Investment Question

D

DCLonghorn

1,000+ Posts
I've paid off all of my debt, except student loan, and I have an extra $600 a month to invest and I'm wondering whether it would be best to: 1) increase my 401K contribution at work; 2) place in a money market account; 3) contribute to a Roth IRA; or 4) combo of the previous? My wife and I will be buying a house this springs so I will need some liquidity. Thanks in advance.
 
have you maxed out your match on your 401(k)? After that I would do a combo of building a cash stash of 3-6 months of expenses and contributing to a roth.
 
Considering all of your needs are taken care of, here's the things I would put money into (or split depending on the needs and limits going down the list):

1. If you know how much you'll need during house purchase time, put some in a money market or other 'high yield' savings account to have it set aside and easily available.
2. Emergency fund: 3-6 months of expenses depending on what you are comfortable having around. If you feel your income is very secure, a lower amount is OK. This would be a money market or other 'high yield' savings account so you have fast access to it. You could use anything you have left over from #1 to jumpstart this.
3. 401k up to the employer match %.
4. If the student loan interest % is high, I would start paying more towards that here. Other high interest debt would also go here (which you don't have).
5. IRA (traditional or Roth, depending on your circumstances and expectations).
7. A mix of: 1)if 401k investment options are decent, contribute more; 2)other debt. Student loan, mortgage (when that comes up), etc.; 3)other savings and investments.
 
Any suggestions on a Money Market Account...Ally perhaps? Should I go local or is it pretty easy to access the account by transfering from money market to personal checking?
 
Ally offers some great products.

We have a cd and savings account with them.

hookem.gif
 
DC, I'm no expert, but you can look for student loan companies with the best perks (rate reductions for direct deposit and on time payments). If all of your loans are consolidated, you may be stuck because, as I understand, your current company is under no obligation to sell your loans to a new company. UHEAA current holds my loans. One thing to consider, and again I don't claim complete understanding, is that student loans dissapear if you die. Therefore, they work a little like life insurance. If you pay them off and die, you don't get that money back. At your rate, though, that's a pretty expensive life insurance policy.

To keep stress levels down, I think I would keep as much money liquid as possible through the move. There are always surprise expenses with a move. When things settle down, I would start making long term commitments.
 
If I were to pay an extra $100 a month on my student loan, would this be applied to principle or interest?

What upsets me is that by the time I'm done paying off my student loan, I'll have paid more than triple the amount that I borrowed.
mad.gif
 
DC-

When you buy your house, your int. rate on that will likely be at least 5 or 6%. So, increasing your down payment on the house is that much less money you need to finance to pay it down. And having less debt to pay down for your house is equivalent to had you invested the extra money and received a 5 or 6% return on (or whatever your mortgage int. rate is).

With student loans at 7% (that is high!) I would put the majority of your extra cash to paying down student debt, increasing your down payment on the house, and just for diversity sake- using your 401k to the max. Remember, because a roth or 401k is giving you a tax break to encourage you to use it- your real return rate is a couple of points higher, plus it's just a responsible thing to do for our retirement someday.
 
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