What should I do

[finleyjr]

Greetings all,

I'd like for anyone reading this to provide any insight into what they would do in my shoes. Currently my wife and I are still young (34), but we have quite a bit of savings / equity saved up.

We have about 450k in various mutual funds (bonds / stocks), 65k invested in our new home (210k 30 year loan remaining at 4.25% interest fixed). We also have 30k safety net built up in the bank and we own a rental farm land that is worth 250k and returns about 10k / year. We have no other debt other than the new house loan.

On top of all that we had paid off our old home which we recently sold. In about 2 days we'll get a check for 150k and my question is what to do with it.

On the one hand I can throw it back into my new mortage and nearly pay it off (I figure this is a solid 4.25% guaranteed gain since we don't plan on moving in the next 10-20 years). Otherwise we can put it into more stocks / bonds and hope that the market continues to build. I do think that the stock market might be slightly over-inflated for the time being, but that could just be my bearish feelings. What would you do in my situation?

Thanks for sharing your thoughts,
J

[Goldy]

What's your household income and how much of that 450k is in retirement accounts? If it were me I would be very tempted to toss it at the new mortgage.

[finleyjr]

Our net income / year is roughly 120k after taxes. As for the 450k, only 30 of it is in retirement accounts.

[Goldy]

I guess the first think I would ask is what are your goals for the next 20 years? You have a significant amount of money saved up at a young age so you have a few options. The retirement savings is a little lacking (suggested 1x income at age 35) but you also have 420k of other funds so I guess I can let that slide.

Is this money and land from an inheritance or did you build your empire from scratch? Is that farm land paid off?

If it were me I would probably throw the 150k in house proceeds to the new mortgage with the intention of making additional payments to pay that off as soon as possible. Like you said, a return of 4.2% is not too bad and its a decent way to diversify your household net worth.

[finleyjr]

I'm looking at early retirement at age 51 (hopefully). Based off my calculations I should have a healthy nest egg built up by then.

Empire started with 200k & farm. Built the rest over the last 10 years.

I do like the idea of paying down the home mortgage because of the guarantee. Also, I forgot to take into account taxes on any interest / dividends earned on stocks which makes it even more competative than originally thought.

My wife wants to see a fiduciary to verify some of my calculations, but yeah I'm leaning towards putting it back into our new mortgage at this time.

Thanks for your responses,
J

[snafu]

Since mortgages front loan interest, given the facts you offer, I too would pay down the mortgage, applying the sum directly to principal and accelerate mortgage payoff with 'snowflakes' like the sum that is a deduction on income tax for example.

If that is too much risk for DW, you could split the sum, allocating a percentage to a ROTH if eligible, 2016 retirement contributions for you and wife based on allowables. Are your current investments [retirement & portfolio] allocated for your risk tolerance and age parameters? You can DCA [Dollar Cost Average] in the segment that is weakest, possibly International. If you can tolerate the uncertainty, you can be a contrarian and invest a percentage in Europe or oil industry which is currently in a downdraft.

[Goldy]

Awesome. I was hoping you were going to say that you were not totally gifted the empire and have been building it over time. My advice may have changed if it was a massive inheritance since just because you have a lot of money doesn't mean you know how to manage it. You, however, do know how to manage it.

You sound like you are on your way to a nice retirement. As you know there are two ways to get to retirement, the first is to save more, the second is to spend less. By paying down the mortgage it helps to lower your monthly bills once its paid off.

I would continue to max out the roth though for you and your wife.

[rennigade]

Live below your means...do not upgrade to a bigger and better house every decade...retire at 45 and live off the interest you earn.

[LivingAlmostLarge]

Is the farm worth keeping? Or would it be more worth it to sell and say pay off your current primary residence? I second paying down the mortgage with $150k.

[finleyjr]

The farm earns about 6-12k / year in rental income (before taxes). Comes out to be roughly about 3% net profit per year. This farm is a trust fund for my wife and has been in her family several generations and she has mentioned that she wanted to keep it that way so I'm going to just let it sit there and generate income per her wishes.

Thanks for the additional feedback - I believe we're pulling the trigger this week and putting down the 150k on the new mortgage