Advice on what to do with my (excess) cash savings

[jacques]

Hi,

I was laid off from my highest paying job ever in the spring due to COVID and just recently became employed again in the summer. My new job pays less than my last job. I've been super skeptical of the stock market/investing because I like to learn how things work 100% and I've never spent the time reading about how the economy/Wall Street work. I max my 401k out in pre-tax dollars still and just put all of my after-tax money in high yield savings/checking accounts. However I think I'm being far too conservative and should start investing my excess cash.

More stats about me:

Age: 29
Income: $200k (before tax)
401k savings: $110k
Cash savings: $200k
Monthly expenses (rent, food, etc.): $2500

I'm thinking of 3 possibilities:

1. Calculate my living expenses and keep cash for 1-2 years, put remaining in stock market.
2. Save for a large downpayment to buy a house in expensive city center in the next year.
3. Save for a 20% downpayment for smallest home in city center, put rest in market.

Where I live a 2 bedroom apartment is usually around $800k, so I'd need a downpayment of $160k (nearly all my cash reserves). I don't have time pressure to buy a home yet (no family) but for some reason I feel a lot of pressure from people I know who have bought in the city.

[james.hendrickson]

Jacque - why not just build your savings and do nothing?

[riverwed070707]

Do you like to read? I'd recommend the Simple Path to Wealth by JD Collins - if you're not much of a paper book person, its also available on Audible. Investing doesn't have to be complex, and you can always choose to diversify later if you feel more comfortable but having all that money sitting in savings is lost earning potential.

[Jluke]

https://www.etf.com/docs/IfYouCan.pdf

read this. Twice.

Check out bogleheads forum too.

report back

[bjl584]

Impressive income and savings for your age.
Good work.

We'll probably need more info.
Where do you see yourself in say 5 years?
I would put at least some of that to work in something other than cash, but life goals and plans will dictate how much

[cypher1]

I've been super skeptical of the stock market/investing because I like to learn how things work 100% and I've never spent the time reading about how the economy/Wall Street work.

If that were me, I guess I'd never invest. As I'm still trying to figure it out how it all works

[Petunia 100]

Don't buy a house to suit others; only buy if that is what YOU wish to do. If you decide to buy, IMO you should hang on to the cash until after your home purchase.

[Jluke]

If your monthly expenses WITH rent are $2500 how much will that increase when you buy a place?

maybe you’ll hit the jackpot with a place that really appreciates in value.

maybe it won’t.

this situation could go in favor of renting vs buy in that Kind of analysis

[~bs]

Bloow

[amarowsky]

Hi,

I was laid off from my highest paying job ever in the spring due to COVID and just recently became employed again in the summer. My new job pays less than my last job. I've been super skeptical of the stock market/investing because I like to learn how things work 100% and I've never spent the time reading about how the economy/Wall Street work. I max my 401k out in pre-tax dollars still and just put all of my after-tax money in high yield savings/checking accounts. However I think I'm being far too conservative and should start investing my excess cash.

More stats about me:

Age: 29
Income: $200k (before tax)
401k savings: $110k
Cash savings: $200k
Monthly expenses (rent, food, etc.): $2500

I'm thinking of 3 possibilities:

1. Calculate my living expenses and keep cash for 1-2 years, put remaining in stock market.
2. Save for a large downpayment to buy a house in expensive city center in the next year.
3. Save for a 20% downpayment for smallest home in city center, put rest in market.

Where I live a 2 bedroom apartment is usually around $800k, so I'd need a downpayment of $160k (nearly all my cash reserves). I don't have time pressure to buy a home yet (no family) but for some reason I feel a lot of pressure from people I know who have bought in the city.

Sounds like (by the cost) your on one of the coasts close to a larger city. I have been hearing that a lot of people with wealth are moving out of the cities in larger numbers. (thought being that you can work remotely in less urban areas and get a lot more bang for your buck, especially in this new world where WFH is much more mainstream). This may lead to decrease in some of those Hyper expensive cities, where your paying $500 per sq ft or better to live. If you choose to stay in the city, I think renting until more is understood about the future will be in your best interest.

If you're really interested in owning some real estate, why not buy something in a desirable rental area. Buy it, and have a property management company manage it for you. (You'll capture the benefit of having R.E. investment, still have the flexibility of renting where your at [you explained no pressure to buy right now], plus if you aim for a less urban area, you can get a lot of house for <$800k. And there are plenty of suburban areas to test out in.

Personally, I'm worried for all these banks that hold a lot of costal value in small sq foot areas (NY, San Fran, LA, etc...). I see a future where a lot of higher cost rents are going to be in the cities a lot less. I could vision a not too distant future, where a decent amount of those landlords wind up defaulting to banks --> surging another bank bailout. And potentially a bursting bubble for city dwelling living expenses. <----- Merely my speculation. But I think this could cause a dramatic drop in the value of some metropolitan style real estate.



Also if you too concerned about your cash sitting around, it's not a bad idea to maybe move 5-10% of your savings into Gold or some valuable raw materials. I normally target 5% in precious metals, but given this insane volatility and political/monetary decisions our govt is making (that I really think are very very dangerous and may lead to a some bad downstream consequences.... mainly for USA credit & USD strength....) I have rationalized going up as high as 10-25% into gold for the next little while (hopefully less than 3 years).... Really hard to give any advice lol, as everyone has a different spin on what the Flip is going on! (But don't buy if you don't feel comfortable.....) If interest rates go up (as they MUST) in the next 5-10 years, you may have just been saddled with a upside down asset.

[myrdale]

A question on etiquette.

