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  • What to do with cash?

    Dear WCI team,

    Thank you in advance for your help! I was recently looking through my finances and realized that I have a lot sitting in savings and am trying to figure out what we should do (if anything) given that I am expecting multiple life changing events which may affect my family's finances significantly.

    Current Cash ($130k):
    My Cash Savings: $110k
    Wife's Cash Savings: $120k

    Retirement ($370k):
    My 401a/403b/457: $270k
    Wife's 401a/403b/457: $100k

    Debts ($475k):
    Mortgage: $465k (Home worth ~$680k, owned for 1 year)
    Student Loan: $10k @ 1.95%

    Salary:
    Mine: $280k guaranteed currently, $260k guaranteed next year (unsure with life events that I will be able to bonus
    Wife: $50k currently

    Up until now, my wife and I have been maxing out our retirement accounts (which are substantial since we work for a public university system - 401a, 403b, and 457b x2, ~ 80-100k/year), and otherwise saving what we weren't spending for the downpayment to our current house, and subsequently on the mortgage for the current house. My wife and I are expecting a new baby April of 2021. My wife expects that she will still want to work, but isn't 100% sure. Additionally, we are considering moving as I am seriously considering changing jobs and moving to a new state (salary increase would cover tax increase between the two states, but would otherwise be expected to be roughly equivalent to my $280k currently with similar retirement options). My wife isn't sure she will be able to continue her job remotely, which may leave her unemployed for some time while she figures out a new job and we figure out childcare. Our current home is in a great rental area (close to multiple universities/colleges)/good school district, so I don't think that we would necessarily have to sell it if we move, but would likely need to hire property managers to care for it as we would be out of state. New home in new state would likely be $550-700k (100-150K downpayment). If we move, I think there is also a substantial likelihood that we would need a 2nd car (currently I bike), which I would estimate at $30-40k

    My question is this: What should we do with our cash? With all the uncertainty in our lives, I have been hesitant to move it, but am thinking we might have too much cushion.

    Possible things we have been considering include:
    1. Keeping cash, this way if we need a second car and a downpayment for a house (could be up to 190k) we have access to it and can afford any periods of unemployment while still having an emergency fun
    2. Funding a 529 for a new baby
    3. Backdoor Roth IRA
    4. Taxable account (somewhat nervous given the decade long bull market)
    5. Any combination of the above

    Thank you again and I appreciate your help!

  • #2
    I would do a backdoor Roth and keep the cash but I also would try to put down as little cash as possible for a home.

    Comment


    • #3
      First thought: Do you really want to be a long distance landlord? You don’t have to sell the home, you are right; that doesn’t mean that you shouldn’t.

      Regarding the cash: Invest. Like, yesterday. You have entirely too much cash.

      Backdoor Roth, then taxable. Plenty of time for 529, worry about that after you actually have the baby.

      Market timing rarely works, and in your case, you’ve been shooting yourself in the foot these last few years. You’re young—put your money to work.

      No reason to have a huge pile of money losing to inflation by the day. Need cash? Just pull from taxable. Easy.

      Comment


      • #4
        Several important things.

        1. you need a written financial plan = IPS= investment policy statement.

        2. How old are you? Young should have AA with high stock:bond allocation. Having a cash emergency fund of 10-30k is reasonable, more is likely too much.
        Get disability insurance and life insurance if you don’t already have them. Taxable stock index funds for cash after filling small EF & IRAs.

        3. Have an insurance component of IPS. life + disability + health

        4. read & learn & save. Save and invest in low cost index funds for the long run. Read WCI books.

        If your plan is to keep low interest debt and invest, then you need to invest in stock index funds.

        Keeping large amounts of cash making less interest than your debt is not wise.

        If you want less risk you could pay off debt but at <2% and a >20 year time horizon it is likely better mathematically to invest in vtsax.

        I would not be angry if you paid down some debt, but the math favors investing,

        BUT you must save and invest or bad behavior beats math.

        Also: “Student Loan: $10k @ 1.95%” really? that seems like nothing. If it was at 6% i would say pay off. I would be tempted just to kill it to simplify my world. 1.95% has to be a record low rate, but why would you keep cash & this? Cash pays less than 1.95%.


        5. New job = rent for 1 year to ensure it works. Sell the old house. Long distance rental is headache (i know) and you need to focus on being a good doc.
        So, Sell old house + rent at new location for a year.

        6. If you plan is to save & invest instead of paying debt then live like a resident and save. Big taxable account before you start living like a rich doc.

