) It will probably be worth 500k in 20 years
3. You can sell it in 20 years for 500k and put 3 kids through college with that initial 60k investment.


Well he didn't say how much his mortgage is or how much he currently has saved... That said, I would suggest maxing out a traditional IRA, establishing an efund of 6 months' expenses then splitting whatever is left four ways - mortgage, car fund, investments, fun.

If you are only putting $1200/mo in the 401K, you shouldn't be maxed out. Did you make some large contributions earlier in the year, possibly from other bonuses?

I wouldn't start saving for college until you actually HAVE kids. Otherwise it's a total waste.

Paying down your mortgage... well, I know people tout this idea all day on this site, but it really doesn't make sense to me. Yeah, I makes you feel good and it's the "American Dream" to own your house. But Why not use that money to make more money? Whether you sell your home in 2, 5, 10, or 15 years you'll still make a profit, so why not generate more cash by being a little more aggressive and let the mortgage be. With a growing family, you'll probably want to ladder up to a better neighborhood and bigger house eventually. And you'll need more cash on hand in addition to your equity to buy bigger and better. Paying down the mortgage just takes money out of your pocket today and puts little in your pockets tomorrow.

I agree, RE is a better investment. But if you like to pay it safe, just go with the boring old mutual funds.

forget the college fund. forget paying down the mortgage unless your rate is higher than 8% or so. stock market is hot right now and will continue for at least a few more months. a rental income property is a smart buy within the next 2 years as prices are slightly down.

what would I do? i would either buy another rental property OR invest it into a business.

rental property IMO should return at least 15% ROI after expenses. 60,000 down would be $9000+ every year for the rest of your life assuming you keep it rented steadily.

returns for money invested into businesses are a completely different ball game. a $60,000 investment could yield millions or it could yield nothing.

just dont be stupid, dont spend it on material things that are going to depreciate.

The above all all good. But don't forget to do NON-DEDUCTIBLE IRAS for this year and every year thru 2010. Then, in 2010, you can convert them all to Roths and only pay taxes on the INTEREST earned from 2007 - 2010. This is the only way for high income people to get a Roth at this time.

1.) 6 months padded emergency fund (especially being newly married and adjusting to household costs)
2.) traditional ira
3.) mutual funds
4.) mortgage payment
5.) 529 plan (other commentators think this is futile, but i don't think getting a start can hurt you - so contribute whatever you feel comfortable with)
6.) enjoy whatever is left

Funny, until the end I just assumed the person was a female :)

Where should he put the rest of his money? Take a little and invest in talking to a financial adviser. Not sure I take action on investment advice I read on blog comments.

Pay down debt (including mortgage)
Make sure that you have an emergency fund
Invest in 529's

I would spend a little of the bonus money (say 5%), beef up any emergency fund till it was at least 3 months expenses, and put the rest into mutual funds. If it will pay off the mortgage, I'd consider doing that, but otherwise without children there seems little point in doing 529 type stuff.

Obviously an index fund.

I don't understand why someone would put so much into their 401K each month that they max out before the end of the year. Aren't you losing 2 months worth of FREE Company match? That is if your company matches any of your contributions.

Rabbit's correct -- check your company's 401(k) policy. Mine matches on a monthly basis, so if I were to max the 401(k) earlier in the year, I lose that match for those months. In that case, you want to be sure and do the math so that you have roughly even contributions all year at least enough to max the match. OTOH, the previous company matched at year end (or not!) so it didn't matter then.

Here is what I would do:
* $60,000 cash
- put ~6 months worth of expenses into a high yield savings account. This will be your emergency fund
- put the remainder into a low cost index or mutual fund

* $1,200/month (my 401k contribution)
- Fund a traditional IRA. You won't be able to get any tax-advantages from this funding, but as someone already noted, in 2010, you can convert it into a Roth.

* $30,000 in bonuses coming between now and the new year.
- Apply these towards your mortgage

Invest the $60K in a broad base of index funds; mostly domestic stock funds, some international funds, and some bonds as a basis for a starter portfolio. Stay away from real estate unless you want to deal with a mess.

1) 6 months emergency
2) Fully Fund IRA
3) One of 3 things with the remainder: If interested invest in Real Estate, a Small Business, etc OR if this isn't up your alley boring index funds in a taxable account.

