Brainless Investment

[PandaBear]

The biggest question would be how long do you want to stay in that investment if there is a crash. If you can stay 20 years then definitely a low cost index fund (like S&P500). If you only have 2 weeks, then probably only money market savings account.

Gold is not an investment (it does not produce profit), it is a hedge against currency like USD and Euro losing value to inflation. You cannot lower your tax by "investing", only by writing off investment loss or charitable donation of appreciated assets prior to sales (say your stock growth is 100X and your donation is worth $100 per $1 you initially invested, you can write off $100 on your deduction instead of $1).

 

[Dave Hess]

My bride and I are wise with our finances, but not that smart when it comes to investments. We have all our debt paid off except our house, which has a pretty low interest rate. I have a chunk of cash sitting in the bank above what we need for an emergency fund, and the interest rate is obviously a joke compared to what it could be earning somewhere else. Again, I am not all that savvy when it comes to investments. My bride and I both contribute the full legal amount to our 401k's, but that is all the real investing that we do. We are to the point we are paying every year on taxes, and it is getting worse. I am looking for a brainless investment to both increase the returns on cash we have laying around and lower our taxes we are paying every year.

Low risk
Not impossible to get the money back out if needed
Not paying big penalties if we need to get the money back out

I don't want to deal with properties or rentals or any of that stuff.

My first thought is gold, and my bride's first thought is to pay off the house.

Any advice would be great! I realize this is an oil site, and any advice will be taken with a grain of salt, and researched before I do anything. THANK YOU!

How much is your “chunk of cash“ sitting in the bank ?

Paying off debt is a good idea.
Cash on the sidelines is OK if it’s for an emergency fund.

How old are you and your wife ?

.

 

[JeffKeryk]

I would make an appointment with your local Schwab office.
Good luck.

Listen to @ecotourist when he says, "Paying taxes is the cost of doing well financially."
Paying a lot of taxes is a great problem to have. It means you are making bank.
Again, good luck. Asking is a good start.

 

[PandaBear]

You sound young. Two words, Roth IRA.

He is likely young and need the liquidity for home purchases, etc. Too young for Roth IRA.

 

[99Saturn]

He is likely young and need the liquidity for home purchases, etc. Too young for Roth IRA.

What? Contributions to a Roth IRA can be withdrawn without penalty at any age.

 

[PandaBear]

What? Contributions to a Roth IRA can be withdrawn without penalty at any age.

https://www.investopedia.com/the-pr...l Penalty on a Roth,before you reach age 59½.

How Much Is the Early Withdrawal Penalty on a Roth IRA?​

The early withdrawal penalty is 10%. You will have to pay this penalty if your Roth IRA account is less than five years old and you withdraw earnings before you reach age 59½. (You can withdraw your contributions at any time without penalty since you have already paid taxes on them.) You may also have to pay taxes on your withdrawal. There are exceptions to these rules that would allow you to avoid taxes and penalties—for example, if you use the funds to buy your first home, or if you become permanently disabled.

I guess you only get penalty if you withdraw the profit, forgot the contribution part.

 

[99Saturn]

https://www.investopedia.com/the-pr...l Penalty on a Roth,before you reach age 59½.

How Much Is the Early Withdrawal Penalty on a Roth IRA?​

The early withdrawal penalty is 10%. You will have to pay this penalty if your Roth IRA account is less than five years old and you withdraw earnings before you reach age 59½. (You can withdraw your contributions at any time without penalty since you have already paid taxes on them.) You may also have to pay taxes on your withdrawal. There are exceptions to these rules that would allow you to avoid taxes and penalties—for example, if you use the funds to buy your first home, or if you become permanently disabled.

I guess you only get penalty if you withdraw the profit, forgot the contribution part.

Look at the sentence after what you highlighted - I bolded it in your quote above.

Also look at the first entry in the Table of Contents for the page you linked from Investopedia "Pro: You Can Withdraw Contributions for Free"

 

[Wolf359]

My bride and I are wise with our finances, but not that smart when it comes to investments. We have all our debt paid off except our house, which has a pretty low interest rate. I have a chunk of cash sitting in the bank above what we need for an emergency fund, and the interest rate is obviously a joke compared to what it could be earning somewhere else. Again, I am not all that savvy when it comes to investments. My bride and I both contribute the full legal amount to our 401k's, but that is all the real investing that we do. We are to the point we are paying every year on taxes, and it is getting worse. I am looking for a brainless investment to both increase the returns on cash we have laying around and lower our taxes we are paying every year.

