25, 87K networth.What to do with 65K in cash? Need a plan!

[letsdothis]

One thing I didn't say in my response above that should be mentioned is that FI is way more about lifestyle than salary. I didn't want to leave you with the impression that you will have difficulty getting there simply because of your career or education, because you certainly have the desire and track record of someone who is REALLY good at saving. That will serve you well on whatever path you take!

As far as investing... right now is a weird time. The market should correct, but it might not. It might just go sideways for a few years (which is kind of a way to correct as well, without going down). In the long run, equities will always return more. The market always marches forward, upward, on a long enough scale.

So on that note, it's fine to have cash on the side, while the market is over priced, but I would avoid market timing. Find a good index fund, and consistently invest in it. Leaving that alone, and letting it compound for decades... is what will get you to FIRE.

The risk of sitting on the sideline and playing it too safe when you have multiple decades ahead of growth and compounding, can be a bigger drag than investing at the wrong time.

I say this as someone who just, for the first time, set aside 38% of my investments in very safe investments... but until this point I've been 100% equities for the last 18 years.

In your shoes I might take this approach... assuming that money isn't something you'll need to use for the next 10+ years... invest a third to half into a total market index fund now... and each 6 months look at putting another 10-25% in based on what the market has done - with a goal to have it all invested within 2 years. Cash, is sort of like a negative return every year. You're losing at the rate of inflation, essentially.

Thank you for your advice. And I understand where you were coming from in your initial post. I do agree that for me FI is more of a lifestyle. And whether I retire early or not my real good is always meant to give me some stability and flexibility in my professional and personal life.

I totally agree with dollar cost averaging the cash I have and investing it. It looks like the market may move down a bit given, I mean whether for real reasons or the imagined panic with the corona virus. But, as you say the longer term view is what is important.

I plan to invest what I do not plan on using in like 5 to 10 years. Unless I decide to purchase my first home (I definitely have enough for a down payment in my area) that I would live in and rent out the extra rooms. In that case I would invest what I do not plan to use for a house.

I know there is a lot of debate on whether rentals is a viable route, so I will have to look at the numbers and see if it is worth it. In any case, increased contributions to the brokerage account will happen.

 

[mageedge]

I followed a similar path to that which you plan - PhD and first 'career' job at 29. I chose government admin rather than academia but the financial dynamics were similar. Retired and FI at 57. You are already ahead of where I was at a similar age.
Most important things right now IMO - you live below your means, you budget your money and you are developing an investment plan. And that's great!
You've settled on low cost index funds and have opened a tax advantaged vehicle. It sounds like you are planning on continuing investing and maximizing Roth opportunities.
I think the remaining long-term decision is on Asset Allocation. In answer to your question - take the entire investable pot for % allocation - so yours, excluding cash, is approx 95/5 equity/fixed - aggressive but age appropriate if you are (really) comfortable with the loss potential. The question you need to answer honestly for your self is what level of allocation to equity lets me sleep at night and continue to follow in the event of ,say, a 50% decline in the market?
At your age I had a 10% fixed allocation which gradually increased over the years.
On equities domestic v international; value v growth; small v large all all issues to read about and make informed decisions over time - not critical at this point.
You should consider tax efficiency - so bonds in Roth (or other vehicle) unless tax free. International also better placed in tax sheltered becasue a lot lower % of the dividends are 'qualified' for tax purposes.
On using the cash - emergency fund or short-term expenditures are the reason for holding cash. You mention the house purchase possibility - if that is real then maybe you should keep 20-40k in savings and invest the balance on a dollar cost averaging basis according to the investment plan %'s you adopt.
Immediate moves I'd suggest would be to transfer the non-Roth international to total stock and move the Roth Total Stock to International/Bonds to get the AA % numbers close.
One further consideration in the longer term, since you're already playing the bank bonus game, is to consider ETF equivalents to the mutual funds which you can then transfer around to other brokerages to take advantage of bonus offers and other benefits.
One final suggestion - if you're tempted by "find the next Google" type investments, set aside a % of your allocation for such 'play money' - recognizing you may make a mint or lose the whole enchilada! I did this for a few years with 5% of my allocation in gold and energy stocks - quickly doubled my invesment, withdrew original amount + 10% profit - and the balance proceeded to do nothing for the next decade!

