What to do with $50k

[superchew]

I'm in my lower 40's and currently have $50k in an American Express High yield Saving account (1%). It makes a measly $37/month in interest. I'm looking for a better way to reinvest that money.

I also have about $30k in a Traditional IRA account and another $30k in a Roth IRA. Most of the money in the IRA's is invested in a couple Blue chip stocks and/or 2030 retirement funds and the returns have been very good over the last few years. (~%10-%15)

I kind of got a late start on saving for retirement. I can tolerate a moderate amount of risk but I don't want to do anything stupid and risk my cash.

What are my options? THanks.

[snafu]

1st, I suggest you evaluate your risk tolerance via one of the on-line questionnaires, perhaps look at Vanguard site.
2nd, Time Frame...what is the goal for your $ 50.K? What do you see as worthwhile spending? If you need the money within 5 years, it doesn't meet the criteria for 'Investing.'
Have you established an Emergency Fund of at least 3 months of basic expenses that remains easily accessible? Do you have loans or Credit Card debt? What interest rates?
Do you access 100% of any matching retirement funds offered by your employer? Don't leave free money on the table.

You don't need to take an instant, 100% position. You can DCA [Dollar Cost Average] into a low fee Mutual Fund whose top 10 holdings are companies you have confidence holding. You pay the initial sum needed to open and each month an automatic sum is transferred to the fund buying more or less units depending on current price. Yes, the stock market goes up and down, but over a long term your savings grow.

Do you see the risk of a 1% return when current inflation removes about 4% of buying power?

Sorry for so many questions but you need to be comfortable with your decisions.

[superchew]

I do not foresee needing this money in the next 5 years. I'm looking at it as a more long term investment. Although admittedly being able to access the money at any time could be nice. I have a checking account with with about $15k in it so that would easily hold me over for 3 months of living expenses. I don't have any debt other than a modest home mortgage of around $800/month. I have zero credit card debt and my 2 cars are paid off. And yes my employer will match 100% up to 6% and 50% of 6%-10% on my 401k contributions. I max it out at 10%.

And yes I see the problem with a 1% return on my saving account, hence the reason I posted. I know this is not good finance practice.

My traditional IRA is through Merrill Lynch. It is a rollover from a previous employer's 401k program. My Roth is through American Century and is an active Roth 401k. Could I transfer the $50k into the Merrill lynch account? I was under the impression I could only contribute so much to an IRA and $50k is above that limit. Or should I create a second Merrill lynch account like a money market account that I use to buy and sell mutual funds? As mentioned previous, my holdings for the IRA's are largely mutual funds. Some are target funds for 2030-2035 from big players like Fidelity and T.Rowe Price. Others are technology and healthcare income and growth funds.

I appreciate your responses snafu

[creditcardfree]

You will not be able to roll the $50K directly into the rollover account, since this money doesn't appear to be qualified funds. That money would have needed to be in a current 401K or other rollover account in order to combine them.

Are you also contributing to a Traditional or Roth? Basically you can contribution $18000 per year to a 401K/Roth 401K AND $5500 to Roth/Traditional IRAs. There are some income limits of course, but are you maximizing BOTH? If not, I would make an effort to contribute the max to both and use the $50K to make it happen. Maybe over two or three years even.

[autoxer]

I kind of got a late start on saving for retirement.

Have you considered maxing out the 401k? You can contribute up to $18k for 2015.

Decide how much you want to keep in savings as your emergency fund and then just invest the rest of it. Start by maxing out the tax advantaged accounts (401k, roth ira) and then open a taxable brokerage account with the rest of it.

[snafu]

I hope you understand that we ask questions so that our answers can be targeted to your specific circumstances. Congratulations on your money management skills which thus far has your vehicles paid off, no CC debt and no loans and a modest mortgage, you represent a tiny segment of the N American population.

I think you will find the majority of SA participants are 'buy and hold' investors unless some event requires we deviate from a plan that reflects at least 5 years into the future. How did you come to use Merrill Lynch for your roll over IRA? What are their fees, listed and hidden or silent? What is the Management Expense Ratio [MER} for each of the holdings? Have you compared them to a low cost, low fee provider like Vanguard for example? Likewise how did you choose American Century for your ROTH 401K? What is the MER for your specific 2030 and 2035 MFs? These sums make a huge difference over the long haul, they are sliced from your account whether a prosperous year or a disastrous loss like 2008 - 2010.

Why keep $ 15K in chequing? Does your chequing account pay interest at the same [paltry] rate as saving plus give some benefits like no cost transactions? Have you a history of needing huge sums immediately available? Why not limit cash at hand to the amount eligible as an ATM withdrawal? I suggest seeking the best e-bank savings rate available [www.bankrate.com] since emergency funds easily transfer in two business days.

[superchew]

I hope you understand that we ask questions so that our answers can be targeted to your specific circumstances. Congratulations on your money management skills which thus far has your vehicles paid off, no CC debt and no loans and a modest mortgage, you represent a tiny segment of the N American population.

I think you will find the majority of SA participants are 'buy and hold' investors unless some event requires we deviate from a plan that reflects at least 5 years into the future. How did you come to use Merrill Lynch for your roll over IRA? What are their fees, listed and hidden or silent? What is the Management Expense Ratio [MER} for each of the holdings? Have you compared them to a low cost, low fee provider like Vanguard for example? Likewise how did you choose American Century for your ROTH 401K? What is the MER for your specific 2030 and 2035 MFs? These sums make a huge difference over the long haul, they are sliced from your account whether a prosperous year or a disastrous loss like 2008 - 2010.

