Too Hot Investment Thread

Crystal ball is hazy. Ask again later.

I am extremely confident that the general trend is upward. There is a reason why the market is regularly setting new highs. However, you can't predict when the next dip/recession/depression will happen with any certainty. Sure, there may be signs, but remember even the 'experts' predicted 63 of the last 3 recessions.

I am almost 100% equities at this point in my life (I'm 43), but there's a strong argument for keeping a percentage in less volatile investments if you're near or at retirement, to lessen sequence of return risks.

 

I have been in my 401k for about 16 years now. Unfortunately I don't max it out currently as I have 4 kids that suck up alot of money but I do pretty good. Just recently got into personal investing in the last two years. My wife and I had a rule that we wouldn't invest personal money until we had 1 year of savings stored up first. Been the best decision we have made

 

Me too. I learned a lot from Motley Fool and on 2 occasions when I had some money to invest, I paid a subscription for a year.

 

I currently subscribe but don't have the funds to invest in individual stocks at the moment. If anyone is curious as to what their 10 picks for 2021 are then send me a PM.

 

Well, thank you. That made me feel better (and sad for others at the same time).

Last year I saved more than double the entire amount of median retirement account for someone my age. Hell, I made more dabbling on the side in crypto in the last two weeks than the median person my age has saved their entire lives. And here I thought I was WAY behind the curve.

 

I’m in the same boat didn’t start saving till my 30s. I’m hitting it pretty hard now so that I only take home about 56% of my gross pay. I figure it has the two fold benefit of playing catch-up to the extent I can but also makes me not as far behind because I won’t need 80% of my inflation adjusted income to live on in retirement. If I hit that I’ll feel like a king coming from 56% while paying student loans and daycare for two kids...

 

On the 401k, I'll share what was really helpful for me. The day I was eligible I started contributing 6%, because that was the smallest % that received the maximum company match (3 or 4% in free money). Then, for the next few years, every time I got a raise, I increased my contribution, keeping my paycheck about the same. That was a fantastic way to increase savings without feeling a big pinch.

I hear you on the kids thing. I joke with my siblings (who have kids) that since my wife and I are DINKs, we decided to have Porsches instead.

 

For those that are contributing more than 15% I'm curious if you have paid off your mortgages already (Ramsey school of thought).

 

your wife has effectively saved for retirement since woman usually outlive men

 

yes...one way I did that was that whenever I refinanced at a lower rate I kept my payments the same. That enabled me to pay off my mortgage much faster.

 

At least I have to contribute very minimally to house work!

 

While I think for the financially savvy, paying off mortgages is probably not that important, we paid off our house & vaca condo years ago. My logic was simply that paying off the mortgages was the bond portion of my portfolio.

I think Ramsey gives good advice. I also recall liking Suze Ormond b/c she focuses on what people can control as opposed to the things that they cannot a la Cramer.

 

So here's where I get really philosophical, and I'm hoping I don't come off as super-elitist. I'm not a Dave Ramsey fan. His advice works for the complete noob, financially ignorant, unsophisticated investor. To be fair, there are A LOT of people that fall into that category. And his advice probably helps people get out of the paycheck-to-paycheck rut. But where Dave loses me is this irrational aversion to debt. Debt is a tool - think of it as a sharp knife. Yeah, you can do dumb things with debt, just like you can cut yourself with a sharp knife. But it's damn useful when used correctly.

Yes, I have a big, fat mortgage. Ballpark of $350k last I checked, on a house that's worth twice that - at the insanely low interest rate of 2.5%! We're also still paying off my wife's student loans from law school - 3% fixed. Meanwhile, our investments have returned nearly 14% on average over the last decade plus. I could write a check tomorrow and pay off the student loans, and even the mortgage is just a fraction of our net worth. It's just not the best use of cash.

 

I didn't take your comment as elitist at all. I fall into the category of the typical Ramsey follower. I'm a bit further ahead than most as I don't have a huge student loan or credit card hole to climb out of. I buy pre-owned cars and drive them until the wheels fall off. We refinanced our mortgage recently for 15 years @ 2.5%. In your opinion rather than focusing on paying mine off earlier what would you advise doing with this extra money? I have an emergency fund of $15k that will never be touched outside of its purpose. I contribute 10% to 401k and 5% to Roth IRA in the funds he recommends. My 401k is 33% Growth, 33% Growth and Income, and 33% Aggressive growth (my 401k doesn't have a very good performing International option) and returns around 13% annually on average. I also own 0.48632 bitcoin.

 

The garbage company that we use just got bought by Republic Services after being a family biz for 61 years.

 

Get the prospectuses for your 401k funds and see what indexes they're really benchmarking/tracking and what the expense ratios are. If they're actively managed funds, they probably have high fees. My general advice would be to consolidate on one index fund with a low expense ratio. My plan calls it the 'large company equity fund' and it tracks the S&P 500 - expense ratio is .03% annually, which is $30 per $100k - peanuts.

I would consider either the 401k or Roth IRA before paying off the mortgage. If those are maxed, then consider a taxable account. The Roth may be more attractive (more flexible) if the funds in your 401k are expensive. But really, the question comes down to making a tax deductible (technically tax-deferred) contribution to the 401k vs putting after-tax money in the Roth. Which is really a decision based on your marginal tax rate. A tax deduction at 10% wouldn't be high value, so the Roth makes far more sense to someone in that bucket. At 32% or higher, you'd take every tax deduction you can today.

I do fund a Roth, but only after I've filled every tax deferred bucket. There are a lot of one-size-fits-all financial blogs that suggest everyone should prioritize the Roth IRA, Roth 401k, etc. It's good general advice, but not for high tax brackets - you trade marginal tax today against what your effective tax rate will be in the future. I know what my marginal rate is today. I expect to have less taxable income in retirement, and I expect my effective tax rate will be less than my current marginal rate. So I use a Roth, but I don't think it's necessarily better than the tax-deferred 401k.