When something smells fishy is it worth pointing out? or take the question at face value and answer as stated? Obviously you never know someone true situation, you don't want to put people on the spot, and reality very well can be stranger than fiction. That said this post just "feels" weird.

I don't doubt for a minute there are people 29 years old making $200k. Someone stating they recently lost their job and had to take a pay cut of only making $200k seems odd.

He doesn't trust the stock market, but has maxed out his 401K. I am assuming that means $19.5k per year.

Looking back at other post, I see he had a question in Oct 2019 about why he was being denied on credit card applications. The cards were to pay large expenses like car insurance. With $200k in cash savings why would he need a credit card to pay auto insurance?

[riverwed070707]

A question on etiquette.

When something smells fishy is it worth pointing out? or take the question at face value and answer as stated? Obviously you never know someone true situation, you don't want to put people on the spot, and reality very well can be stranger than fiction. That said this post just "feels" weird.

I don't doubt for a minute there are people 29 years old making $200k. Someone stating they recently lost their job and had to take a pay cut of only making $200k seems odd.

He doesn't trust the stock market, but has maxed out his 401K. I am assuming that means $19.5k per year.

Looking back at other post, I see he had a question in Oct 2019 about why he was being denied on credit card applications. The cards were to pay large expenses like car insurance. With $200k in cash savings why would he need a credit card to pay auto insurance?

I personally was hung up on the fact that it costs $800k to buy but somehow total living expenses are only $2500... seems like rent should reflect the housing cost unless this 29 year old is living at home still?

[disneysteve]

unless this 29 year old is living at home still?

I was assuming either he is still with his parents or possibly sharing a place with several people.

[jacques]

A question on etiquette.

When something smells fishy is it worth pointing out? or take the question at face value and answer as stated? Obviously you never know someone true situation, you don't want to put people on the spot, and reality very well can be stranger than fiction. That said this post just "feels" weird.

I don't doubt for a minute there are people 29 years old making $200k. Someone stating they recently lost their job and had to take a pay cut of only making $200k seems odd.

He doesn't trust the stock market, but has maxed out his 401K. I am assuming that means $19.5k per year.

Looking back at other post, I see he had a question in Oct 2019 about why he was being denied on credit card applications. The cards were to pay large expenses like car insurance. With $200k in cash savings why would he need a credit card to pay auto insurance?

Sorry if it sounds odd, I am a little salty over COVID which was why I was laid off and hence had to settle for a job with lower pay (or risk being unemployed longer). I guess it's not important to mention as part of my post.

I max out the 401k and just leave it in the default retirement index fund and I never touch it, because I don't know what I'm doing.

For the insurance question, I was trying to save money on the payment because some credit cards give $100 or $200 credit if you spend X amount, just being extra frugal. My credit has been in the 800s for awhile.

And indeed I've been living with roommates since I started working full time about six years ago, which has saved quite a bit of money.

Sounds like (by the cost) your on one of the coasts close to a larger city. I have been hearing that a lot of people with wealth are moving out of the cities in larger numbers. (thought being that you can work remotely in less urban areas and get a lot more bang for your buck, especially in this new world where WFH is much more mainstream). This may lead to decrease in some of those Hyper expensive cities, where your paying $500 per sq ft or better to live. If you choose to stay in the city, I think renting until more is understood about the future will be in your best interest.

If you're really interested in owning some real estate, why not buy something in a desirable rental area. Buy it, and have a property management company manage it for you. (You'll capture the benefit of having R.E. investment, still have the flexibility of renting where your at [you explained no pressure to buy right now], plus if you aim for a less urban area, you can get a lot of house for <$800k. And there are plenty of suburban areas to test out in.

Personally, I'm worried for all these banks that hold a lot of costal value in small sq foot areas (NY, San Fran, LA, etc...). I see a future where a lot of higher cost rents are going to be in the cities a lot less. I could vision a not too distant future, where a decent amount of those landlords wind up defaulting to banks --> surging another bank bailout. And potentially a bursting bubble for city dwelling living expenses. <----- Merely my speculation. But I think this could cause a dramatic drop in the value of some metropolitan style real estate.

Yup, it's along the coast and around $800-$1000 per square foot to live in the city/city center. I can certainly continue to work remotely indefinitely now and in an ideal world I would just relocate to a place with cheap cost of living rather than buy a home in an expensive city. Unfortunately I have close friends who've settled down already so it's hard to just stay away from everyone. I live in a suburb about 30 minutes from the city currently.

It's hard to imagine housing costs going down in my area, though I did see a lot of price drops on Zillow in August, but looks like prices may be going back up again now. So I had a little bit of FOMO. I don't wish anyone to lose their house/property, but it would be a great benefit if there was a housing crash soon for a 1st time homebuyer like me.

Impressive income and savings for your age.
We'll probably need more info.
Where do you see yourself in say 5 years?
I would put at least some of that to work in something other than cash, but life goals and plans will dictate how much

Ideally I'd like to own a house/apartment that I'd buy with a future spouse rather than buy one on my own, but this is something that should never be forced. I do want to retire early as possible. Keep working full time, but otherwise I don't have many goals besides complete financial independence.

[scfr]

I'll add my voice to the chorus recommending that you do some reading before making any decisions. You've already gotten some good recommendations, and I'll add "The Millionaire Teacher" by Andrew Hallum ... or "Making The Most of Your Money Now" by Jane Bryant Quinn if you don't mind a long read. P.S. You'll never understand 100% how the economy and Wall Street work. None of us do. Anyone who says they possess such knowledge is lying or delusional.