*make sure you contribute to your 401K in a way that will make the most of your match

**make sure you look at your entire holdings (taxable and tax deferred) as a portfolio and make sure it is as tax efficient as possible!

Here is what I would do based on my situation (32 years old, married, one newborn baby at home) using all the reader's other assumptions.

1) Max out 529 plan for the year ($10,000)
2) Pay off 2nd mortgage on the house ($18,000)
3) Use the remaining as a down payment on a bigger home ($42,000) - we are probably going to move next year anyway, but the additional cash would speed that up
4) Convert current home to rental property to supplement my wages and account for the wife only working P/T now due to our little one
5) Invest the extra $1200/monthly and bonus in an Index Fund
6) Buy a nice flat-screen LCD and leather chair with ottoman for the new house (gotta have some fun, too)
7) Jeep Wrangler???

He's a great candidate to meet with a financial planner. Honestly, he's done all the obvious stuff, working with a fee-only financial planner will allow him to receive the most objective, professional advice. These are all great ideas above, but he needs money goals that fit with his life goals. After reading about his life position, I'm still not sure what is really important to him - it's too broad.

Someone earlier made a good point and it makes the most sense as I've done this already.

If you put the 60k in a mutual fund or stocks, and earn a generous 8% annual return, you'll have about 280k in 20 years.

Alternatively, you can take the 60k and use it as a 20% downpayment on a 300k apartment building or duplex. If you earn a very, very conservative 2.5% on your real estate, the property will be worth 500k in 20 years. Also, over the 20 years, someone else(renters) is paying down your mortgage and it will most likely be paid off by then.

So, the question is would you rather have:

1. 280k in 20 years? (60k investment at 8% return)
2. 500k in 20 years? (60k investment on 300k prop appreciating at 2.5%/year)

I know what I'll pick.

Aaron...I think that's probably the best advice...

Meet with a CFP on a fee-only basis just to have an objective professional take a look...

The only think I can think of that hasn't been said, is in the interim, while these decisions are being worked over, this $60K should be placed in a money market or high-interest savings account. Not sure how long this person has been sitting on the money, but at the very least, while waiting, put it somewhere to make a few bucks.

I also really like what Brian said before me. If you are managing fine right now and without any consumer debt, why not put the funds into a mutual fund and sit back and let it go until something major arises? If you were doing well financially before the $60K, you don't have to go bananas with ideas spend/save/use the $60K.

Good comments above. Coming from someone who's in a similar boat and who has taken the time to really evaluate risk vs reward and after tax return on investment, I personally go with this approach:

0. Max 401k. You're already here.

1. 24k into 529 (max subject to gift tax, married filing jointly) with yourself as the current beneficiary. If you know you're gonna have a kid someday, the tax advantaged compounding can't be beat. Do this several years in a row and you'll be done. I don't understand the people who steer you away from this. You won't be eligible for financial aid at your rate. Maybe your kid will be a star athlete and get a scholarship, but so what. If he/she is, just pay the withdrawal penalty and smile because you're still coming out like a bandit! is great resource for picking which state's plan. I personally like NY's rather than my state's.

2. Traditional IRA for years 2007-2010. Convert to Roth in 2010. We're talking 12k here though, so that's not a lot.

3. Rental Real Estate. But be sure you know what you're doing here before you jump in! This is a totally undiversified investment risk. Accordingly, it offers the highest return ON AVERAGE. But misteps can be made. In evaluating the cashflow on a property, factor in the costs of a property manager.

4. Taxable Investments. Specifically, stock index mutual funds or ETFs. Save your bond and commodity type investments for your 401K/IRA/529.

I'll assume you're in a home you plan to stay in a while. Otherwise, start building up any additional cash you need for the downpayment (on top of existing home equity).

Re emergency fund, consider a HELOC instead if you have home equity. There is generally no cost unless you tap it and it keeps you from tieing up your funds by holding cash.

I agree with the comments about finding a good fee only advisor. If you're the type that can remain disciplined in crazy markets, just pay a one time fee for a plan.

Considering furhter, I understated the IRA amount in item 2. 4 years to contribute rather than 3. And in 2008 the limit will increase to $5k per person and be indexed for inflation in $500 increments beyond that. So around $19-20k per person x 2 people.

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