 

[SnowballCamper]

Do I have too much saved in cash?
Yes.

If so, what should I consider doing with this money?
Keep 6 months of living expenses in cash and put the rest in a total market index fund, like VTI

Should I be looking at asset allocation in terms of all of the accounts and money I have or just worry about allocation within each investment account?
All the accounts and money.

How to you think about asset allocation between IRA, and brokerage accounts?
Some investments can give off a lot of dividend income. I want those in an IRA instead of the usual taxable brokerage. At your current income level this isn't much of an issue. Make your dividends automatically reinvested.

Should I invest more into the brokerage account?
Yes, after you have maximized a Roth IRA, and get any matching funds from an employer (so as soon as you have earned income, fund the Roth IRA)

And if so how should I allocate this. After some reading I have considered an 80/20 allocation but how could I reach this noting that bonds are not tax efficient enough to put in a taxable brokerage account?
At your age, I would skip the bonds for now. There is much discussion about asset allocation, I say pick the most aggressive allocation that will not induce panic selling.


Should I consider investing in other things beyond index funds like ETFs, REITs etc.? ...Have considered buying a rental property but being in a school makes it difficult to really take the time to look into that yet…What should I consider as I go along my FI journey?!
Write your investment strategy and include a discussion of the efficient market hypothesis. Put it someplace where you see it before making any investment changes.

Knowing what you know now, what would you do if you were in my situation?
I would not be a social work student, especially in a PhD program. That isn't an efficient path to financial independence...but it could be the path for you. Read the Millionaire Next Door if you haven't.


I wrote this answer here a while back: https://www.early-retirement.org/forums/f30/what-to-do-in-order-to-retire-hopefully-early-99570.html

 

[letsdothis]

I followed a similar path to that which you plan - PhD and first 'career' job at 29. I chose government admin rather than academia but the financial dynamics were similar. Retired and FI at 57. You are already ahead of where I was at a similar age.
Most important things right now IMO - you live below your means, you budget your money and you are developing an investment plan. And that's great!
You've settled on low cost index funds and have opened a tax advantaged vehicle. It sounds like you are planning on continuing investing and maximizing Roth opportunities.
I think the remaining long-term decision is on Asset Allocation. In answer to your question - take the entire investable pot for % allocation - so yours, excluding cash, is approx 95/5 equity/fixed - aggressive but age appropriate if you are (really) comfortable with the loss potential. The question you need to answer honestly for your self is what level of allocation to equity lets me sleep at night and continue to follow in the event of ,say, a 50% decline in the market?
At your age I had a 10% fixed allocation which gradually increased over the years.
On equities domestic v international; value v growth; small v large all all issues to read about and make informed decisions over time - not critical at this point.
You should consider tax efficiency - so bonds in Roth (or other vehicle) unless tax free. International also better placed in tax sheltered becasue a lot lower % of the dividends are 'qualified' for tax purposes.
On using the cash - emergency fund or short-term expenditures are the reason for holding cash. You mention the house purchase possibility - if that is real then maybe you should keep 20-40k in savings and invest the balance on a dollar cost averaging basis according to the investment plan %'s you adopt.
Immediate moves I'd suggest would be to transfer the non-Roth international to total stock and move the Roth Total Stock to International/Bonds to get the AA % numbers close.
One further consideration in the longer term, since you're already playing the bank bonus game, is to consider ETF equivalents to the mutual funds which you can then transfer around to other brokerages to take advantage of bonus offers and other benefits.
One final suggestion - if you're tempted by "find the next Google" type investments, set aside a % of your allocation for such 'play money' - recognizing you may make a mint or lose the whole enchilada! I did this for a few years with 5% of my allocation in gold and energy stocks - quickly doubled my invesment, withdrew original amount + 10% profit - and the balance proceeded to do nothing for the next decade!

