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Old 09-18-2016, 09:22 AM   #21
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Originally Posted by target2019 View Post
  • Equity investments - about 60% of the balance
  • Cash for loans - about 40%

I don't know how much $ you're talking about, so the absolute $ may be low....but 40% cash seems awfully high! Perhaps if there were 100 people eligible to take loans out of this "family bank", I could see a high cash balance for making new loans at a moment's notice...but honestly, how often do you see people asking for a loan? Are you encouraging them to take out a loan for everything? Or did you just get a repayment back, swelling the cash % from low single digits up to 40%? If you are intending this account to be passed down to generation after generation, it would be more beneficial to invest the money in something that actually at least matches inflation.

Do the math - compare the final benefit of
A) loaning a huge pile of cash out at low interest to them, then passing it down to them later on,
B) Investing the money in something growing significantly more than 1.95%/year, then having more money to pass on to the family?

Perhaps you can agree to co-sign for the loan that they take out with a financial institution? Same concept - you have the assets to liquidate and pay off their balance if need be, but they grow at a (presumably) much greater rate of return. Also, it gets them to see what it's like in the "real world" in having to meet income requirements, etc.?

I can see some benefit if, for instance, they would have to pay several thousand in closing costs for a mortgage that they would pay down in a few years....but for things like a no-fee auto loan with low interest, or student loans, etc., you might rethink some of your approach.

Dryer sheets Schmyer sheets
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Old 09-18-2016, 10:55 AM   #22
Thinks s/he gets paid by the post
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1. Call it 100K to make the numbers easier to calculate. This is not part of our retirement investments, checking, or savings. Cash is actually 35%, so call it 35K. Potential uses I can see are car, roof, HVAC, things like that. I did not go to this for HVAC, for example, as I obtained 0% financing for 3 years. For auto, could not get 0%, so went to this cash.

2. Not really encouraging anyone to borrow money, but looking for opportunities to use cash and avoid paying interest to other "banks".

3. On equity side (60%), anticpating growth and income to exceed inflation. On $CASH side (40%), I think 1.9% is beyond the cumulative CPI for a year. At least for now, stock is up 25% or more.

4. I see co-signing as a separate issue. The subject did come up this year as a possibility, but it is not really tied into this.

5. Everyone involved has higher credit ratings, and earns enough to be self-sufficient. Each can get a loan or mortgage.

We're not necessarily carrying out a monolithic plan that can't adapt. This article probably presents the concept better than I can:

I understand your main point, which is that putting this all into US Total Stock index or a balanced fund will produce better results. That could be an option at some point. For now I have identified two ETFs and begun positions - SCHD and PGX. Other stock held is a large telecom.

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