What would you do next re: prioritizing investments

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bigbadbuff
Posts: 50
Joined: Mon Aug 19, 2019 10:35 am

What would you do next re: prioritizing investments

Post by bigbadbuff »

Background: spouse and I are in our 40s with a 5/7 yo. Annual combined income 250k. We max 401ks each year but have only begun to do that in recent years, combined current value of 650k. I have several inherited annuities/investment accounts totaling around 500k.

Relative to the Bogleheads suggested investment prioritization wiki, we have done the following:

1) established emergency fund
2) contribute to work 401k's and receive full employer match
3) we have no high interest debt
4) we max out contributing to our HSA each year
5) we max out contributing to individual Roth IRAs each year
6) we do NOT contribute to any other type of retirement account as is, i.e. after-tax 401k/backdoor Roth
7) we have no medium interest debt
8) we do have a taxable standard brokerage account with around 75k in it but are not routinely adding to it
9) we do still owe around 250k on our low interest mortgage, house is currently worth 550k
10) we have around 500k sitting in high yield savings at a few institutions

I do not have 529 plans for either child established (we do live in a state with income tax but the 529 tax benefits are relatively minimal), they simply have 'their own' savings accounts totaling around 50k.

My primary concerns are:

- my accounts are too spread out and 'sloppy' between rollover IRAs, inherited accounts, etc. I need to consolidate down to fewer, simpler accounts
- college savings for kids but not all in 529s, which seem too narrow of use to me to dump a ton of $ into
- sitting on way too much cash and torn on what to do with it (pay off mortgage, invest via taxable investment account, kids college). Not much interest in investment property with the market so high.
- our cash flow will improve by several thousand per month in the fall and I'd like direct that into investments
- being as 'tax intelligent' as possible with all of the above

Any opinions? Thank you in advance.
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cchrissyy
Posts: 2356
Joined: Fri May 05, 2017 10:35 pm
Location: SF bay area

Re: What would you do next re: prioritizing investments

Post by cchrissyy »

You're doing fine!

Read the wiki on choosing an asset allocation and developing an investor policy statement. Then, take the 500k cash minus your emergency fund or planned short term spending, and move it to your taxable brokerage account and deploy according to your AA.

I agree with you that 529s aren't compelling.
60-20-20 us-intl-bond
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retiredjg
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Joined: Thu Jan 10, 2008 11:56 am

Re: What would you do next re: prioritizing investments

Post by retiredjg »

Looks like you are doing all the right things. Yes, there is too much in cash.

Whether you pay off a low interest mortgage is mostly personal preference. There is no financially compelling reason to pay a low interest mortgage, but many people just want to pay it off.

Neither is a bad choice or the wrong choice. If you are not sure which you prefer, do some of each for 6 months or so and see if a preference reveals itself.
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: What would you do next re: prioritizing investments

Post by lakpr »

I am (or should I say I was) in very similar situation as you. In the 24% tax bracket, retirement accounts maxed out, and "too much" in cash. I live in NJ, there are no state tax benefits for 529 plan (unless you count the $1500 'scholarship' for investors in the NJ BEST fund). I chose to pay off the mortgage (since I do not itemize, the 3.125% rate I was paying then on a 15 year mortgage was really equivalent to earning a 4.5% Taxable Equivalent Yield (TEY) on the mortgage balance for 15 years.

It made sense for me to make that switch then (empty out the taxable account and pay off the mortgage). This was in 2018. No regrets
jcricket73
Posts: 47
Joined: Thu Jan 21, 2021 10:48 am

Re: What would you do next re: prioritizing investments

Post by jcricket73 »

I found myself in this same situation starting around 40. Lots of cash, still a mortgage, maxed out on “retirement” accounts. I chose to established a brokerage account, swept cash beyond what I felt was a reasonable “emergency fund” into it (invested by my AA) for the last decade or so. Has worked out financially.

Added bonuses 1) The brokerage account is big enough I’m again holding “too much cash” - in the sense that any emergency I could imagine could be handled between lines of credit & by transferring from the brokerage (something that never made sense when it was tiny); 2) I’ve got liquidity too take advantage of opportunities or issues as they present (whereas money paid down on a house is harder to take out).

So I lowered my “water-mark” and keep only <3 months operating cash in my checking/savings.

Obviously the next decade could be more like 2000-2010 instead of 2010-2021, so maybe I won’t earn more this way than I will paying the mortgage down more rapidly, but in my mind the available cash plus investment potential benefits was better than paying down a 3% mortgage. If I could wave a magic wand and have both I’d of course do that.

So on the other hand you have enough you could get to zero mortgage instantly (I wasn’t in that boat) so if you did that it’d be the guaranteed return, and then you could in theory start the same path I mentioned above.

Probably can’t go wrong either way
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