If I'm looking to make a 5% annual return (after tax) by investing in funds...

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You're going to have to take on significant risk to make 4-6%. Not too long ago, zero risk money market funds were paying 5%. These days they're paying basically zero. CDs and lower risk bond funds will get you 2-3%. To get above that, you're going to be generally holding stocks. (Assuming you're not into other things like real estate, etc)

The answer to your specific question of investing vs paying down mortgage is a matter of risk tolerance, among other things. Can you handle a relatively short term drop in value of 20% or more? Do you have other savings or investments?

Check out some of the MLP's. EPD, TOO, PTXP. Or look at a bond fund like PONCX

Just saw the "after tax." Yeah good luck. That's going to be a little hard to do.

Boy, do i have an awesome investment for you

1. I'm asking a question. I don't "seem to think" anything, or else I wouldn't have had the question.

2. I have no debt and will have no debt other than potentially a mortgage. All assets have recently become fully liquid (cash) as I'm in the process of moving.

If I can pay cash for a house, or pay 20% down and mortgage the rest at 3.125% and deduct the mortgage interest, id need to beat 3.125% (or slightly less) after taxes in investing it. I'm just trying to figure how much risk (qualitatively) I'd be taking on in trying to do that.

I'd prefer 4-6% to make it worth the trouble, but admittedly anything above 3.125% makes it worthwhile. I would have thought a diversified portfolio of a few decent funds could achieve that, but I know frick all about it. Hence the question.

Like I said earlier, an MLP will will yield you around 4-6% yield but that comes with the risk of equities going up and down. My FA put my in a Pimco fund PONCX which yield 6.5% with a 1.5% management fee crap. But it's stable and I like to think of it as a emergency money account since a savings account doesn't earn you anything.

My recommendation is that given your questions and current knowledge of investing, you'd be best off paying your house off in cash and investing what you can after that. I'm over 90% in equities in what I have in the stock market then I have real estate. I'm young but most importantly I'm comfortable any dips will be times for me to buy and not to freak out. Most are not like that.

What I would do does not always make sense for you or someone else. Can you make more than 5% in equities, absolutely. Is it worth it for someone like you, at this point I'd say no. The problem id predict is you'd be very nervous and pull out at the first sign of a dip. That's a good way to lose money.

quote:

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How much "risk" would I need to tolerate?

I'm not trying to hit a hot stock and make 30% on my money in a year, but I'd like to be able to count on 4-6% (after taxes) a year on my savings as a little supplement income that I can use to pay my mortgage (less than 4% rate). If I can't get 4% each year, I'd just as soon pay down my mortgage.

How much risk would I need to be willing to accept if I got an advisor to take my savings and manage it, and I told him / her I was targeting 4-6% per year (on average) as income?

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Look at exchange traded debt of BDCs. A 7 year piece of paper is yielding in the high 6s low 7s.

One of the safest investments out there. It is fixed income but they pay outsized yields and are very safe. IMO.

Check out www.dividendyieldhunter.com for a list.

With the type of money you were looking to invest, I would do a little research on private real estate lending.

Not being the landlord, being the bank.

despite all the thumbs down my last comment received, if you know what you are doing in real estate, you will get better returns and have less overall risk than the stock market.

I am in the same boat and following this thread closely.