Low risk
Not impossible to get the money back out if needed
Not paying big penalties if we need to get the money back out

I don't want to deal with properties or rentals or any of that stuff.

My first thought is gold, and my bride's first thought is to pay off the house.

Any advice would be great! I realize this is an oil site, and any advice will be taken with a grain of salt, and researched before I do anything. THANK YOU!

As others mentioned your focused on the wrong thing if you're worried about the amount of taxes you pay every year. Do a regular IRA if you can't do a Roth IRA. Once you max out the Roth/IRA, then do regular investing. Real investing would be buying mutual funds or ETF in various index funds. Paying off the mortgage just locks in a fixed rate of return so if you're on a 3% mortgage, paying it off means you just lock in a 3% return on your money, probably just a little better than a checking account.

There's also no such thing as high return and low risk. Low risk is keeping it in a bank account. Over the long term, risks are lower, but in the short term risks are higher. If you don't need it for a while, then you just invest it in the stock market. Last year you missed a 28% run up in the S&P 500, now due to various issues like the war and higher interest rates, the S&P 500 is down about 8% but over the long term up about 16% over the last 10 years and probably about 10-12% over the last several decades. You should also develop some financial acumen, can't just trust some financial adviser, there are also bad ones out there, if you don't know anything about finance, you should learn so that you can spot the bad ones. Usually the bad ones get their clients by word of mouth as those clients tend to be the most trusting. As for your gold thought, over the long term, that has been one of the worst investments out there, S&P 500 beats it. Over the short term though, it tends to do well once in a while.

https://fundresearch.fidelity.com/mutual-funds/performance-and-risk/315911750

Also mutual funds or ETFs will fit the bill on being easy to get the money out, probably takes a few days. I also have a cash account at Fidelity and have set up a margin account where you can borrow up to 50% of the money in the account. I've used it a few times for short term cash, easy to set up and you basically get the money in a day. Otherwise if you want to sell something, it will usually settle out in a day or two and another day or two to transfer the funds back to a bank account. For a Roth/IRA, I would suggest a mutual fund mentioned above, a pretty low expense ratio and capital gains/dividend distributions don't matter in a tax deferred account. If you have regular cash to invest, then I'd probably go with an ETF, higher expense ratio but easy to sell. Mutual funds you have to wait until the end of the day to buy/sell so you don't know what happened til the end of the trading day. ETFs you can sell any time during the trading day and they're more tax efficient than mutual funds. Brainless would be buying the S&P 500 or some other index fund like the Nasdaq or Total stock market. Do not buy stocks. Historically about 75% of actively managed funds can't beat the S&P 500 and the ones that do, many can't do it year in and year out. So just by buying an S&P 500 index fund, you're already doing better than 75% of the fund managers out there and they in theory know more than you do.

 

[PandaBear]

I wouldn't say mutual funds or ETFs would be "easy to get the money out". There's the potential of downturn matching you losing income and need the money to pay living expenses "at the wrong time". Sure you can exit the fund or sell stocks very quickly but timing may not be in your favor.

Diversification with rainy day fund is the way to go unless your cost of living is so low (you inherit a home, already on medicare, kids already grown up, etc), you probably need enough rainy day funds outside of the more volatile assets, likely in cash.

 

[Dave Hess]

I wouldn't say mutual funds or ETFs would be "easy to get the money out". There's the potential of downturn matching you losing income and need the money to pay living expenses "at the wrong time". Sure you can exit the fund or sell stocks very quickly but timing may not be in your favor.

Diversification with rainy day fund is the way to go unless your cost of living is so low (you inherit a home, already on medicare, kids already grown up, etc), you probably need enough rainy day funds outside of the more volatile assets, likely in cash.

Clicking a mouse is a lot easier than selling property and only takes 2 days for cash to settle and withdraw if needed.

I do agree with others about maxing out ALL retirement contributions.

 

[jstert]

when i was in the accumulation phase i maxxed out my 401k (tsp) and ira with low-cost, balanced, mixed stock/bond, mutual funds. look at a fund’s downturn performance too and pick the one that lets you sleep at night.

i threw any extra moneys into u.s. savings (ussb) ee bonds and a no-fee, deferred annuity from non-profit, low-cost, navy mutual aid association that paid 6-7% for many years (now 3%). i also bought whole life insurance from nmaa and carried no short term debt (i.e. lived as well as invested frugally). maybe i could have chased a bit higher return but i wanted calm “fire & forget” investments that i wouldn’t fiddle with because of adverse tax consequences or fret about.

if i were accumulating now i would consider ussb i bonds, a health savings account and any inexpensive, affinity-related, investment opportunities similar to nmaa. not investments per se, but while young and healthy do buy some life, disability and longterm care insurance, while it is cheap.

