Ok, so I'm probably the opposite of a lot of investors. Here's my situation:
Take home pay $85k (wife & myself)
Cash Savings $100k
I currently don't have a house and am just renting. We have been able to save more money renting an apartment than buying but of course this means we aren't building any equity. I turn 40 in a few months. No real debt other than school loans. We saved most of our money over the past 5 years but kept it in cash instead of the market which was a mistake but just don't trust the markets.
My question is what should I do with my cash??? I still am very nervous about putting the money into stocks/mutual funds (feel that a correction is right around the corner). Of course, if I keep it in cash, the best I can do is an on-line savings account that pays 1% or CD that maybe pays double that.
We are planning on buying a house in the next 12 months but not sure how much I really want to put down. I like having the security of cash but I also worry about inflation. I also feel that the housing market where I live (Vegas) is a little inflated. On the flip side, interest rates can't stay this low forever so I know I need to buy.
Just looking for advice/ideas.
Thu Aug 13, 2015 7:00 pm
christcorp Preferred Member
Cash: $ 38.85
Joined: 05 Mar 2015
First, let me say and admit, that I am a big proponent that any good portfolio should include a percentage of physical silver and gold. And now is definitely the time to buy it. Others will say that's a terrible idea, because it doesn't generate any interest. Well, I don't buy silver and gold to generate interest. I buy it to preserve the wealth I have. Generally speaking, an ounce of gold or silver today, will buy what an ounce of gold or silver would buy 100 years ago. And that includes the periods of manipulation, when you weren't allowed to own most gold, etc. so even though it isn't making interest per se, a $100 today, won't buy what $100 could buy in 1930. But an ounce of gold or silver can.
Ok, now that that is out of the way. You say your 401K is at $25000. That is the first place I would look. Don't take any of the $100,000 and put it there. You won't gain the tax benefits. But if you aren't maxing out your 401K, then figure out how much more you can put in. Let's say you can put in an extra $800 per month. Round off and say $10,000 per year. Do that for 5 years, and hold back $50,000 from the 401K to offset your much lower paycheck. After the 5 years, you can put the 401K monthly contributions back where they were if you want. This will give you another $10,000 per year of non taxable income. It will take discipline, so you don't spend the $50,000 your supplementing your income, on a new car or other expenditure. Save for those like you normally do.
With the remaining $50,000 I would take some of that, and buy some raw land. Possibly in an area that you may want to retire at. Don't build on it now. You may find later, that you could sell it for many times what you bought it for. If not, you have a nice piece of land that's yours and you can build your retirement home on it. Let's say you spend $20,000 on this. This leaves you $30,000 in cash. That is about 5 months of your pay. That is a good emergency fund. Keep that in cash for the new water heater, new furnace, transmission, etc.
If by chance, you like the silver and gold idea, cut the 401K advice I mentioned initially to 1/2 of that number. Supplement your income with the cash, and the other half, buy the silver and gold. Buy at a 80% silver 20% gold ratio. I won't say to buy it monthly or to buy a lot of it all at once. You have to determine that for yourself. Best of luck.
Thu Aug 13, 2015 10:48 pm
oldguy Senior Member
Cash: $ 716.00
Joined: 21 May 2006
quote: in cash instead of the market which was a mistake but just don't trust the markets. I also feel that the housing market where I live (Vegas) is a little inflated. nervous about putting the money into stocks/mutual funds (feel that a correction is right around the corner).
Market Timing. Markets, both real estate and stocks, cannot be timed. There are a 1000 books about timing stocks - elliot waves, fibonaci ratio, chart patterns, yada, and endless TV bantering about 'timing'. But if timing could actually be done, one small book would be all that we need. (But that info would confound the market and make it untimable again). In fact, 85% of professional managers (mutual fund & pension managers) are unable to beat the generic SP500 market index. And the 15% who beat the market are not the same 15% as last year. The reason is that the market is driven by something that has not yet happened - and all of the prognostications are based on history, ie, a disconnect.
Btw, it is liberating to finally grasp that - then you can simply focus on longterm investing and stop worrying about Greece, China, whether the Bull is 7 years old and 'due', yada. Same with houses - I've bought several rental houses over the past 40 yrs, I learned to buy when I felt that the price was right and avoid thinking about the future price.
Wealth-building. The human life cycle gives us about 30 yrs for wealth building, followed by many years (hopefully) of wealth preservation. So you need to start investing, not saving. A wage earner cannot '"save" their way to wealth. Eg, $1000/m invested at 11%/yr for 30 yrs is about $2,600,000. If you tried to "save" $2.6M it would cost $7200/m, ie 7X. Most families cannot save $7200/m w/o stressing the family. But many can handle $1000/m w/o much strain - in fact many put that much into their 401k's.
$100,000 at 11%/yr for 30 yrs equals $2,200,000.
$100,000 at 1%/yr for 30 yrs equals only $135,000 (which will buy less then than $100k will buy now.
The Law of Investing - "risk and return are directly proportional". And you can dial in whatever risk that you want - eg, 50%/50% stocks/cash = 11%/1%, or about a 6%/yr return. Personally, I used 100%/0% thru my entire engineering career and dropped to 50%/50% after retirement. You are extremely risk averse so it will be tough for you to move to 100/0, but get as close as you can.
Check out a few 30-year blocks of time, usually you'll get about 11%/year average. The most recent 30 years ending about a month ago, was just over 11%/yr, pretty typical - and that averages in the 2008 crash, th e2001 crash, the great crash of 1987, and so on - all of those 'horrific' events are but a blip on the graph, even tho they scared the bejesus out of us at the time.