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| Posted by | Message | Cold Pizza 
Ohio State Fan
Member since Sep 2011
7639 posts
| What to do with Savings? (Posted on 11/7/12 at 11:36 am)
Let's not discuss right and wrong, jut what to do if I think I'm right.
Assets
1) Retirement saving in MMA. (Rolled from stocks last winter.)
2) Personal savings half stocks, half MMA. I basically switched additional savings from stocks to MMA 18 months ago or so.
Debt
1) A recently-purchased house with a 20 year, 2.75% note. 80% borrowed, the rest paid cash.
2) No cc or car loan. I'm an MT Baller  .
Last winter, I wanted to be less in stocks because it felt like 2008 all over again. Well in 2008, the stock market started its turnaround in Jan of 2009. I see 3 options:
1) Roll retirement savings back to stocks over the next 3 months. Personal savings in MMA to stocks over the same period.
2) Leave retirement in MMA, use savings in MMA to pay down house, even though it's on 2.75%. That's an ungodly low rate, but the MMA is paying less.
3) A combination of the 2 above.
4) Something else.
My rainy day fund is plenty sufficient. What is your advice?
| | Back to top | Share on  | foshizzle 
LSU Fan
Member since Mar 2008
25082 posts
| re: What to do with Savings? (Posted on 11/7/12 at 12:54 pm to Cold Pizza)
Put your savings (and emergency fund too) to a Roth. You can always get the money back out with no penalty and your earnings are tax free.
I would not prepay a mortgage note with a rate that low. Your ROI is negative after inflation and taxes. It's true that an MMA is paying less, but I bet it won't be for the next 20 years. Assuming you're in the 25% tax bracket prepaying your mortgage = investing for 20 years at a 2.1% rate. Take inflation into account and that's a negative real return, guaranteed for 20 years (or until the mortgage is paid off).
I would consider getting a credit card, most will give you rewards of some kind and if it is stolen your liability is limited. Just pay it each month and you're fine.
| | Back to top | | Cold Pizza
Ohio State Fan
Member since Sep 2011
7639 posts
| re: What to do with Savings? (Posted on 11/7/12 at 1:36 pm to foshizzle)
quote:
I would not prepay a mortgage note with a rate that low. Your ROI is negative after inflation and taxes. It's true that an MMA is paying less, but I bet it won't be for the next 20 years. Assuming you're in the 25% tax bracket prepaying your mortgage = investing for 20 years at a 2.1% rate. Take inflation into account and that's a negative real return, guaranteed for 20 years (or until the mortgage is paid off).
That's a very good point. What's the max ROTH IRA contribution? $5k/yr?
| | Back to top | | foshizzle
LSU Fan
Member since Mar 2008
25082 posts
| re: What to do with Savings? (Posted on 11/7/12 at 4:13 pm to Cold Pizza)
IRA contribution limits
| | Back to top | | saving$
LSU Fan
Member since Nov 2012
34 posts
| re: What to do with Savings? (Posted on 11/7/12 at 10:51 pm to Cold Pizza)
Seems like your not in drowning in debt and have a fully funded emergency fund (min 6 months of expenses). Congrats you're better off than the average person. My suggestion would be in the following order: 1. Max 401k to get max employer match 2. if your MGAI allows you to qualify max roth ira 3. max yearly 401K limit 4. any $ left over invest in taxable account or IRA if you qualify for contribution deduction.
Personally if I were you I would not worry about trying to pick individual winners and losers with stocks. Pick a low cost index fund/etf paired with a low cost index bond fund/etf and stick to your plan!
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