What to do with extra cash

[HatePayingTaxes]

Hi,
Me and my wife have about $50k in cash sitting in ING right now and wondering what to do with it.

Our monthly expenses are about $4,700 a month. We make decent income with very stable jobs where we don’t really need a huge emergency fund. Probably won't buy a car for at least 5 years. Have a rental property. We're maxing out our Roth and 401k so that $50k is outside of retirement accounts.

As for the use of the money, we wanted to either start/buy a business, buy more rental property, or just put it into index funds. For starting/buying business and rental property, it depends on the timing so I have no idea when that'll happen.

Based on this information, what do you think we should do with $50k?

Thanks

 

[brewer12345]

I'd probably shove it into a balanced fund and forget about it. If you are over the 25% federal bracket, you may want to use a tax-managed balanced fund.

 

[macdaddy]

Real estate and/or a small business both take up a lot of personal time, in addition to money invested. An index fund is easy and takes up pretty much no time. I think it comes down to a personal preference, of how involved do you want to be with your money... personally I would say stick it into an index fund, unless (or until) you find a really undervalued, easy to manage rental property near where you live.

 

[mickeyd]

Reading between the lines I do not see that you are planning on spending this stash for quite a while. Since you did not state a time horizon nor asset allocation preference, my suggestion is only what I would do with the $50k if I had it in similar situation. Also, I would not call it extra cash, I would call in unallocated cash at this point.

I would invest all of it in the Vanguard Total Stock Market Index fund at a rate of $5,000 monthly over the next 10 months. This is a fund that has a low expense ratio (.18%) and is very tax efficient (you will probably have to pay little/no capital gains tax each year.) It ought to generate about $800 in dividends annually which I would have directed to a Vanguard Prime MMF that I would also open at the same time.

 

[HatePayingTaxes]

Thanks for the responses.

For asset allocation, it'll be 100% stocks.

For time horizon, it really depends on when/if I find a good business/real estate opportunity. If I were to find a good opportunity in 3-5 yrs, will it still be prudent to put it into 100% stock index fund?

 

[brewer12345]

Thanks for the responses.

For asset allocation, it'll be 100% stocks.

For time horizon, it really depends on when/if I find a good business/real estate opportunity. If I were to find a good opportunity in 3-5 yrs, will it still be prudent to put it into 100% stock index fund?

That's wy I suggested a balanced fund. It will have less volatility so there is a better chance you won't losse anything if you need to sell it soon to take advantage of an opportunity.

 

[FinanceDude]

That's wy I suggested a balanced fund. It will have less volatility so there is a better chance you won't losse anything if you need to sell it soon to take advantage of an opportunity.

Only if one believes in the Efficient Frontier..........

Brewer, I would think you are looking for the "Inefficient Frontier".......right

 

[mickeyd]

If I were to find a good opportunity in 3-5 yrs, will it still be prudent to put it into 100% stock index fund?

With this short time horizon, I'd consider a MMF or a ST bond fund as both are less volitile than equities over the short term. You could find yourself in the middle of a bear market in 3-5 years and this would keep your needed cash pretty safe.

 

[brewer12345]

Brewer, I would think you are looking for the "Inefficient Frontier".......right

Sort of. I mostly invest personally in individual issues concentrated in two places:

- Stuff that is not in any index anywhere
- Stuff that is in the most hated industries/companies in existence

If you buy "pretty & popular" stuff, it is very hard to make money. But what I do requires a pretty thorough understanding of finance and accounting, and it takes effort, so it is not for everyone.

 

[Nords]

If you buy "pretty & popular" stuff, it is very hard to make money.

Gosh, the new manager of Fidelity Magellan was just quoted by the company as saying "I'm willing to pay a premium for growth."

How can we sleep at night knowing that we're missing out on Google?

 

[brewer12345]

Gosh, the new manager of Fidelity Magellan was just quoted by the company as saying "I'm willing to pay a premium for growth."

How can we sleep at night knowing that we're missing out on Google?

Bourbon.

 

[FinanceDude]

Gosh, the new manager of Fidelity Magellan was just quoted by the company as saying "I'm willing to pay a premium for growth."

How can we sleep at night knowing that we're missing out on Google?

Gotta love Magellan...........they're still trying to discover the Peter Lynch method of value investing.............

 

[Spanky]

Hi,
Me and my wife have about $50k in cash sitting in ING right now and wondering what to do with it.

Our monthly expenses are about $4,700 a month. We make decent income with very stable jobs where we don’t really need a huge emergency fund. Probably won't buy a car for at least 5 years. Have a rental property. We're maxing out our Roth and 401k so that $50k is outside of retirement accounts.

As for the use of the money, we wanted to either start/buy a business, buy more rental property, or just put it into index funds. For starting/buying business and rental property, it depends on the timing so I have no idea when that'll happen.

Based on this information, what do you think we should do with $50k?

Thanks

Total market index fund, assuming you have sufficient allocation of fixed income in your tax-deferred accounts. If not, put some into tax-exempt bond funds or I-bonds directly from TreasuryDirect.

 

[daystar]

I've heard some very good ideas, so I won't repeat those.

You can give some of the money away to charity. Since your name is "Hate Paying Taxes", you should consult a tax advisor or accountant to find out how much of that $50,000 you can deduct by giving it to charity:
http://www.vanguardcharitable.org/

You can remodel your house. With a $50,000 remodel you might get an increase in resale value of your house of $20,000 - $40,000. Now, you would actually be losing money on this investment, but if you're going to stay in your home for a while and your house needs a remodel, then go for it.

Are you fully insured? If not, you can spend some of the $50,000 on insurance.

Christmas is coming. You can blow a grand or two on presents. Make it a spectacular Christmas.

Do you have kids? You can start a 529 savings plan or other educational account for them. You can pay their college tuition if they're in college.

Invest in yourself. You can buy one of those executive health exams where they take CT scans of your body and have an army of doctors to answer all your health questions.

New Years resolutions are coming. You can join a gym and get in better shape.

 

[MikeK]

I'd still keep six month ($30K) in cash. All it takes is one disaster -- health problem, roof starts leaking, car breaks down, etc. -- to suddenly need $5K or $10K. It's conservative but it keeps you out of making short-term decisions with your investments. Disasters always seem to happen at the wrong time; it could occur during a market downturn. Then you get a double-whammy: pay the disaster expense with credit cards or sell your investments when they're in the red.

Just this year my family had drainage problems around the house ($2K) and some unexpected medical operations ($5K).

Mike

 

[lowflyer]

This is an interesting question...If you are looking for investment advice, that's one thing, but I don't think I've ever had what I would call "extra" cash. If you want to buy into a business or something, that's a totally different issue. I would consider "extra" cash anything that is in excess of what I need in case of an emergency and to buy stuff that I want/need right now. Otherwise, extra cash gets added to the extra cash I had last month, year, etc. in order to build a great looking investment portfolio that can support me in ER.

 

[d]

I don't think I've ever had what I would call "extra" cash.

rather than "ask" for $, my kids would always ask if i had any "extra" $ ... i never understood why they never understood that i didn't understand the concept. but i bet they do now!

 

[brewer12345]

Actually, I think I'd get it in $100 bills, roll up some blunts, and catch a fire with it...

 

[Patrick]

Buy Taco Bell stock.

 

[HFWR]

You want scallions with that?

 

[Patrick]

You want scallions with that?

Absolutely! And don't forget to pile on the lettuce!