What should I do with my money? How should I invest it?

Question

My wife and I have fully funded IRA's and contribute to max match in our 401k's. Our mortagage has a low 4.87% interest rate so I don't want to pay down the house. What should I do with my extra money ?

Answer 1

Do you have an emergency fund of 6 months income?  If not, start there.

If you have any debt besides the mortgage, pay it all off.

I realize that your mortgage rate is very low,  but unless you can make more than 4.87% interest on your investment, you would be better off paying down the mortgage.  After all paying down the mortgage is the same as making 4.87% on an investment.

Answer 2

Save it for things you might need or stuff you really want.

You say you've socked away in your IRA and you are contributing fully to your 401k, great.

But there will always be things like the washer going out, like a call to visit a dying relative in a distant place, like the price of gas tripling in one year, like an illness or injury that brings you to that wonderful co-insurance percentage of the big bills.

Treat yourself to furthering your education (I've got my BS, then More S and maybe soon I can start to get it Piled Higher and Deeper), or take a course just for grins. With some savings, you can. Take a trip, it is a big, broad world, so get the passports updated for you and the mrs and see some of it.

Finally, if you've been blessed with extra largesse beyond what you need to set aside for your retirement and common bills, you might consider that your good fortune (and obviously good disciplined sense) might be for a purpose. See what your church is doing, what the United Way is helping, what other things going on in the community that floats your boat. Adopt a stray from the animal shelter, support a young and talented local artist by buying a painting or that CD they are selling outside the Wal-Mart store some Saturday. Buy some Girl Scout cookies and drop them off at some homeless shelter. Buy a range of clothes, like socks and common underwear for the homeless shelter or a nice but inexpensive suit or dress and donate it to the thrift store that benefits the blind or something. When you see some family is homeless because their house burned down or a child drowned and a local bank is taking up a collection for a new place or their funeral, etc, then shake loose some of that savings.

Not all interesting things earn dollars and cents. Not all sound investments benefit you directly.

Answer 3

If you can buy and hold your investment for at least 5 years, then Invest in a "tax-managed" mutual fund, (Vanguard has several good low cost ones). These funds minimize taxes, and are based on broad indexes so they have good returns at low risk.

If you don't have the minimum balance for one of these funds, buy ETF's (exchange traded funds), (Vanguard also has many good ones). They also have tax advantages and are based on indexes.

I you cannot buy and hold your investment for at least 5 years, consider a money market fund or CDs.