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Looking for advice from the savvy investor 

njhowie
Posts: 77

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2/25/2017
njhowie
Posts: 77
As interest rates are trickling higher, at least in the short term, let me also offer another option for big cash balances as an alternative to CDs. Municipal bonds with short-term maturities have seen their yields moving higher as well. If you stick to rated bonds, you can get yields as high as 1.5% to 2.5% for maturities in the 12 to 18 month range. As with most extremely safe places for cash, that is not a "high" yield in historical terms. However, based on what we have today, it is relatively high and can give you better than the return of CDs. Additionally, that yield is minimally federal tax free and if you stick to munis in your own state then it is also state tax free. Should interest rates continue higher, so too will muni yields.
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DivInvestor
Posts: 6

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2/7/2017
DivInvestor
Posts: 6
JD,
At about your age I started buying income properties... 1 per year for 10 years. Then in my 11th year I bought a resort on a lake. That was 14 years ago. Never, ever would I have thought I could have done this. I never hired a manager for the re and I treated it like the real business it became. I had 10 properties and 37 apartments. The huge benefit to real estate over just investing in the market is the leverage. If you lever your properties to say 75% and put 25% down not only does your net worth grow from your savings but your tenants,(by paying the rent and paying down your mortgages), will accelerate your net worth. At my peak I was getting principal paydowns of over $4,000/wk... that's $200,000/year for collecting the rent.
So many people will tell you that they tried RE and it didn't work. Even my super smart engineer sister and phd brother in law told me "my financial planner said she tried RE and it was a disaster." My reply, "so if someone told the 2 of you when you were 20 years old that because he flunked out of university that becoming an engineer is just a disaster would you have quit school too?!"
I bought so many of my properties from discouraged landlords. The discouraging part for me was when I had 2 properties and 5 units. It was admittedly a hassle. I told the wife either we would go to a minimum 20 units or sell out now. She agreed to 20... I secretly wanted 50. On we went. Worse mistake I ever made was I should have bought 2 places a year and not 1.
Anyway, they are sold now and I have a very nice portfolio to show for it.
In terms of investing your money, I know many people advocate index funds. I prefer quality dividend paying stocks in a diverse number of industries, (10), diverse within the industries. I hold somewhere between 30-35 stocks at all times all of which pay a dividend.
Finally, in my winter Florida home I have many retired friends and almost none of us have created our wealth exactly the same. I think one thing that we all share in common is that Cash is not to be flippant with. It is so very important that you respect Cash when you are fortunate to have it and that you do your best to not spend it and to carefully and thoughtfully invest it. When it comes to money, there are only 2 kinds of people. Either you control money or money controls you. Who are you?
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jd1083
Posts: 3

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1/6/2017
jd1083
Posts: 3
These are great comments and taking them to heart. Thanks so much! Open to any other thoughts people may have.
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JC
Posts: 48

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1/5/2017
JC
Posts: 48
congrats, jd!

I second njhowie. I too have some decent cash lying around doing nothing. I have it in CD ladders and high return savings/MM accounts right now, waiting for an opportunity to jump on.

As for investment properties, prices are really high right now, just like the market. It's hard to find something that would be a better investment than a completely hands off/passive investment like stocks. You don't want to fix toilets and leaks for the same return as the market. My cash is waiting on a correction, anywhere. It doesn't have to be in RE, although I do love it.
edited by JC on 1/5/2017
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njhowie
Posts: 77

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1/2/2017
njhowie
Posts: 77
jd1083 wrote:
...and I am making big entries per month into my vanguard index fund accounts, but want to avoid making a massive overcorrection to the cash situation and enter the market at a time at a time of a big dip, so want to continue putting in a sizeable amount monthly...


I suppose it depends what the definitions of "big entries" and "sizeable" mean.

Understand that you are making these contributions at a time when the market is at all-time highs and having raced 10% higher just over the past 8 weeks. Granted, for the market to go to new highs, requires it to make new all-time highs along the way. However, considering everything which has taken place over the past few months, now is a time for caution. Interest rates are going higher, and from a purely economic perspective, it will put pressure on the economy.

Do you believe the economy is booming today? That the next 4 years under Trump is going to make things even better? Remember, during the campaign Trump was the one who said we had a "big, fat, ugly bubble" in the stock market. It's so different today with the market 10% higher since the election?

Now, what you do have going for you is that you are still young, so you have many years to continue building wealth. Having an ongoing investment plan is a good approach. Definitely do not drop a big sum of money into your Vanguard index funds at one time no matter how great the desire is. Over time, even if the market goes lower in the near term, as long as you continue regularly contributing over time, you will likely end out building more wealth. You need to always remember that there are no guarantees - there is risk investing and during times of turmoil, you can very easily see the bottom line on that Vanguard statement drop 25% to 50%. So, as it grows, keep that in the back of your mind. Seeing a drop of 25% to 50% will be much more difficult down the road after you've built up over $100,000, $250,000, $500,000 or more - and there is a very high likelihood that at some point in the future, we will see the market make such a correction. So, again, just understand that there are risks, remember that diversification is important, and understand your own risk profile and investment objectives when deciding where to put the money when investing.

While you are sitting on a big cash balance, consider taking a chunk of it and laddering it into short/medium term CDs as these will generate more income for you than sitting in true cash earning almost nothing. With interest rates moving higher, yields have jumped a bit. Like cash in the bank, the CDs are fully FDIC insured so you will get every penny back as well as the interest earned. Of course you're not going to get a huge return on them, but you will get more than nothing. Additionally, while the money is locked up until maturity, it will keep you honest and from doing anything rash or on the spur of the moment as a large cash balance can lead to.

Best regards.
edited by njhowie on 1/2/2017
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licid9
Posts: 45

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12/30/2016
licid9
Posts: 45
Take my advice with a grain of salt...

Dollar Cost Averaging into the market (as you are doing) seems fine. I presume this money is for long term needs (more than 5 years). I can't recall where, but I seem to remember reading that over several decades - dollar cost averaging lump sums vs straight lump sum investing doesn't really make a difference.

I owned a rental property for 2 years and I found that my time was better spent at the office or with my family. Considering your high salary, I'm guessing you might come to the same conclusion....unless you plan to hire a property manager (I never did, because I only had one property).

With that said, if my job changed (or slowed down) - I would probably get back into real estate as it had good returns on the house, but just required an additional investment of time.

I'm sure someone with better experience will chime in.
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jd1083
Posts: 3

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12/28/2016
jd1083
Posts: 3
Hit the million mark a few months ago and looking for ways to maximize long-term wealth. Getting to this point has been almost entirely on high salary and living cheap (for the salary), but not much financial know-how to business knowledge.

Open to suggestions from savvy and experienced investors and any interesting ideas. I know I am very heavily cash right now, and I am making big entries per month into my vanguard index fund accounts, but want to avoid making a massive overcorrection to the cash situation and enter the market at a time at a time of a big dip, so want to continue putting in a sizeable amount monthly. I am also heavily considering buying some investment properties with the cash, so open to suggestions from people who have dabbled in that and been successful or not. Willing to take some risks and think this is a time that i can try to really maximize the money i have made into a long term sustainable amount (passive income, interest etc).

A snapshot:
Age: 34
Cash: 322k
Taxable investments: 215k
401k : 154k
retirement other: 55k
House equity: 288k
Debt - None aside from monthly cc bill

Estimated Net Worth: 1.03 million
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