Smart long-term investing - how to best allocate extra cash?

[veritablpenguin]

Thank you all for your responses, much appreciated. Sorry for a belated response on my end. I had a log going on at work and personally, but I'm finally back on track.

Here's what we ultimately did:
- repaid a large portion of our personal lon - it's now down to $35k and we pay $150 in interest on it per month (the plan is to get rid of it entirely within the next 2-3 months)
- we refinanced our mortgage to 3.0% with closing cost of $4k only
- we ended up investing $30k in the VC fund (we're not really counting this amount in our net worth, but if it works out, it may yield great returns).
- we keep a savings rate of 50-60% and after having maxed out our tax advantaged accounts, we're putting everything into a brokerage account (VTSAX and VTIAX, we decided to keep bond investments in the tax advantaged accounts only, so traded them for index funds (it was a small amount anyway)).
- didn't get a dog yet! turns out husband is allergic to dog fur, so we're looking for a hypoallergenic breed and that's not an easy task these days since everyone seems to be getting dogs!
- decided to try to retire at 40 if we can and move abroad then, only time will tell.


Regarding the above VC fund question asked by xraygoggles, yes, that's what I'm referring to. Most of the VC funds are structured as LPs, so you're effectively becoming a limited partner investor and pool your money with other LPs and the general partner chosen by the LPs is managing the funds (typically for a yearly flat management fee, but in our case we don't need to pay any management fees, so we thought it was a great opportunity). The VC fund invests in early stage tech and biotech companies in the US and abroad. One needs to be an accredited investor to invest, but I suppose almost everyone on this forum qualifies.

Someone correct me if I'm wrong, but I think you're calculating your savings rate incorrectly. I think most people do it as a % of gross income, not take-home pay. As I assume your effective tax rate in California is pushing 40%, and you have a $1.2M mortgage, "50-60%" seems unlikely.

Really I think it's semantics, as what really matters is how much you're putting away per year, your asset allocation, how much you plan to spend per year in retirement, and when you plan on retiring.

I'm guessing based on your ages, income, and approximate net worth, your savings rate is in the 20-30% range, which is still totally reasonable.

I think the point is, why do you feel at this early stage in your career, that you need to hit a home run with the VC investment? You're going to get there regardless by sticking to the plan and going slow and steady. Is your job that unsatisfying that you want to retire by 40 instead of 50? What are you going to do by retiring at 40? Do you just want to travel? Pursue other opportunities? Can you do those things while working? Just other things to ask yourself as you plan stuff out.

[beginner.wci]

Someone correct me if I'm wrong, but I think you're calculating your savings rate incorrectly. I think most people do it as a % of gross income, not take-home pay. As I assume your effective tax rate in California is pushing 40%, and you have a $1.2M mortgage, "50-60%" seems unlikely.


Really I think it's semantics, as what really matters is how much you're putting away per year, your asset allocation, how much you plan to spend per year in retirement, and when you plan on retiring.

I'm guessing based on your ages, income, and approximate net worth, your savings rate is in the 20-30% range, which is still totally reasonable.

I think the point is, why do you feel at this early stage in your career, that you need to hit a home run with the VC investment? You're going to get there regardless by sticking to the plan and going slow and steady. Is your job that unsatisfying that you want to retire by 40 instead of 50? What are you going to do by retiring at 40? Do you just want to travel? Pursue other opportunities? Can you do those things while working? Just other things to ask yourself as you plan stuff out.

Great point. You're right. It's a post-tax savings rate. Crunched the numbers quickly and the pre-tax number is closer to 30%.

No, we don't feel we need it to hit a home run (and, let's be honest, even if it does, we're talking about $30k invested only), but thought it made sense to try it out given that we know the management team really well from our professional lives. As I said, we're still learning, so putting it into the stock market might have been a more sensible idea.

To your other questions, we both enjoy our jobs and colleagues and keep learning a lot while working (which is the most important thing to us), but, if we could, around 40, we would love to move to the countryside or abroad and live on a farm, perhaps run a local small business or do something completely different professionally and travel. These are just plans and there are so many things and unforeseen expenses that may come up over the next 10 years, so we're not killing ourselves to do it, but, if it turns out at that time that it is an option that is available to us, we'd love to explore it.