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

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  • beginner.wci
    replied
    Originally posted by veritablpenguin View Post

    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.

    Leave a comment:


  • veritablpenguin
    replied
    Originally posted by beginner.wci View Post
    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.

    Leave a comment:


  • beginner.wci
    replied
    Originally posted by CordMcNally View Post

    It isn't almost like gambling, it is gambling. I also got a kick out of the 'we have an opportunity' in the original post. You'll come to find out that every high income person has many of these 'opportunities'. It isn't a special opportunity. They're just looking for people with money and try to make it sound exclusive.
    Good point. My partner wanted to commit $50k, but it sounded insane to me. And we successfully fought off Northwestern Mutual (they're simply relentless).

    That ship has sailed now, so we'll see where we end up with it. The bottom line is, the more I read and listen to podcasts, the more aware I am of how things might actually play out in real life. So at least another lesson learned.

    Leave a comment:


  • CordMcNally
    replied
    Originally posted by beginner.wci View Post
    Typically, a good VC fund would yield anything between 10-30% annually, but if it hits, it may be way larger than that. It's really almost like gambling and we have not invested a lot (only $30k), so really just curious to see how it's going to play out in real life.
    It isn't almost like gambling, it is gambling. I also got a kick out of the 'we have an opportunity' in the original post. You'll come to find out that every high income person has many of these 'opportunities'. It isn't a special opportunity. They're just looking for people with money and try to make it sound exclusive.

    Leave a comment:


  • beginner.wci
    replied
    Originally posted by Sampter View Post
    FYI, no such thing as a hypoallergenic dog
    Le sigh. Really don't want to get a turtle

    Leave a comment:


  • beginner.wci
    replied
    Originally posted by Ozarka View Post
    Out of curiosity, what kind of returns can be had on the VC side of things with a $30k investment (assuming it hits)? 50%, 1x, 2x?
    It really depends on the investment year, the fund and the investments that the fund made. Typically, a good VC fund would yield anything between 10-30% annually, but if it hits, it may be way larger than that. It's really almost like gambling and we have not invested a lot (only $30k), so really just curious to see how it's going to play out in real life. Might be money down the drain. Might also not be a better option that putting it all into the stock market. Or it may. No one knows.

    Leave a comment:


  • Sampter
    replied
    FYI, no such thing as a hypoallergenic dog

    Leave a comment:


  • Ozarka
    replied
    Out of curiosity, what kind of returns can be had on the VC side of things with a $30k investment (assuming it hits)? 50%, 1x, 2x?

    Leave a comment:


  • beginner.wci
    replied
    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.

    Leave a comment:


  • xraygoggles
    replied
    I would not pay off the personal loan, 4% is not bad at all. You have enough liquidity to pay it off whenever you like, so it's not a big deal anyways.

    VC fund.. hmm, not sure what that means, are you referring to a syndicate? Where you pool your funds with others for a startup investment or group of investments? I am a wannabe angel-investor of sorts, but I like to pick and choose individual companies - I wouldn't personally join a syndicate, unless I really knew the manager and had an idea of what companies they were considering.

    Taxable account always a good idea. In fact, it might be wise to forego both of the above and just plow it all in taxable even.

    Leave a comment:


  • Tangler
    replied
    Pay loan, NO VC, get dog

    Leave a comment:


  • beginner.wci
    replied

    2. No reason to knock target date funds. They are fine, especially if you don’t have any particular insight into how better to invest (3 fund portfolio?)
    3. Do either of your work 401k/403b plans allow mega backdoor Roth? If so, think about doing that.
    4. To your question, I’d pay off the loan. Heck take some of the emergency funds and pay it off completely. (Then budget to build it back up over a reasonable period.)


    Can’t really evaluate the VC thing except a 1 in 10 hit rate is supposed to be good and many don’t get that. I’d have to know a lot about the VC team and their success rate to invest with them. Sure, you could take a flyer for the excitement of being a “sophisticated” investor, but you don’t need to do so.[/QUOTE]

    Thank you all for your helpful responses! There is still a part of me that wants to do the VC investment, but I agree that paying off our personal loan is a much smarter choice.

    2. Roger re: target date funds. I thought that if we switch to a 3 fund portfolio it may be easier to track our asset allocation and rebalance accordingly, but I understand that target date funds are doing that for me (and their asset allocation is largely in line with what we would have done).

    3. Yes, my husband has an option to make mega backdoor Roth contributions each year and he's maxing them out.

    Point taken regarding debt pledge. If I knew back then what I know (or think that I know) about investing now, we probably would have invested our down payment in index funds. I started reading up about investing only a few months ago. It also didn't help that California renal prices are astronomical, we're paying only slightly more in monthly mortgage payments compared to what we paid in rent. Nevertheless, lesson learned! I'm very grateful that I stumbled upon this community.

    Leave a comment:


  • DocNextDoor
    replied
    Pay off loan or start 529 if kids planned

    Leave a comment:


  • Hatton
    replied
    Pay off the loan. Take the pledge to never borrow in this way. Get the dog. Do the VC in a year or two.

    Leave a comment:


  • childay
    replied
    Originally posted by Larry Ragman View Post
    1. You are both doing well
    2. No reason to knock target date funds. They are fine, especially if you don’t have any particular insight into how better to invest (3 fund portfolio?)
    3. Do either of your work 401k/403b plans allow mega backdoor Roth? If so, think about doing that.
    4. To your question, I’d pay off the loan. Heck take some of the emergency funds and pay it off completely. (Then budget to build it back up over a reasonable period.)

    Can’t really evaluate the VC thing except a 1 in 10 hit rate is supposed to be good and many don’t get that. I’d have to know a lot about the VC team and their success rate to invest with them. Sure, you could take a flyer for the excitement of being a “sophisticated” investor, but you don’t need to do so.
    +1
    Pay off the loan for sure. I wouldn't call $80K loan small even at your income. Leave the VC alone

    Leave a comment:

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