Where to invest 300K

[firenow]

I am 37 yr old and hope to retire by 50. I have about 300K of cash sitting in my checking account. Another 100K in my 401k (invested in vanguard retire-by-2045 plan). That's all my net worth.

I am thinking about investing the 300k like below, please critique and help me find the best strategy.

100K in CA Muni bonds; specifically MUC ticker
100K in Lending Club
100K hold tight in checking account (not sure what else is a better safe haven) for the stock market to go down or home prices to come down. Home buying is only as an investment, not interested in it as an "american dream".

Please let me know what you guys think

- Sam

 

[Sunset]

Why did you end up with $300K in checking account, have you been waiting for the market to recover since 2008 ?

You will lose it in lending club, put it in VTI and VXUS split 50/50
You are losing money waiting in "safe investments" and nothing, absolutely nothing is safe.

Some folks suggest owning a home is a worse investment than renting and sticking the money in the S&P 500 that you would have used to purchase.

 

[firenow]

thanks for the quick reply. yeah I was a bit scared of the stock market and was waiting for it to come down since past 2-3 years;

I see you are suggesting to invest in total stock market 50% split between US and international. I feel I am going in at the peak just like 2006 only to have the market crash and lose my capital.

On the other hand 1.) non-stock market related investments like lending club 2.) high tax-free yield muni bonds seem to be a safer option to me. Let me know your thoughts

 

[Sunset]

So by not jumping in 2-3 years ago you missed out on 18% -> 30% increase

Money magazine did an article on this, and even buying at the peak is better than keeping your money in "safe" interest bearing accounts over a 10 year span.

Why you think lending club is safe, lots of folks have lost money and it's a lot of work. Some of the lending clubs have been caught lying about the returns and default rates. Why not, they make money even when you lose money.

You can put it in a CD for 5 years (cashable with 6 month interest lost) earning 2.25% per year.

You are young and will make more in 10 years in stocks than CD or checking account, JUST DON'T SELL IF IT DROPS IN VALUE.

 

[DrRoy]

I suggest putting at least half into VTI, half of that now and the rest in 6 monthly installments on a fixed date each month. Munis for some is fine, but no more than intermediate term. Re Lending Club, I would suggest a token amount like $5K as a test of the waters. I have done the same with Prosper. It is making money, but I have not experienced a recession with it yet. I have seen a number of small defaults, and in a bad economic cycle that could get a lot worse.

 

[racy]

Sam, I think educating one's self about investing is better than asking strangers what to do. So, I'd suggest this: https://www.bogleheads.org/wiki/Getting_started
Watch those 10 short videos on the philosophy.

From that page--
"The Bogleheads® motto is Investing Advice Inspired by Jack Bogle. We are part of his crusade "to give ordinary investors a fair shake." The site consists of this wiki and the Bogleheads® forum. Both the wiki and forum were built by volunteers who are dedicated to helping people begin or improve their investing by applying our investing principles."

Your specific question is addressed in their 3rd principle: Never bear too much or too little risk.

 

[donheff]

Whatever you ultimately do you need to make a commitment to yourself not to panic at the next 20-30% crash and sell everything. What goes down eventually comes back up.

 

[Al18]

Divide your $300K into (6) $50K portions. Keep $25K in your checking and invest $25K into a balanced stock/bond fund (ie. Vanguard's Wellsey/Wellington or Fidelity's Balance/Puritan funds).

Open a 5 year CD ladder with the rest (1 yr, 2 yr, 3 yr, 4 yr, 5 yr). When each CD matures, convert some/all of it to a 5 year CD and put the rest into the balanced fund. If the market stays the same as now, put 50% from the CD amount into the balanced fund. If the market drops 10% or more, put a higher percentage into the balanced fund. If the market rises more quickly than now, reinvest more into the CD.

This is a very conservative strategy and at the end of 5 years, if you've been putting 50% of each CD amount into the balanced fund, you will only be invested 30% (+ market gains) in stocks, with the rest in bonds and cash.

 

[ponyboy]

Yikes...something tells me this isnt going to end well. The fact that you sat on the sidelines waiting for the market to come down...the things you suggested to invest in. You may want to head over to bogleheads and ask them. You also may want to check out the vanguard 3 fund portfolio.

Honestly though you may just want to get an advisor. Someone who charges low fees and doenst invest in annuities. I konw advisors are frowned upon (I would never use one) but OP doesnt seem discipline enough to invest himself.

 

[Dash man]

For basic savings Ally Bank pays 1.05% and has a 2.25% 5-year CD. Synchrony Bank also has 1.05% savings and 2.35% CD, all insured. Put 6-8 months of living expenses in a savings account as an emergency fund and the rest into a savings account until you learn to evaluate proper investments as others have described above. Time to learn to invest properly rather than the haphazard style you've dreamed up.

 

[moneyviking]

Forget the Lending Tree portion. Keep 50k in cash, 75k in bonds, 150k in the markets (index funds for someone at your early knowledge level) and 25k is something solid, like silver.

 

[RetireAge50]

If you want to retire at 50 then go 100% stocks and then put at least 30% of your salary going forward.

 

[CaliKid]

If you want to retire at 50 then go 100% stocks and then put at least 30% of your salary going forward.

