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  • What to do with cash surplus

    I have a nice problem to have, over the last 2 years I have accumulated a large cash reserve. I've been keeping between $100,000 and $200,000 in cash in online savings accounts, mainly to cover my quarterly estimated tax payments which are quite large (50-75k each depending on the year). But my cash balance has ballooned to $480k. Here's my current situation:

    Age:45

    Married, 2 middle school aged children

    Cash:$480,000

    Taxable accounts: ~$550,000

    Retirement Accounts: ~$1,000,000

    529 Accounts: ~$215,000 (split between two kids)

    Mortgage: $298,000 12 years remaining 2.99%

    We max out all my tax deferred space every year and add a total of $30k to the 529 plans. Both my retirement accounts and Taxable accounts are about a 70/30 stocks/bonds (bonds in taxable are muni funds).

     

    Where should the excess cash go, how much should go where? Just pour it all into taxable, 70/30? Pay off the mortgage (seems silly at 2.99%, but then again my bond funds don't yield that much)? Specific fund advice would be appreciate, taxable account is at vanguard.

     

    Thanks!

  • #2
    Nice problem to have!

    If it were me, I would pay off the mortgage today... then again, I'm digging my way out of my student loan debt and have gotten angry at debt!!

    With no mortgage payment, you will run into this "I have too much money" problem again very soon though

    Probably not a "wrong" answer... but leaving all of it in savings account may be considered "wrong"

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    • #3
      Nice problem to have

      I had a similar situation a few months ago. Here's how we chose to handle it:

      20% to taxable accounts with the same asset allocation as you are currently using

      20% to taxable accounts in a more aggressive allocation (we simply opted for VTSAX to keep things simple. This is our play account. If things are going well in 1 - 2 years, we'd really start splurging. If not, we'll keep it there and wait it out)

      20% to 529 (depending on your expectations for the kids, I'd agree you may want more in those accounts)

      20% to mortgage (I realize it makes no mathematical sense. It is one of the last few deductions I have. But people make way worse financial decisions when purchasing status symbols. I'm still on pace to retire very comfortably, the paid off mortgage will be the status symbol of my choice)

      20% to splurge (hey, we're only human )

      I don't know when you are planning to make a move but the other thing to consider near the year's end is keeping some extra money around to help fund next year's contributions (e.g. frontloading 401k, HSA, backdoor Roth IRA, etc)

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      • #4
        So you want to keep 100k in cash.  With the remaining 380k I would put 100 k to the mortgage and the rest to taxable at 70/30 split. Getting rid of a mortgage is psychologically liberating.

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        • #5
          Difficult to know without an understanding of your short- and long-term goals. For example, my answer would vary based upon:

          • Your planned retirement age

          • Any other family members who might need caregiving

          • Large goals such as a vacation home, splurge luxury trip

          • Charitable intentions

          • And etc etc etc


          Interest rates are rising. I would not pay off a 2.99% mortgage unless having debt is keeping you up at night. You should consider financial planning or at least a checkup to help articulate your goals and consolidate your plan. If you don't need the money w/i 5 years, then I would lean toward putting a hefty chunk in your taxable accounts. Again, hard to know what your needs/timeline is w/o a plan that defines them.
          Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6




            I have a nice problem to have....

            We max out all my tax deferred space every year and add a total of $30k to the 529 plans. Both my retirement accounts and Taxable accounts are about a 70/30 stocks/bonds (bonds in taxable are muni funds).

             

            Where should the excess cash go, how much should go where? Just pour it all into taxable, 70/30? Pay off the mortgage (seems silly at 2.99%, but then again my bond funds don’t yield that much)? Specific fund advice would be appreciate, taxable account is at vanguard.

             
            Click to expand...


            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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            • #7
              Seriously though, I'd probably throw some of it at the mortgage and some into the taxable account according to my written investing plan.
              Helping those who wear the white coat get a fair shake on Wall Street since 2011

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              • #8
                In addition to the above qualifers....Where we'd put the money is going to reflect us more than whats correct, and as was pointed out any of your choices are excellent.

                Im with you, I wouldnt put anything into the mortgage, it makes no math sense whatsoever. Unless it means something to you psychologically, then who cares.

                I would put most of it into taxable under whatever allocation you have chosen. The 529 will depend on kids ages, etc...so hard to know what the right mix is.

                 

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                • #9
                  Paying off the mortgage is the only guaranteed 3% return you'll get  

                   

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                  • #10
                    For what it's worth, I'd consider it unnecessary to put it toward the mortgage. You just don't need to do that, and it's better spent elsewhere. I made a similar decision to just keep the mortgage at a low interest rate. Then again, I plan to sell my house eventually, and if there's any mortgage left, it'll be dealt with that way.

                     

                    I'd put it in taxable, and decide if there are any other financial goals id like to address with it.
                    My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

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                    • #11


                      Where should the excess cash go, how much should go where? Just pour it all into taxable, 70/30? Pay off the mortgage (seems silly at 2.99%, but then again my bond funds don’t yield that much)? Specific fund advice would be appreciate, taxable account is at vanguard.
                      Click to expand...


                      Equal division among the following funds:

                      • LC Growth

                      • SC Growth

                      • LC Value

                      • SC Value

                      • Int'l

                      • REIT (optional)


                      Rebalance annually.

                      As I previously stated, invest only what you will not need w/i the next 5 years, according to the dictates of your financial plan.
                      Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                      • #12
                        Thanks for all the advice. WCI - nice boat!

                        I think we will just plow most of it into taxable. The mortgage doesn't really bother me, and we already have about $700k in home equity (more luck than planning).

                        I'm a little worried about over-funding the 529 plans. Both kids will be college bound, but one or both may attend in-state schools. We are fortunate that we may be able to 'cash-flow' college expenses. It's still 4.5 years until 1st one would attend.

                        Johanna - no bonds? That seems pretty aggressive. If I add another $350k stocks to my taxable account that would bump me up above 75% equity. No plans to retire in the next 10 years, charitable giving is already earmarked as are 2017 contributions.

                        I think I really need a written investment policy and make certain that I follow it. It would make these questions moot.

                         

                        Thanks again!

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                        • #13


                          Johanna – no bonds? That seems pretty aggressive. If I add another $350k stocks to my taxable account that would bump me up above 75% equity. No plans to retire in the next 10 years, charitable giving is already earmarked as are 2017 contributions.
                          Click to expand...


                          You must be a new reader   With a financial plan and not investing anything you will need within 5 years, bonds for the long term are irrelevant. This is not aggressive, merely logical, and the way my mom, my kids, and all of our clients are invested. See:

                          Bonds: What are they good for? Part I

                          Bonds: What are they good for? Part II

                          (With gratitude to @PhysicianOnFire who published my articles!)
                          Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                          • #14
                            How about a beach house you can partially rent out. Live a little, you deserve it!

                            Comment


                            • #15
                              What to do with cash surplus??  Mail me a check to the following address...

                               

                              Mr. Hightower

                              123 I Freaking Wish Ave

                              Givemeyourmoneyville, Ohio

                              55555

                               

                               

                              Haha, but seriously, a good problem to have.  I'm curious why not have it all in a taxable brokerage account and put it to work?  Or why not invest in a rental property somewhere that you like to vacation?  I know for me, if I had that kind of cash I'd buy a place in Hawaii and rent it out 11 months of the year and vacation there the rest of the time.

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