 

[Doc8404]

If the OP is in a position to contribute the full legal amount to their 401k's, it is unlikely that they would qualify for a Roth IRA.

How so?
I do the max in my 401k.
Then I buy a Roth IRA each year.

Edit. Wait. Probably a traditional.

 

[Wolf359]

I wouldn't say mutual funds or ETFs would be "easy to get the money out". There's the potential of downturn matching you losing income and need the money to pay living expenses "at the wrong time". Sure you can exit the fund or sell stocks very quickly but timing may not be in your favor.

Diversification with rainy day fund is the way to go unless your cost of living is so low (you inherit a home, already on medicare, kids already grown up, etc), you probably need enough rainy day funds outside of the more volatile assets, likely in cash.

Well that was the whole point of investing, it's money that's not need right away and if it's meant for long term savings, then it won't be needed for living expenses. I still have Vanguard Index 500 shares I bought in the 90's. No ETFs back then.

 

[Wolf359]

How so?
I do the max in my 401k.
Then I buy a Roth IRA each year.

Edit. Wait. Probably a traditional.

You basically didn't make enough money to cut yourself off from not being able to contribute to a Roth IRA. Once you max out a 401k and an IRA/Roth, then you just do regular taxable investments. Like real estate which the OP didn't want to get into or mutual funds/ETFs or finally stocks. They all have different degrees of risk and liquidity.

 

[ZeeOSix]

As others mentioned your focused on the wrong thing if you're worried about the amount of taxes you pay every year.

Might be that the OP wants a low risk investment with low fees and no taxes because a tax free investment is like having a taxed investment with more return.

 

[Wolf359]

Might be that the OP wants a low risk investment with low fees and no taxes because a tax free investment is like having a taxed investment with more return.

Right, that's the theory but unless you're a billionaire, usually those investments offer less total return than taxable investments.

Also focusing on low risk while young is typically also the wrong focus, higher risks is appropriate because you have time to recover. Otherwise if you stick to low risk, you just lock yourself into low returns which is an even greater risk than not going for higher risk investments. Low risk in that case would be paying down the mortgage because that basically locks in your rate of return at the interest rate you're paying.

 

[ZeeOSix]

Right, that's the theory but unless you're a billionaire, usually those investments offer less total return than taxable investments.

So what taxable investments are at the same basic risk level as non-taxable investments?

Also focusing on low risk while young is typically also the wrong focus, higher risks is appropriate because you have time to recover. Otherwise if you stick to low risk, you just lock yourself into low returns which is an even greater risk than not going for higher risk investments. Low risk in that case would be paying down the mortgage because that basically locks in your rate of return at the interest rate you're paying.

Some people don't have a tolerance for higher risk investments. They would rather make a smaller return then lose a lot of their investment if things go sideways.

Depending on his mortgage interest rate, and how much principle (and cumulative interest in the payments) he has left, an analysis of an early pay-off would be worth doing to determine how much money he can save in mortgage interest. Then he can start building the nest egg again with the money that use to go to monthly montage payments - If he thinks he wouldn't need that lump of cash anytime soon.

With the way the world events are unfolding right now, I'm not sure what investment would be the lowest risk.

 

[PandaBear]

Depends on your net worth and nested eggs, paying off your mortgage early can dramatically reduce your tax profile as well as your cost of living down the road, so you can tolerate higher risk with the same amount of rainy day fund and capital.

The way I see it someone else lend you the money for mortgage and they are treating the investment with the same investment risk and reward you should look at, just like someone is selling you the stocks you are buying and you should look at it from their perspective as well. Are you trading / financing with them because you know something they don't or you have a different risk profile?

I paid off my mortgage as soon as the SALT cap was introduced by our last president, I would have kept the 3% mortgage around but I might as well pay it off and do standard deduction now that the property tax + state income tax deduction is capped. I probably will focus on capital gain investment in the future rather than dividend based, and try to buy something to pass down to children rather than selling in my lifetime. The reward and cost profile are not the same depending on where you are living.

 

[M56959]

This falls outside of BITOG purview.

The advice to seek professional assistance is most important.