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Taxable Investments

April 19th, 2015 at 02:38 pm

Our only taxable investments are our money market and CD accounts. I think with the sale of the home it is time to put some money into some stock mutual funds (maybe ETFs).

I should have invested in VDIGX two years ago when I was writing about it. It would have appreciated. Of course that is easier to see in hindsight.

I'd like to consider this money downpayment/house money for the future, which could be three years, six, eight or ten years from now. In three years, we will no longer have a child living at home (kind of sad) and may be moving again. In six years we could be moving AGAIN, and eight years from now my husband could be retiring from the military. Buying overall has been good up until this point. This round we are renting and I can see our need for a large home dwindling during the next eight years. So instead of investing in a home and 'hoping' for appreciation and payoff I think we need to invest the money for when it is time to establish long term roots.

I'm only beginning to think about this. What do you have some of your taxable investments in? Do you have a fund or etf that you have been really happy with? (I'll do my own research of course).

9 Responses to “Taxable Investments”

  1. FrugalTexan75 Says:

    Other than savings accounts, my only taxable investments are in the electric car stock. If I was going to go for anything else taxable, I'd probably go with Vanguard - and at the amount you'll have from the house sale, I'd probably look at the Admiral funds.

  2. creditcardfree Says:

    Yes, we are already eligible for Admiral funds. The home proceeds are still under $50K.

  3. FrugalTexan75 Says:

    Have you read http://jlcollinsnh.com/ jcollinsnh blog? He has a whole series on investing that is fairly interesting (especially when you have a bit to invest!) Smile

  4. AnotherReader Says:

    In your shoes, I would give some thought to how likely I would need the money in three or six years. Do you have any idea where your husband's next assignment might be? If so, is that housing market conducive to you buying there?

    If there is a good chance you will want to buy in three years, the money should be in safe investments like three-year CD's. If you think six years is likely when you will buy, it's probably ok to put some savings in the market and the rest in CD's and/or I-bonds.

    If you decide to put money in taxable equity investments, taxes will add up as the investments grow. Buying low cost index funds can help with that. An S&P 500 index fund or ETF will have low turnover (low capital gains) but will have taxable dividends. A total market index fund, such as Vanguard's VTSAX or the ETF equivalent, VTI, are good choices. If you go with a fund that focuses on dividends, your taxes on income will be higher. Take a look at the bracket for your taxable income for the next few years. That will give you an idea of the impact.

    Fidelity has a series of index funds that are very similar to Vanguard's, the Spartan funds. In my opinion, the Fidelity website is more comprehensive and easier to use. If you like to visit your money and the folks watching over it, Fidelity has retail offices in most urban areas. You really can't go wrong with Fidelity or Vanguard index funds.

    If you are not familiar with the Bogleheads website, go over there and look for the investor's start up kit page. There is a lot of information on asset allocation, asset location, and similar things that are helpful to understand before you start investing.

    Some of the "robo-advisors" are inexpensive and do a lot of the work for you automatically. I like the Betterment website and their investment philosophy. Take a look and see if the ETF's they choose, the automatic rebalancing, and the tax loss harvesting are of interest.

    Finally, remember that the FAFSA application will ask you to contribute a lot more to the girls' educations with taxable assets instead of a house. You may find some of that money you have made on the house heading to school with your daughters. In your shoes, I would look at the ramifications before I decided what to do about housing.

  5. creditcardfree Says:

    The FASFA this year already put us on hook for a large amount. There is no aid other than the offer of student loans which at this point we are not using as we have investments to use. I'm aware of index funds at Vanguard, we have nearly everything there for retirement and college. Four years out of eight college years are covered with the Post 911 GI Bill.

    We have NO CLUE where we will go next, it could be international, back to our current state or to the west coast. Anywhere!! We will only know at most six months in advance of a move. Worst case scenario if wanted to use the money in three years and it has lost value, that will likely make the decision for us. Rent again. Not a big deal really.

    I think calling it house downpayment money is mudding the water really. If we go to buy again, we will only do so if we have the downpayment necessary. The real factor is what to do with all this cash in the meantime...let's say not knowing when or what it would be used for, but that it will be at least three years, but likely much more.

  6. LivingAlmostLarge Says:

    Why did you decide to rent this term instead of buying? What is the difference in thought process this time around? How do you know that you will be moving in 3 years? Are you planning on renting a smaller place than before?

  7. creditcardfree Says:

    We decided to rent to reduce our need to keep putting money into a home and deal with the repairs, as well as the ability to move quickly, no waiting for closing or the home to sell. We know for a fact we do not want to be landlords, even with a property management company. The people we are renting from bought the home four years ago. Zero appreciation. They will lose money if they sell is they way they described it.

    The place we are renting is similar in size to what we have now. It does cost more than we pay for our mortgage now, but once you figure how much it would be monthly if we purchased it and later paid a realtor (assuming no appreciation) than it is probably about the same per month. There is no benefit to owning the home...the taxes are super low there and the mortgage interest doesn't exceed the standard deduction. In all honesty, it is a trial this time, maybe we will buy next time and if so it would be smaller simply because our kids won't be living with us, and more than likely only visit occassionally.

    All military assignments are for approximately three years. This one for us was slightly less, the last one we were in place for just under six, although my husband was actually only assigned there for just under four because he was deployed for a year and taking a 9 month class out of state for the rest. We have heard in this place some people are there less than two years!! We can't take the risk of owning for such a short time.

  8. LivingAlmostLarge Says:

    Wow the people you are renting from haven't had any appreciation and they are renting it after 4 years? That's tough. And in that case I would definitely be hesitating to buy in your situation for sure.

    For us our rental should be cheaper since we're moving into a 2 bd instead of 3.

  9. creditcardfree Says:

    The area we are renting in has a highly sought after school district so rent is a bit inflated there, but we are okay with that for now...just one more daughter to get through school. They have an engineering program she is super excited about and could really look good for college, so the extra we pay now may help later. If we rented elsewhere in town it would probably be less by about $400 a month.

    They seem to be building homes like crazy too...but the military is downsizing! There are going to be too many homes and not enough demand in three years if they don't stop building.

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