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33 and (relatively) new investor
Old 04-17-2008, 09:26 PM   #1
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33 and (relatively) new investor

Hello everyone.

I "discovered" this site from the MSN money boards where it has been recommended several times. I thought I would take the plunge and register and put up my first post.

I am 33 yrs old and married. My wife and I had a negative net worth about 3.5 or so years ago when we decided to really turn it around and begin saving in earnest. We now have about 100k in retirement accounts (401k, TSP, and two Roth IRAs) and I recently opened my first taxable account at Vanguard (where the Roths are). While we do max the Roths we aren't yet able to max the 401k/TSP accounts yet but we are getting there. I decided to open a taxable account anyways because while maximizing our retirement contributions is my eventual goal, during a downturn I am not going to be able to use those funds to sustain us at all. I felt having the safety net of some other funds set aside and yet at least attempting to let them be productive would be a good idea.

I currently have about 4k or so in a VMMXX and contribute ~1k per month which is intended for next years Roth IRA contributions. In addition to that I have recently made a contribution to the Vanguard Star Fund (10k).

The money in the Star Fund has no initial purpose but might be used down the road to help out my son (11 years old) with college expenses for example. I moved the money from the MMF because of the low yeilds these days and because I didn't need the excess sitting there considering my contributions over the course of the year will take care of next years IRAs. I am wondering if Star is perhaps the best option for the taxable account or if I should perhaps go with a less bond intensive fund such as VTIVX or the like?

I realize that I could easily split the money among equity funds to lower capital gains and dividend distributions (I had thought about 4k to VFINX and 3k each to VEXMX and VGTSX) but something was pulling at me to be a bit more conservative with the taxable account. What do you guys think about that mix?

By comparison our 401ks are 100% equities (60% US TSM and 40% Intl index funds) and both of our Roths are in VTIVX.

While I am at it, I might as well ask this too.

We have about 20k or so in Savings not including the 10k sitting in Star. I have a second mortgage on my home (we just purchased our first home in late '05, I know it sucks to be us) which has 27k left at $400 per month (down from 46.5k) that is at 8.25%. Now our home has lost about 20% of its value (we are upside down but with no intention of moving for at least 5 or 6 years) but I am still VERY tempted to just pay off of the 2nd mortgage anyways. On the one hand if I paid it now it would take 68 months to break even on the payments. If I don't pay it now I could service the mortgage for another 75 months (not including any interest or gains on my current savings). At my current rate it would take 96 months to kill the loan naturally. This is the issue I tussle with the most from week to week. So far I have resisted the temptation to just take the cash and kill the loan. But I would love to hear some other people thoughts....

Anyways, I look forward to surfing the board and learning a TON from all of the great people here. I hope to retire around 58 or so but we shall see how it goes.

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Old 04-18-2008, 09:00 AM   #2
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Hi John, and welcome to the forum!

Out of curiosity, is the phx for Phoenix? That certainly has been a bizarre real estate market.

I don't have any advice on your investment questions -- we have far more knowledgeable posters who will probably tackle them. But I did want to welcome you.


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Old 04-18-2008, 09:16 AM   #3
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Welcome, John.

A few thoughts:

- Hang onto your cash savings instead of paying down the second. We are in an environment where credit is dear and cash is king. Just keep paying it down like you have been and you will get there.
- The STAR fund is fine. Usually, you try to keep fixed income and other tax-messy stuff in IRAs/401k, and equities in taxable accounts. But currently we are talking about small amounts, so you can leave things as they are for now and make changes after you have read up and made some decisions on overall asset allocation, etc.
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Old 04-18-2008, 11:10 AM   #4
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In times like these when there is talk about recession, uncertainty and rising unemployment, I feel safer sitting on a huge pile of cash (or liquid assets). You are upside down in your house and therefore any additional money you put in your home, you probably won't be able to access in an emergency until the real estate market turns around and the credit market loosens.

So if I were you, I would continue building my savings as much as I could. When the economy turns around, then I would keep 6-8 months worth of living expenses in savings and I would use the rest to start repaying the 2nd mortgage. Then I would focus on putting as much money as possible towards the 2nd mortgage (especially since it is at 8.25%) while still contributing as much as you can to your retirement accounts.
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Old 04-18-2008, 07:40 PM   #5
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Welcome John,
I'm always preaching pay it off pay it off, but this time I'd say ditto to brewer and Firedreamer. If you have a setback you won't be able to raise cash by selling the house and you won't be able to borrow against it. I'd Pile up the cash until you're confident in your reserves and then pay extra against the 2nd until it goes away rather than using your current reserves to pay it off.
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Old 04-18-2008, 09:20 PM   #6
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Coach, yes phx is for Phoenix AZ where I live. Yes, this market has been crazy. There was the HUGE run up shortly after I moved here where I couldn't save a downpayment fast enough due to the appreciation rate and then once I purchased there has been a HUGE correction. As I said though my wife and I are not looking to move anytime soon (not that we could anyways) and there are foreclosures on my block now that could possibly place the value of my house as much as 50% (!!!!!) down. Oh well, such is life. Stressing about it wouldn't be healthy and so I just continue to pay my bills work down the mortgage and save what I can.

Brewer, Firedreamer, Darryl, Thank you for the advice. While I have a natural abhorrence of debt (hence being VERY tempted to pay off the 2nd knowing I have the cash), I can see the logic in holding steady for now and building up the reserves a bit more.

The 20k represents about 5 months worth of my projected expenses.

I look forward to alot of good reading on the board!

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