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How would you invest $100K?

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  • How would you invest $100K?

    Hi all, I am a graduating fellow entering private practice next year. I have 300K in student loan debt, refinanced at 5.025%. Together, my wife and my net worth has turned positive in the last year (!) largely from aggressive savings in to our respective tax advantaged accounts over the past few years. Our retirement asset allocation is ~95% stock (all various growth or total stock market index funds) and 5% REITs. Perhaps we could have put more into loans, instead of retirement, and that's still an option.

    I just learned that I will not be able to enroll into my employer's retirement plan until Jan 2021. I am planning on saving 100K next year for retirement in my brokerage account but can think of several ways to do this and still meet our written retirement goals over the next few years. Looking for some advice on these scenarios and whether I'm seeing the pros/cons correctly.

    General retirement asset allocation plan:  US stock: 60%, International stock: 20%, Bonds: 10%, REITs: 10%. Lean FI in 10 years, full retirement in 20 years.

    1) We live in upstate NY in a low cost of living area. If I invest ~50K into the Vanguard New York Long-Term Tax-Exempt Fund Admiral Shares (VNYUX) I can meet (exceed) my bond allocation goal in a low-cost fund that is exempt from state and federal income tax. Then the following year I can rebalance and focus more on REITs and US stocks in tax advantaged accounts. Invest the remaining 50K into Vanguard Total International Stock Index Fund (VTIAX) because international stock funds tend to be more tax efficient than US stock funds (is this correct?).

    2) Invest the full 100K in a total stock market index fund, such as VTSAX, because these tend to be relatively tax efficient. Then when 2021 comes around, use my tax advantaged space to invest in a total bond market fund, such as VBTLX, and REITs (both less tax efficient).

    3) Pay down student loans by an additional 100K and reap the rewards of a guaranteed 5.025% return. (FYI our plan includes paying down debt by 100K next year in addition to these savings.)

    I know there are many more possibilities, and perhaps I'm overthinking this?.... but for simplicity, I'll include just those three. Thank you in advance for your advice!

     

     

  • #2
    I'd invest it in those student loans with a guaranteed 5% tax free return.

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    • #3




      I’d invest it in those student loans with a guaranteed 5% tax free return.
      Click to expand...


      Thanks ZZZ. It does seem like the right move. Yet not saving at least 20% of my income towards retirement, even if only for 1 year, seems like heresy!

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      • #4
        would have negotiated the retirement plan. oh well.

        you plan to save 100K for retirement, and thats 20%. so you make 500K? if correct, this basically doesnt matter as youll have so.much.money.

        you also say you have existing retirement accounts. 401ks, IRAs, what?

        i would still do 20% to retirement, the rest to loans.

        i would just do backdoor rIRAx2, then 100% stock in taxable for now, IBonds maybe, munis eventually and balance out whatever else you can in existing accounts.

        then in 2021 re-evaluate and re-balance.

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        • #5
          Pay yourself first. This is an exercise in financial discipline, not math.

          Don't really need details, normal details and it's not worth the time doing even a spreadsheet. Keep is simple, just follow your plan and don't bother with screwing around with rationalizing.  Now if you wish to debate what's for lunch, that's worth it. Food is important ! Not much to gain and not much to lose. Certainly you are financially stable and have your plan. Why would you want to change?

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          • #6


            Pay yourself first. This is an exercise in financial discipline, not math.
            Click to expand...


            Thanks for the reply Tim. In this case does "Paying yourself" mean paying off loans? or save in a brokerage account?

             

            @Peds. Thanks for the advice; we have been leaning towards 100% taxable. To answer your question, we have about 120K in Roth, 130K in 403B, 30K in brokerage, and 20K in solo 401K. Does this change anything?

             

             

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            • #7
              After backdoor Roths, please put the money towards loans. It all goes towards building NW. Would you borrow at 5% to put it in the stock market? No. Would you borrow at 5% to put it into bonds? No.

              If you eschew loans to invest with the money, this is essentially what you're doing. Don't worry about what the 20% savings for retirement. This is why physician philosopher suggests using 30% as a target for (savings + paying down debt).




              would have negotiated the retirement plan. oh well.
              Click to expand...


              You generally can't negotiate this unless you can somehow convince your employer to change plan documents. I assume OP needs to have one full-year of employment to be eligible with Jan. 1 being the entry date for the plan, coinciding with the beginning of fiscal year.

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              • #8


                Does this change anything?
                Click to expand...


                if your goal is 60:20:10:10 and you will have a 400K portfolio (300 current + 100K)

                10% bond is 40K which easily fits in your solo 401k+ 403. no ibonds, munis, etc necessary.

                10% REIT is 40K: which easily fits in your Roth/403.

                20% intl is 80K: which etc etc etc

                60% is 240K: fill up the rest of the accounts, and the future rest 100K just goes to taxable.

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                • #9
                  I went through something similar. I contributed to the backdoor roth x2, spouse 401k, and HSA while pouring everything else into the student loans. This is more of a mindset thing for me, as I want the loans gone ASAP. Once eligible for the 401k myself I will start maxing that out.

                  That being said, as long as youre building wealth with the funds (either saving or paying down debt) there isnt a wrong answer here in my opinion

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                  • #10






                    would have negotiated the retirement plan. oh well.
                    Click to expand…


                    You generally can’t negotiate this unless you can somehow convince your employer to change plan documents. I assume OP needs to have one full-year of employment to be eligible with Jan. 1 being the entry date for the plan, coinciding with the beginning of fiscal year.
                    Click to expand...


                     

                    This. I actually did try and negotiate being able to contribute to our 401k from the hire date, but ran into this roadblock. Most retirement plans will be non-negotiable.

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                    • #11


                      “Paying yourself” mean paying off loans?
                      Clicktoexpand...


                      Gross - taxes - retirement savings =  spending.

                      Loans are spending. Taxes and retirement saving are intertwined, but the percentage of gross needs to be 20% or more for high income retirement savings. Peds is kind of a Boglehead Encyclopedia. Siri on the web giving placement of investments for one school of though on tax advantages.

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                      • #12
                        Mind is like a steel trap.... Rusty and illegal in 48 states....

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                        • #13
                          Thanks for all the replies folks! It seems like consensus is that paying of loans, especially at 5%, equates to building net worth.

                          @Tim: It seems like your perspective is that paying loans = spending, not contributing to net worth. Am I reading this right?

                           


                          would have negotiated the retirement plan. oh well.
                          Click to expand...


                          I actually spoke with the retirement plan administrator and it would have required the employer changing the retirement plan documents, as 8arclay mentioned. In the end I wasn't able to change this.

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                          • #14


                            Am I reading this right?
                            Click to expand...


                            Yes, a loan payment simply rearranges assets and liabilities. Repayment of loans out of the spending bucket will build your NW.

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                            • #15
                              if you are at 300k towards retirement at the end of fellowship, that's outstanding. You can afford to take a year/1.5 years off from retirement contributions, other than backdoor Roth IRA.

                              Do you have plans to buy a house? Like others said, I'd do backdoor Roth IRA first. From the remainder, either 100% to the loans or 50% to loans and 50% towards a down payment to your house. If you are planning to have kids (or already do) and live in a state with a 529 tax break, I'd also consider funding that to your state max. If you don't have kids but plan to have at least one, open a 529 in your name with you as the beneficiary and fund it to your state max deduction. 529s technically don't really build wealth for you, but if college is in the future, this'll prevent you taking a bite out of your NW to fund college later

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