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Old 08-01-2020, 03:55 PM   #1
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Check up for early 30s

Hey guy, I haven't done this in a while, but I figured I'd post my situation to get feedback and advice. I'm in my early 30s, married, and have two kids (2 and 11y/o).

Townhouse: worth $255k, $164k mortgage remaining, 15yr @ 3.25%
Cars: two newer cars paid off, under full warranty for another 2.5years
Cash: $145k, most in Ally savings

401k: $188k, 100% AmericanFunds 2045 Target Retirement
Roth IRAs: $66k, 100% TRowePrice 2045 Target Retirement
Taxable: $38k, 80/20 Total US/Total Int'l @ Fidelity
HSA: $36k, 100% Fidelity Balanced Fund
529s: $13k total between two kids

My goal would be to be financially independent around 50 years old since I'm in a field where ageism could be an issue down the road, and have $50k for each kid in their 529s.

Right now I have some extra cash and don't really know what to do with it. Equities are at all-time highs despite COVID and the poor economic situation. I'm not a huge fan of 529s and my state gives a very tiny tax break for these. I'm also hesitant to sink too much more into the mortgage as about 70% of my payment is now going towards principal... Keeping the cash at 1% savings rate is basically losing money thru inflation...

Also because of a job promotion we now expect to have $1k cash left over every month after maxing out HSA, 401k, Roth IRA. I was thinking of splitting that between taxable and the mortgage.

Thanks guys.
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Old 08-01-2020, 04:29 PM   #2
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I don't give advice, but I will tell you my thoughts if I were to wake up in your shoes. ;-)

First, you're doing really, really well for your age. If you continue to max things out, and depending on the lifestyle you want to lead, you'll probably hit your goal.

The cash sitting around is something I would work to deploy. Take the long view, not the short view. Most everyone ahead of me reached their goals by investing every month through good and bad for 20 years or more.

A trick I play there to put things in perspective: In 20 years, will "COVID and the poor economic situation" be a big deal? Sure, maybe. What was the big deal 20 years ago and was it a big deal? Well, 20 years ago the big thing was the dot com boom and bust. The S&P500 was at 1431 then and is at 3271 now. Nasdaq was at 3767 then and is at 10745 now. (*) Would you like to go back in time and buy your mutual funds at their prices 20 years ago? Probably.

New cars and warranties are more expensive on average than quality used cars that are taken care of. I drive a 1993 Lexus that has 188K or so on the odometer. It is probably worth $2500 but I don't care. It gets me safely, comfortably, and economically from point A to point B. If you or your spouse are afraid and want to pay up, then OK. But realize that you're paying up for that.

Personally I paid off the mortgage first and then threw all into taxable. But a 50/50 split is perfectly fine too, and there are those here that would argue for throwing it all into taxable and carrying the mortgage as long as possible.

I would have kept my relationship with my spouse in good shape. Divorces are horrible, especially when kids are involved, and are also horribly expensive.

(*) Adjusted prices per finance.yahoo.com
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Old 08-01-2020, 05:02 PM   #3
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Forgot to mention, I personally went with index funds for my investments. That 0.72% expense ratio of the American Funds 2045 looks high to me for something that I could manage myself a few times a year with some mouse clicks. Also, I hope you're not paying the 5.75% load that is listed for that fund (sometimes you don't inside a 401(k)).

Consider that 0.72% is fully 18% of the 4% you'll be able to take out in retirement. I don't want to pay an 18% tax on my retirement income to someone.
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Old 08-01-2020, 05:32 PM   #4
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Quote:
Originally Posted by SecondCor521 View Post
Forgot to mention, I personally went with index funds for my investments. That 0.72% expense ratio of the American Funds 2045 looks high to me for something that I could manage myself a few times a year with some mouse clicks. Also, I hope you're not paying the 5.75% load that is listed for that fund (sometimes you don't inside a 401(k)).

Consider that 0.72% is fully 18% of the 4% you'll be able to take out in retirement. I don't want to pay an 18% tax on my retirement income to someone.
We use the R6 shares in our 401k which have an ER of 0.38%, no loads at all. Appreciate your advice and insights above as well!
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Old 08-01-2020, 07:02 PM   #5
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From my perspective, continuing to focus on being a good saver is more important that worrying about having "too much cash". Keep things simple and put that "excess" cash into a broad total market index fund and don't worry about it for 20 years.

Just do what you can, as your career continues, to minimize "lifestyle creep" to maintain or increase your savings rate. I am not saying do not enjoy splurging a bit on any income increases you receive... just try to save/invest most of any additional income. Being a good saver with average market returns puts one in a great position.
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