Why keep $ 15K in chequing? Does your chequing account pay interest at the same [paltry] rate as saving plus give some benefits like no cost transactions? Have you a history of needing huge sums immediately available? Why not limit cash at hand to the amount eligible as an ATM withdrawal? I suggest seeking the best e-bank savings rate available since emergency funds easily transfer in two business days.

Thanks, I used Merrill Lynch because that is the company that was managing my previous employers 401K. When I left that company I had to decide what I wanted to do with the money. I had the option of rolling it into a traditional IRA for free or rolling it into a Roth (which I would have had to pay the taxes on up front). I took the traditional option although hindsight is 20/20. Merrill Lynch has been great so far. They have a great website and smartphone app and trades are $6.95. I do not know what the management expense ratios are for my funds. I'm ignorant in that regard. I'm not even sure what MER's are to be honest.

As for American Century I mis-spoke. It's actually a company called American Funds. That is the company my current employer uses to manage their 401k. So in order for me to contribute and get matching contributions I'm required to use them. This time I selected a Roth 401K. I believe my contribution is around $15K per year so I could technically up the ante a bit.

AS for the checking account, there is $15K there because I had intentions of doing a little work around the house and would rather pay for things with cash rather than home equity loans. So far I haven't. In the past I would do this and when the checking account started pushing $10k I would transfer about $8K into the Savings account. Hence the reason it ended up with $50k there.

I am a bit reluctant to have nearly all of the money I save put into an IRA account. I may want access to a sizable chuck of it. If I need $15k for something and don't want to finance it I'd like to be able to have access to it? Aren't I limited in what I can take out of an IRA?

Is the $18k limit on IRA's the total per person or is it per IRA account. Am I allowed to have multiple Roth IRA's?

As for savings rates, I opened the Amex savings becuase at the time it was the best rate I could find. IT was 1% when my local bank was offering 0.15%.

[autoxer]

Is the $18k limit on IRA's the total per person or is it per IRA account. Am I allowed to have multiple Roth IRA's?

The 401k limit is $18k. The IRA limit is $5,500.00 You can have multiple IRA accounts, but the total contribution across all of them can't be more than $5,500.00 for the year. Rollovers don't count as contributions.

[snafu]

Companies like ML typically charge fees for every service. The $ 6.95 per trade is ok but there is usually some type of fee...they use different terminology to transfer sums from your pocket to theirs. I think it's important for you to know the Management Expense Ratio {MER} for each of your Mutual Funds and compare Merrill Lynch's fees to a low cost provider like Vanguard. The point is to retain as much of your retirement contributions plus accrued and compounded value in your account for retirement years. If rates are significantly better, they can be rolled over to another 'holder' without passing directly into your hands which would trigger tax, ghastly amounts of tax.

In one post you mentioned holding $ 15K in a chequing a/c. I hope you actually hold that high a sum in in the highest available savings a/c generating even a paltry bit of interest with 'liquidity' if there is a likelihood of home repairs/updates. How do you wish to manage your Emergency Fund?

[Thrif-t]

OP you asked about withdraws from a Roth:

Age 59 and under. You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA. Withdrawals from a Roth IRA you've had less than five years.
Withdrawal From Roth IRA - Charles Schwab
https://www.schwab.com/...iras/roth_...al_r...Charles Schwab Corporation

I had saved up some money like you and each year I put the maximum amount in a Roth for me and one for my husband. I had around 30k so it took 3 years to get it all in. If I ever want to take out what I put in I can. My strategy is to get as much in Roths as I can. I even have a Roth with an online bank that is just invested in a cd, I keep my emergency fund in this and if I ever need the funds I can get to them.

[daledegagne]

Alternatives that No one has mentioned

Hey Superchew - Congrats on your money management skills.

You've had a lot of good suggestions. Here are some I feel were missed (possibly due to not fully knowing your situation).

1. Rental Real Estate - If you're willing to do some homework, maybe find a mentor who's been down that road and can help you get started, and you're up for learning a new skill, then real estate can be excellent.

You don't have to get a slum (in fact I highly recommend against it) and your 50K could be a decent down payment depending where you live. If you're low 40's, you can take a 15 year mortgage, and be ready for early retirement with a hefty cash flow helper by 55.

If you want to go that route - PM me and I'll send you my investment analysis Template. I made it myself so don't laugh, but this is what I used to evaluate hundreds of properties, and in the end, settle on 6 purchases so far. (Sorry, I would link it here but I haven't made enough forum posts yet).

2. Paying off your personal mortgage.

I know you're low 40's...and I'm sure your mortgage rate is pretty low, but have you considered how much more awesome your life might be without a mortgage? To be sure, interest rate to interest rate, it's not as efficient as other options but it also frees up the cash you've been spending on paying back the principle too. And it meets your requirement of better than 1%.


3. Non-registered account.

There's nothing wrong with putting it in a non-registered investment account. You'll pay tax on your earnings, but that's only if you make a profit, so paying tax means you're being successful.

Of course, I would hedge that statement by saying you can invest it, and if you ever fall short one year of maxing your 401K, or ROTH IRA, then pull the money from this account and put it into them.

You can also have it sitting there to buy your next car if you need to/want to. The reason I say that is the same reason I suggested you consider paying off the mortgage - A dollar saved is > than a dollar earned.

P.S. I love keeping a large amount in my chequing account too. Makes me feel solid. Makes me feel good. Nothing wrong with that.

Anyone have thoughts on those suggestions?

[feh]

What are my options? THanks.

Instead of the specific question of what to do w/ your cash, I suggest starting w/ a broader look at how to invest for retirement.

Start here: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit