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$230K in savings, $300K income, best way to invest it ?

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    $230K in savings, $300K income, best way to invest it ?

    I'm 29 (male), I live on the East Coast and own my own business. I have $230K in multiple High Yield MMAs and I my business brings in about $300K a year. I also have about $300K to $400K in equity in my house.

    I'm in a technical field, so I read financial and investing books every so often.

    So my question is, how would you all invest the $230K cash ?

    I want at least 80% of the $230K to be in a low risk >5% return investment, but I'm not sure in todays markets, where to find such a thing to park my money. CDs and Bonds seem to have the same rates as high yield savings accounts with none of the benefits.

    The other 20% could be in a high risk investment, but I'm unsure if I want to dabble in the stock market or mutual funds considering the volatility of it currently. Even my low risk mutual funds were battered last year, so I like the guarantee of a high yield savings account with zero risk. I know the stock market traditionally performs better than any other investment vehicle, but the time it takes to research and manage a portfolio is something I dont have right now. Similarly, handing my money over to a financial management company that leeches percentages of it for uncertain returns seems unsound.

    I'm considering buying more real estate (to rent out houses, and etc), but that entails managing the property and etc , and I don't have lots of time.

    Hopefully I haven't boxed myself into a corner as far as options, or maybe I'm just missing something.

    Thoughts ?

    Edit: The only debt I have is a $10K student loan and $30K for a car. I'm not really saving for retirement right now, as I dont want to rely on that when I get older. I expect that selling my business ideas will be more than enough to retire on when the time arrives, I hope ( but I still want a safety net of course).
    Last edited by secretlyrich; 02-29-2008, 11:53 AM. Reason: Questions posed

    #2
    Are you saving for retirement? That is especially important since you are self-employed.

    Do you have any debt?

    Plus, why would you want so much of your money in such low interest investments, you are young!

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      #3
      What would you suggest I put the money in, since I take it, you are implying the low interest investments are too low-risk ?

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        #4
        Well it would definitely depend on the purpose of this money.

        I would put some of it in retirement accounts and in taxable accounts if you have maxed those out.

        I would probably put it all in index funds. Asset allocation would be determined by what the purpose of this money is.

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          #5
          Originally posted by secretlyrich View Post
          I'm not really saving for retirement right now, as I dont want to rely on that when I get older.
          That's a really peculiar statement. That would be like saying you won't buy homeowner's insurance because you don't want to rely on it.

          Seems like you're riding high right now which is great. But businesses do fail sometimes and over time people come up with new business ideas that make the old ones obsolete.

          My point is that you should diversify. You should be investing in stocks for your retirement. Look into a SEP IRA or similar plan which will give you some tax benefits while building a nice nest egg. If your business takes off and you become a multimillionaire, congrats... the retirement savings will just be icing on the cake.

          Because of the inherent risks of owning your own business I can understand the desire to keep some wealth in an ultra-safe savings account. But $184,000 in a savings account (currently earning 3-4%) is playing it too safe, IMHO.

          Comment


            #6
            Originally posted by secretlyrich View Post
            Edit: The only debt I have is a $10K student loan and $30K for a car. I'm not really saving for retirement right now, as I dont want to rely on that when I get older. I expect that selling my business ideas will be more than enough to retire on when the time arrives, I hope ( but I still want a safety net of course).

            Well first I would pay off the student loans and $30k car. This way you don't have to deal with any debt and you would still have $190,000.

            It's awesome that you are doing so well in your business, but what if it fails all of a sudden? Of course we all wish you do well, but it could be a possibility. That is why I think it is still necessary to put a good chunk of change into retirement accounts. With the amount of income and money you have, putting in the maximum amount into retirement accounts wouldn't be a drastic change to your lifestyle anyways, particularly because you are self-employed.

            You are doing great, I just would make sure you have an emergency fund and retirement savings that is money not tied into your business.

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              #7
              I think I would hold off on buying properties to rent out. You say you don't have much time to manage them. Earning money that you don't necessarily need and not having any free time is probably not worth it.

              May I ask what kind of business you do?

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                #8
                Since you are self-employed, it is understandable that you would want to keep a fairly high percentage of your money in cash (high-yielding MMAs, CDs, etc) and that you want to be more conservatively invested. You need be sure to have plenty to keep your business liquid, and you need to have a comfortable cushion to be able to continue paying your personal expenses should your business income take a sudden drop.

                Although you say you aren't much interested in retirement savings, I do suggest that you also look in to a SEP IRA (an IRA for the self-employed). You will be able to defer some taxes that way. You do not need to invest your SEP with a high-cost brokerage. You could invest it with one of the low-cost mutual fund companies such as Vanguard, Fidelity, or TRowe Price. One possibility would be to go with a Target Retirement Fund.

                If your business is doing well, I would suggest that you focus your energies on the business; investing in real estate might become too much of a distraction.

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                  #9
                  Hey secretlyrich, I think you should let me in on your business. Man I would love to be able to run and start a business. Mad props. 300K, in one year isn't to shabby for being 29 years old.

                  Assuming that the 300K is your salary for your business and that you are allready reinvesting some of your earnings for more growth, I would put at least 90% in aggressive securities. You are young, the risk and reward are a lot better than say if you were 50. Just make sure you spread your investments around so that you get a good balance of international, domestic, and probably a small 7-15% in precious metals.

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                    #10
                    Just wondering about the $300k figure. Is that gross revenue, net profit, or the salary that you pay yourself?

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                      #11
                      Just wondering about the $300k figure. Is that gross revenue, net profit, or the salary that you pay yourself?
                      Yeah, I was wondering the same thing.

                      Comment


                        #12
                        Age 29, 40k of debt, 230k in liquid cash. Selfemployed.

                        The questions I have:

                        1) what are annual expenses for living?
                        2) what are annual expenses for the business (list only fixed expenses)
                        3) what are annual variable expenses for business?
                        4) retirement comment needs some adjustment- you appears to contradict yourself asking to invest, but not wanting to invest for retirement. You need to be clear about the investments step- so you get appropriate advice.

                        My suggestions based on the little I know thus far:

                        1) I would keep 1 years living expenses liquid. If you spend 40k per year on mortgage, utilities, car etc..., then this amount is 40k. If you spend 100k, then this amount is 100k. Include any bill which is due (car insurance, house insurance, vacations etc...)

                        2) I would keep 2 years expenses for the business in liquid cash. This allows you to keep business afloat if times go bad.

                        3) I would keep 1 years worth of variable business expenses in cash.

                        I would add 1-3 up. This is the amount of cash to keep, the rest could be invested with more eye towards growth.

                        I would create a CD ladder for household expenses. This is more to tie the money up so it is not spent for other things make sure you can keep your house if times go bad. A CD ladder is a group of CDs which mature at regular intervals. For example put one months expenses in 12 different CDs. Set it up so one CD matures every 12 months. One advantage to this technique is the CDs will lock in current rates, and when they mature they can lock in the rate which is current. This lowers the risk of interest rates changing (as each month you get to lock in the prevailing interest rate that month).

                        For the business, I would keep variable expenses and 1 years fixed expenses in a money market. I would look to put the second years fixed expenses in a short term bond fund or diversified bond fund.

                        For the rest, I would invest it with an eye towards growth and ignore volatility. If you do not check balances every day-week-month-quarter then volatility does not matter. In order to get growth, there needs to be risk, where there is risk there is volatility. The reward for that is 9-12% returns, which double or triple what a bank will pay you.

                        Comment


                          #13
                          Well, this goes without saying I guess.

                          If you are going to stick them in CD's or savings, since you are over 100K. . .hold the assets at different banks as you are only insured up to 100K.

                          There's nothing wrong with having them sit in cash until you figure out what you want to do with it.

                          You may as well retire your car loan and student loan too.

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                            #14
                            You could invest just 100k of that money into diversified Mutual funds and retire wealthy. I find it hard to believe you have this much money and income and don't have any idea about investing. Because you have so much and a good income, investing in mutual funds will serve your needs with no problem.

                            Live debt free and enjoy it.

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                              #15
                              Thanks for all the replies so far ! I appreciate them all

                              As to the questions posed :

                              maat55:
                              I never said or mentioned that I had no idea about investing. Just be cause I solicit opinions on the best ways to invest a chunk of money does not mean I have no idea about investing


                              jIM_Ohio:
                              1) what are annual expenses for living?
                              I use a number of programs (e.g.: Quicken) to track my expenses, and its about $60K annually

                              2) what are annual expenses for the business (list only fixed expenses)
                              less than $10k
                              3) what are annual variable expenses for business?
                              less than $5k
                              4) retirement comment needs some adjustment- you appears to contradict yourself asking to invest, but not wanting to invest for retirement. You need to be clear about the investments step- so you get appropriate advice.
                              Sorry for the ambiguity. I do want invest to some degree for retirement, I just dont want that to be my sole reason.

                              zetta:
                              Just wondering about the $300k figure. Is that gross revenue, net profit, or the salary that you pay yourself?
                              The $300K is gross salary I pay myself.

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