Thank you for your advice. In all honesty scholarships and opportunities throughout my academic career have gotten me to this point. All before I learned about FI and personal finance in general. Having FI as a goal from the start, I might have considered a different path. But, I have simply walked through the open doors put in front of me thus far.

It is nice to hear from someone who has gone through a similar path. Knowing what you know now would you still have made that decision to get a PhD? I have considered doing something outside of academia, I am curious as to how you got into that line of work.

*Regarding moving to Total stock in the taxable account, and moving to bonds and international in Roth why did you make this suggestion? Is that related to tax-efficiency. Sorry if this is a silly question

 

[letsdothis]

Do I have too much saved in cash?
Yes.

If so, what should I consider doing with this money?
Keep 6 months of living expenses in cash and put the rest in a total market index fund, like VTI

Should I be looking at asset allocation in terms of all of the accounts and money I have or just worry about allocation within each investment account?
All the accounts and money.

How to you think about asset allocation between IRA, and brokerage accounts?
Some investments can give off a lot of dividend income. I want those in an IRA instead of the usual taxable brokerage. At your current income level this isn't much of an issue. Make your dividends automatically reinvested.

Should I invest more into the brokerage account?
Yes, after you have maximized a Roth IRA, and get any matching funds from an employer (so as soon as you have earned income, fund the Roth IRA)

And if so how should I allocate this. After some reading I have considered an 80/20 allocation but how could I reach this noting that bonds are not tax efficient enough to put in a taxable brokerage account?
At your age, I would skip the bonds for now. There is much discussion about asset allocation, I say pick the most aggressive allocation that will not induce panic selling.


Should I consider investing in other things beyond index funds like ETFs, REITs etc.? ...Have considered buying a rental property but being in a school makes it difficult to really take the time to look into that yet…What should I consider as I go along my FI journey?!
Write your investment strategy and include a discussion of the efficient market hypothesis. Put it someplace where you see it before making any investment changes.

Knowing what you know now, what would you do if you were in my situation?
I would not be a social work student, especially in a PhD program. That isn't an efficient path to financial independence...but it could be the path for you. Read the Millionaire Next Door if you haven't.


I wrote this answer here a while back: https://www.early-retirement.org/forums/f30/what-to-do-in-order-to-retire-hopefully-early-99570.html

Thank you for your response, I did look at the post you linked to and it was very helpful. I will be referring to that from time to time for sure!

And yes, I realize that being a SW student is not the most efficient way to FI. I did not know about any of this until a year ago, after I had been in college for quite a while, and after I was given various fellowships to continue my studies. I went through college on my own, and when choosing majors, I really was not thinking about FI, I had never even considered it or knew it was thing. We do not all have the benefit of having guidance. But, I feel lucky that despite this I have saved as much as possible and have avoided debt as much as possible!

I am definitely taking your advice and will consider it as look into my plan and options. Thanks again!

 

[pjigar]

Do I have too much saved in cash?

Yes.



If so, what should I consider doing with this money?

Keep 6 months of living expenses in cash and put the rest in a total market index fund, like VTI



Should I be looking at asset allocation in terms of all of the accounts and money I have or just worry about allocation within each investment account?

All the accounts and money.



How to you think about asset allocation between IRA, and brokerage accounts?

Some investments can give off a lot of dividend income. I want those in an IRA instead of the usual taxable brokerage. At your current income level this isn't much of an issue. Make your dividends automatically reinvested.



Should I invest more into the brokerage account?

Yes, after you have maximized a Roth IRA, and get any matching funds from an employer (so as soon as you have earned income, fund the Roth IRA)



And if so how should I allocate this. After some reading I have considered an 80/20 allocation but how could I reach this noting that bonds are not tax efficient enough to put in a taxable brokerage account?

At your age, I would skip the bonds for now. There is much discussion about asset allocation, I say pick the most aggressive allocation that will not induce panic selling.