That's about what I was thinking. Unless you plan to retire really cheap you need to sock a lot of money away in the next 13 years. Good luck to you!

 

[LOL!]

Some poor suggestions on what to do have been made in this thread ... especially if you want to retire by 50. In particular, some ideas will cause you to pay more taxes than you will need to and make you less money.

So what do you do? How can you determine the good ideas from the bad ideas?

To help with taxes, where is your Roth IRA? How much have you put in a Roth IRA? If you don't have a Roth IRA, why not? Do you have misconceptions about penalty-free withdrawals before age 59.5?

If you are serious about saving for retirement at age 50, then I think you will need to get some knowledge by reading books. Not all books are good, so you will have to find the good books.

 

[Aerides]

I also support bogle ideas above, a simple (lazy) portfolio with a heavy emphasis on index funds given your age. Keep $100k cash at most. I was not unlike you, coming out of the 2008/09 crash with mostly all cash aside from my 401k. You are actually losing money and losing against inflation by playing "safe".

Max your 401k each year, look into Roths for the extra if your income allows, and put the rest into low cost index funds.

But the key is - will you have the discipline to leave it alone? Not to sell on dips, not to panic - that is where an advisor might be good for you at least at first.

 

[Fedup]

Even if you are 100% in stocks, you might not retire at 50. I know my relatives are. They are still chugging away until at least 65.

 

[firenow]

Thank you everyone for the great replies. I might sound more dumber if I tell you guys that I read all those books, bogleheads and still did nothing and kept my money in checking account. I think it is mostly laziness / not being proactive and careful about money etc....

I like the idea about putting it in CDs and getting into stock market slowly. I bought California municipal bond fund MUC which yeilds 5.16% after tax with about 100K yesterday morning. The reason is that munis are low now and it gives me easy liquidity as i am buying low and can sell whenever. 5.16% after tax is a good return too.

I already invested 130k in lending club 3 months back and I see a return of 11.5% so far. sorry for not being clear earlier. the only problems with lending club is liquidity and the risk of losing it all if company goes bankrupt. i guess i am kind of stuck there. cant do much now.

The last 100k i plan to do CDs and keep an eye on market. 100K of my 401K is already in vanguard target 2040.

 

[Sunset]

.....

I already invested 130k in lending club 3 months back and I see a return of 11.5% so far. sorry for not being clear earlier. the only problems with lending club is liquidity and the risk of losing it all if company goes bankrupt. i guess i am kind of stuck there. cant do much now.

.....

It's not clear, are you saying you bought $130K of lending club shares which is a pretty risky thing to have so much in 1 company.
Or
Are you saying you lent $130K through lending club, which is still risky as you are locked in and will face lots of defaults as soon as the economy dips a lot. Plus I believe the non-payments of the loans you provided go up as time goes on, nearly all debtors pay the first few months, then some stop paying, or delay then stop.

 

[LOL!]

TI already invested 130k in lending club 3 months back and I see a return of 11.5% so far.

That's unbelievably amazing! So your $130K has grown to $145K already? That's an annualized return of 46, isn't it?

Wasn't Lending Club sending out e-mails that they had calculated ROI wrong? Or was that another group?

 

[38Chevy454]

Your danger is being so conservative that you lose value to inflation over the years. You will never increase your principle and take advantage of compounding vs inflation if you stay on the same path you are on.

Put simply, you can't ride the wave if you are not on it.

 

[Blue Collar Guy]

you sound too nervous to be in the stock market, if you were my child i would suggest you put 25 % into vanguard VTI, then every week transfer 1500 dollar cost average into it until you are fully invested about 3 years you might miss the huge ride up, but a nervous person will not get crushed in a crash, good luck ,read a few more books on investing from john bogle etc.

 

[gatored]

Seems to be one of the more unconventional approaches to retiring by 50. I'm going to bite my tongue a bit and just say you should go speak with a financial advisor and skip all the internet self-help links.

 

[Fedup]

Financial advisor will halve your money for 1%.

 

[Scuba]

So by not jumping in 2-3 years ago you missed out on 18% -> 30% increase

Money magazine did an article on this, and even buying at the peak is better than keeping your money in "safe" interest bearing accounts over a 10 year span.

Why you think lending club is safe, lots of folks have lost money and it's a lot of work. Some of the lending clubs have been caught lying about the returns and default rates. Why not, they make money even when you lose money.

You can put it in a CD for 5 years (cashable with 6 month interest lost) earning 2.25% per year.

You are young and will make more in 10 years in stocks than CD or checking account, JUST DON'T SELL IF IT DROPS IN VALUE.

Well said! +1

 

[firenow]

It's not clear, are you saying you bought $130K of lending club shares which is a pretty risky thing to have so much in 1 company.
Or
Are you saying you lent $130K through lending club, which is still risky as you are locked in and will face lots of defaults as soon as the economy dips a lot. Plus I believe the non-payments of the loans you provided go up as time goes on, nearly all debtors pay the first few months, then some stop paying, or delay then stop.

I lent 130k through lending club. See an annualized return of 11.5 pct thus far. Yes I understand due to later defaults the return pct will go down. On their website they clearly say that if you diversify your loans in 98% of cases people didn't lose money. https://www.lendingclub.com/public/diversification.action

The average return is 6-9%