What are your thoughts?

[JDS723]

I’m 33 and have zero debt. We paid off our house which is values at $250k back in May and now I’m looking at how to start investing my extra income. I’ve looked into refinancing my home with a cash out and putting that money into the S&P 500. If I can get a refi for 3% interest do you think this would be a good idea. I would basically be paying my house note again which is no big deal. Here’s my question, is it better to have the $250k invested today and pay 3% interest or to just start at zero and invest that $1500 a month into the market each month. That way has no interest but it will take years before I have enough money invested to start making money. I can argue either way lol

[CatFan]

Investing borrowed money is generally a bad idea. Read about the crash of 1929. It wasn’t the price drop that was the problem, it was the leveraged positions in a crash that was the problem.

[NitroZ7]

Investing borrowed money is generally a bad idea. Read about the crash of 1929. It wasn’t the price drop that was the problem, it was the leveraged positions in a crash that was the problem.

This. Nobody knows where the market hoes from here. What if the S&P drops 20% and doesnt get back to where you bought it for 5 years? Not saying that is likely but it is possible.

[northstar]

SPY is at all time highs, I would go the route of putting 1500 in each month and sleeping easy in my paid for house, if things do correct themselves.

[Charles Prestridge]

Investing borrowed money is generally a bad idea. Read about the crash of 1929. It wasn’t the price drop that was the problem, it was the leveraged positions in a crash that was the problem.

Amen, Hallelujah.

Some possible ideas:

1. If you and/or spouse have ability to contibute to 401K or similar, max out contributions. Invest in stock funds as you deem best.
2. If you and/or spouse have ability to contribute to HSA, max out contributions. Most will allow excess funds (over $2,000) to be invested in stock funds.
3. Max out Roth IRA contributions. Invest as you deem best.
4. Purchase individual stocks in brokerage account

[rds_nc]

How confident are you in your current income and ability to earn at at least that level? If that's questionable then keep the house note at zero. If you know you'll be able to still earn at that level then the refi and investing the lump sum sounds like a really good idea, too. I'm 40 and still have a long term plan of earning so if I were in your position I'd be leaning towards the refi route.

[Bassin08]

I’m from the old school of, protect your home at all cost and never use it as means for investing in the stock market.

Back in 1990 our $250,000 house was paid for. We had a financial advisor over to give us some advise. He suggested we take out a large loan on our house and invest it in the stock market. I never invested with him, but I did drive by his home. He lived in a dump!

Max out a ROTH, then as much as you can in a 401K, but keep six months of safe money to get you through any surprises and sleep well.

[sully88]

Don't go back into debt betting on the stock market. Find a fee-only financial planner.

[Matt D]

Max out 401k and Roth IRA and then put extra in to an investment account. While very tempting to borrow against a paid off house to put in to the market I would not risk it. Being debt free at your age and the amount you are able to invest each month you will be in great shape without taking the risk.

[JDS723]

Thanks for the thoughts and advice guys. I’m meeting with a financial adviser later today. I have no access to a 401k as I work at a church and as a fishing guide so I have no retirement benefits. We have my wife’s 401k made out already. I’m excited to hear what my financial advisor tells me today.

[Charles Prestridge]

You should be able to create a self-employed 401K.

This would be on top of Roth and Traditional IRA’s.

[Diesel Pro]

OP: Good on you to be where you are at in life. Far ahead of where I was at your age and light years ahead of the next generation (daughter) which is in your age range and net worth near 0. I'd love to help her out, but she needs to show some promise first.

If as Charles suggested you can qualify to set up a self employed 401K you can do some very aggressive contributions like you mentioned. Base contribution is in the $16k range a year plus profit sharing. North of $40k per year depending on profit.

On the path you are traveling I would probably set up a "non qualified" investment account as well. Build a pot that you can access at will. Yes you will have to pay the taxes, but down the road you'll be happy that you did this.

[JDS723]

On the path you are traveling I would probably set up a "non qualified" investment account as well. Build a pot that you can access at will. Yes you will have to pay the taxes, but down the road you'll be happy that you did this.

This is pretty close to what the Financial Advisor told me. He called it a house account that I could access anytime. I wouldn’t plan on using it, but it would be nice to use if needed without penalties.

On another note, who uses a financial advisor? After meeting with one, Im unsure what to think. He wanted to put my money in a mutual fund and take 5% of everything I invest. I did the math, initially investing $59k then $1000 a month every month for 30 years he would take roughly $120k at a 9% return rate. That’s a lot of money to basically just put it in a mutual fund is it not?

[Matt D]

This is pretty close to what the Financial Advisor told me. He called it a house account that I could access anytime. I wouldn’t plan on using it, but it would be nice to use if needed without penalties.

On another note, who uses a financial advisor? After meeting with one, Im unsure what to think. He wanted to put my money in a mutual fund and take 5% of everything I invest. I did the math, initially investing $59k then $1000 a month every month for 30 years he would take roughly $120k at a 9% return rate. That’s a lot of money to basically just put it in a mutual fund is it not?

I hope you meant 0.5% and not 5%? Either way if just going to go into a mutual fund may not be worth either? I feel like what I pay my financial advisor is well worth it. He charges 1% but also advises us on allocation in our 401k’s as part of our overall investment plan. He doesn’t get the 1% on the 401’s but important to make sure that all accounts are aligned. Also recently went to him with a plan to withdrawal a sizable amount of money from his account thus lowering his payments and he supported it fully as it aligned with our overall plan and offered a good return. That reaffirmed he was looking out for our best interest.

I have also always said that when market is on an upward trajectory as ours has been it’s easy to be right. Where a good financial planner earns their worth is minimizing losses during a drop in the markets. If a person has the time they can easily manage their own but for me right now I don’t so it is worth the cost. Not a one size fits all answer IMO.

[motomania]

if you're just looking into investing in funds that follow the S&P 500 (solid plan by the way!); checkout Vanguard. Super user friendly website and app; super low fees on their funds and several funds that follow different markets.
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Look into a great facebook page 'Friends of Vanguard'. Lots of great info in there and helpful people. I stumbled on Vanguards super low fees the beginning of this year and shifted some money over that way myself.
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1 % or .5% of your investments doesnt sound like much; but it adds up super quick and over time is a LOT of money.
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You can always start someplace like Vanguard and if in a few years, if you want a financial planner to help out; you can shift some funds over.
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As mentioned above; a fee only advisor is another great approach when the time comes.
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Cause VERY few financial planners can beat the market.

[darryl1966]

your house is not paid for if the investment drops say 35% and you borrowed on the house , a long bear market could last 10 years , you would be for ever getting back even when you could be gobbling up stock for cheap if you were just investing on a monthly basis

[boneil]

Terrible idea to borrow money to invest. That said, I know there quite a few bitcoin millionaires who did just that. But, I'm sure there are more who went bankrupt. Unless they bought GME and AMC, then they're probably millionaires too.

I certainly wouldn't borrow money to put it to work at new all time highs in the market. Now if we're talking about a 30% pullback, then maybe, but still could be a really bad idea.

Just open an account with any of the online brokers and put a little money to work every week or every month. That's what I do.

[JDS723]

Thanks for all the advice guys. I decided against refi on my house and I just maxed out my Roth in VIGAX and VTSAX.

[BoilermakerZ519]

Thanks for all the advice guys. I decided against refi on my house and I just maxed out my Roth in VIGAX and VTSAX.

good choice…and now kick that CFP to the curb who wants to take 5% of your money. Find a fee only planner or read and educate yourself on personal finance and investing. There is just so much out there. One of my beliefs is no one cares more about your money and future than you….take the time and make the effort. It will pay off…literally.