        7. Backdoor Roth

        8. When you get older and have large stock allocation (>3M in stocks) pay off debts including mortgage. This decreases risk and is like a reverse bond. This is down the road. Save & read.

        https://www.whitecoatinvestor.com/be...%20-%207052018
        Last edited by Tangler; 11-24-2021, 03:58 AM.

        Comment


        • #5
          Originally posted by Tangler View Post
          Several important things.

          1. you need a written financial plan = IPS= investment policy statement.
          Agreed - my initial plan was to pay off student loans, max retirement, and get a downpayment for the house. Was successful at this. Unfortunately right after we bought the house was when I realized that my current job was probably not the right fit due to the anticipated change in salary structure which led to this situation.

          Originally posted by Tangler View Post
          2. How old are you? Young should have AA with high stock:bond allocation. Having a cash emergency fund of 10-30k is reasonable, more is likely too much.
          Get disability insurance and life insurance if you don’t already have them. Taxable stock index funds for cash after filling small EF & IRAs.
          33 years old, just over 2 years out of fellowship. What is AA?

          Originally posted by Tangler View Post
          3. Have an insurance component of IPS. life + disability + health
          Have all three of these + umbrella

          Originally posted by Tangler View Post
          4. read & learn & save. Save and invest in low cost index funds for the long run. Read WCI books.
          Yes, I think I will grab one of those. I've been reading the forum but not the books. Currently saving 4500/mo into high interest account, paying extra 500/mo on mortgage over principal, maxing out retirement accounts (~80k for me + additional 20k for wife) all in low cost index funds/target date funds. It sounds like you would recommend shifting all that 4500 savings/mo (plus the majority of what I have now) into a taxable account which I think sounds reasonable. Will need my wife to on board.

          Originally posted by Tangler View Post
          Also: “Student Loan: $10k @ 1.95%” really? that seems like nothing. If it was at 6% i would say pay off. I would be tempted just to kill it to simplify my world. 1.95% has to be a record low rate, but why would you keep cash & this? Cash pays less than 1.95%.
          Part of why I kept these around was to help prevent a drop in my credit before needing to buy a new house. Not sure it would make a huge difference, but I didn't want to be surprised and not qualify for the absolute lowest interest on a mortgage just to pay down a loan quickly.

          Originally posted by Tangler View Post
          5. New job = rent for 1 year to ensure it works. Sell the old house. Long distance rental is headache (i know) and you need to focus on being a good doc.
          So, Sell old house + rent at new location for a year.
          I think we would most likely rent to start out. However, this new job would be at where I did fellowship, so I would expect fewer surprises and at least we know the neighborhoods. I rented like this at my current job (rented for 1.5 years), but that basically backfired when home prices shot up massively during that time and now if I leave we probably won't have owned the house for 2 years which will prevent the capital gains deduction.

          Part of the reason I had been considering keeping the property is that I think it is a good investment (my parents and brother all own multiple houses, so its a bit of the family business and I have seen how successful it has been for them). It was previously a rental, and the current rent we could get would pay for the mortgage + repairs + property management company, and then we have an asset which is in a prime location in a city which is rapidly growing and has little room to expand due to geography. That being said, I'm not entirely opposed to selling it because as you said it would simplify things greatly, we should be able to recoup our costs with the increase in home value, and I think my wife would prefer to avoid the headaches.

          Originally posted by Tangler View Post
          7. Backdoor Roth
          Yep, I'll go do this, then likely start a taxable account assuming I can get the wife on board.

          Comment


          • #6
            Sounds like you are on it. You will win!

            Good thoughts!

            Pay off debt or invest or both.

            At 33 you have a lot of time. High stock allocation (AA) and tough disposition (never panic sell written in IPS) are what most would suggest.

            Wife absolutely needs to be on board but she should realize cash = risky (inflation risk).

            Giant pile of cash too conservative for 33 year old. Most would invest your cash into in stock index funds or RE.




            Sounds like you will invest in realestate (rent out old home) + stock index funds, and that is a great option.

            Renting is wise for new job, consider doing that for a while. There are unknowns. You can buy but that increases risk. Do not buy because of fear of missing out. That is market timing and difficult.

            Keeping old house?

            Did not work out well for me and it might be a headache for you too but it sounds like you have thought about it and want to be a long distance land lord and your family has experience. Might end up OK. RE is a good investment, sometimes.


            Make a formal IPS.

            Read a good wci book.

            AA = asset allocation, (Not alcoholics anonymous). sorry that is a WCI = white coat investor forum abbreviation.

            Like SOB = shortness of breath not the other SOB.....

            Happy Thanksgiving!
            Last edited by Tangler; 11-24-2021, 01:22 PM.

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