Should I consider investing in other things beyond index funds like ETFs, REITs etc.? ...Have considered buying a rental property but being in a school makes it difficult to really take the time to look into that yet…What should I consider as I go along my FI journey?!

Write your investment strategy and include a discussion of the efficient market hypothesis. Put it someplace where you see it before making any investment changes.



Knowing what you know now, what would you do if you were in my situation?

I would not be a social work student, especially in a PhD program. That isn't an efficient path to financial independence...but it could be the path for you. Read the Millionaire Next Door if you haven't.





I wrote this answer here a while back: https://www.early-retirement.org/forums/f30/what-to-do-in-order-to-retire-hopefully-early-99570.html

I would second all these advices. And add that if you have access to HSA then max that, invest and dont withdraw from HSA EVER. order of HSA maxout should be after Roth IRA and 401k matching contributions. Reminder goes back to 401k maxout and then brokerage.

As far as investment vehicles, I would mostly stick to total market equity index fund and some bond funds based on you market reaction behavior. You want KISS plan at this point in life and STICK TO IT.

 

[mageedge]

Thank you for your advice. In all honesty scholarships and opportunities throughout my academic career have gotten me to this point. All before I learned about FI and personal finance in general. Having FI as a goal from the start, I might have considered a different path. But, I have simply walked through the open doors put in front of me thus far.

It is nice to hear from someone who has gone through a similar path. Knowing what you know now would you still have made that decision to get a PhD? I have considered doing something outside of academia, I am curious as to how you got into that line of work.

*Regarding moving to Total stock in the taxable account, and moving to bonds and international in Roth why did you make this suggestion? Is that related to tax-efficiency. Sorry if this is a silly question

On your last question (not silly!) - yes, it's about tax efficiency. As much as possible within your overall asset allocation plan you want to place the least tax efficient instruments in tax sheltered accounts. Regular taxable bonds are the most obvious example of 'tax inefficiency'.
Domestic stock index funds are pretty tax efficient because they declare little or no capital gains and their dividends tend to be close to 100% qualified.
International funds, even index funds, tend to have a much lesser % of qualified dividend so those dividends will be subject to a higher tax rate.
That's a very basic description - lots of variations (municipal bonds, tax managed funds etc.) you can look at down the road.

On your wider question about my career track - never regretted the PhD decision, loved my time as a student. My PhD was in 'Politics and Government' and my first thought, post graduation, was academia. However - no quick job offers and need for income drove me elsewhere.
I ended up in California county government, entry level administrative analyst position, and progressed up the career ladder from there to county CEO.
PhD itself was not critical to getting the job but the analytical training and discipline one develops in PhD research provided a big competitive advantage in my peer group.
Hope that helps. Good luck.

 

[letsdothis]

On your last question (not silly!) - yes, it's about tax efficiency. As much as possible within your overall asset allocation plan you want to place the least tax efficient instruments in tax sheltered accounts. Regular taxable bonds are the most obvious example of 'tax inefficiency'.
Domestic stock index funds are pretty tax efficient because they declare little or no capital gains and their dividends tend to be close to 100% qualified.
International funds, even index funds, tend to have a much lesser % of qualified dividend so those dividends will be subject to a higher tax rate.
That's a very basic description - lots of variations (municipal bonds, tax managed funds etc.) you can look at down the road.

On your wider question about my career track - never regretted the PhD decision, loved my time as a student. My PhD was in 'Politics and Government' and my first thought, post graduation, was academia. However - no quick job offers and need for income drove me elsewhere.
I ended up in California county government, entry level administrative analyst position, and progressed up the career ladder from there to county CEO.
PhD itself was not critical to getting the job but the analytical training and discipline one develops in PhD research provided a big competitive advantage in my peer group.
Hope that helps. Good luck.

Thank you for your advice and thoughts! I am curious how you got to your position and what you studied?
I am looking to make some adjustments and invest a little bit now and keep dollar averaging. I may get some shares at a lower price given the recent downturn.