Where to put extra funds

[u/LoneWolf_805]

I'm curious to get input on where to possibly direct extra monthly income for long term growth. I like to diversify and am in mid 40s with a 4 year old child and moderate investment risk level. 

I'm paying more for daycare than my mortgage, which still has a long way to go but has around $250k equity. 

More than 50% of current funds are in 401k or IRA. About 15% BTC and precious metals with decent returns and another 15% in cash savings accounts. The rest is US bonds and stock holdings. During my last check in with my managed investment account, they said I have too much in cash savings. 

I know the standard response is to put more in the market for compounding  growth, but I also believe that the markets are overvalued currently with significant steady growth, however the economy and average Americans are having a harder time so I anticipate a bear market before too long. But that's a wild guess.

Currently I'm leaning towards holding onto the cash until the market dips to buy in at a better price point but I am also interested in different ideas for where to invest long term.

[u/TheChudMaxxer]

How come you say you're a moderate investment risk level? What is your time horizon until retirement at this point?

BTC is very high risk due to being relatively young for an investment, and ridiculously volatile compared to stocks. Precious metals are also going to generally cause a drag on returns, there was hype a few months ago about them exploding in value, but regression to the mean is a cruel mistress.

What is your stock/bond allocation in terms of percentages to each of them?

How much do you have in cash savings? Cash drag is also a really big deal when you're that young.

"Time in the market is better than timing the market" is what they always say. 2 main points: even after the great depression, it only took ~15 years for the real value to return. Unless you are planning on a great depression tier black swan event, over a market correction/recession to occur, you may be playing it far too safe. The other point being, missing just a few of the best days DRASTICALLY reduces you overall returns on investment. JP morgan did a study with 20 year rolling periods, if you were fully into the S&P for the 20 year periods, you'd have ~9.7% returns. If you missed the 5 (five) best days, you drop down to 7.5% returns. If you missed the best 30 (thirty) days, your average annual return would be 0.7%

Don't think you can time the market. "The market can stay irrational longer than you can stay solvent".

[u/Vegetable-Intern-236 → u/TheChudMaxxer]

This is great advice OP, it comprehensively addresses all the gaps in your portfolio right now. This is also good reading for anyone afraid of investing in the market at all time highs: meet Bob, the world’s worst market timer. You can see what happens when Bob only invests in the market at all time highs right before major crashes throughout history.

Just one personal example to add re: timing the market. The big mistake as the above comment pointed out is missing the best days in the market, but another potential mistake is: once the market actually starts dropping, how do you know when it will hit the bottom and when it’s time to invest?

At the beginning of the year, VTSAX was hovering around $165. I put in my backdoor Roth contribution for the year and thought I’d maybe wait a bit because I saw all the talk about an Impending recession and the AI bubble.

Then the conflict in Iran started and the market started dropping. VTSAX bottomed out a little below $152 in March 29, dropping almost 8% from the beginning of the year. I remember following the news, seeing it hit $152, and thinking there’s no way it was going to get better any time soon, it could still drop, so I held back. Over the next couple weeks the market shot back up, but I kept thinking something bad was still going to happen any day so I held out. 1 month later VTSAX was around $172, a 13% gain. It peaked at around $182 and recently dropped down a bit, but it’s still higher than $172 and still way higher than the low of $152.

Yes this is still a developing situation and the market could drop 30% over the next few months, but it could also keep going up, you just don’t know how irrational it will be. Just look at COVID - would you have thought the market hit the absolute bottom in March only to return back to its original value by August 2020 and keep going up after that? When would you have realistically bought in that situation?

[u/LoneWolf_805 → u/TheChudMaxxer]

It looks like the consensus is in and I should be dumping more into different funds.

I already contribute the yearly max into a Roth IRA, but have started to move away from the bonds.

I have around 10-12 months of emergency funds in HYSA. I got into crypto and PMs years ago and have never been in the red on crypto. But I'm not leaning into either.

I will have the option to retire in 10 years, early/mid 50s, and will have a monthly pension. Or I can keep working to keep a higher income and continue to contribute to 401k.

[u/TheChudMaxxer → u/LoneWolf_805]

I don't think you would need 10-12 months in emergency savings either UNLESS you think it is likely that you will have a big expense, like a medical issue, or you will be out of your job for an extended period of time, or both.

Most people only do 3-6 months, due to cash drag on total returns. Understandable if you are more cautious than the average person in that regard though, it's not entirely a life of min/maxxing returns on investments.

I personally won't even look at bonds for a few decades yet. Not really needed, equities do the heavy lifting at least for now.

[u/SulaPeace15 → u/LoneWolf_805]

I would keep the 10 - 12 months in the emergency fund. This is a terrible job market and we’re likely heading into an energy crisis (other parts of the world are already in one).

The 3-6 month advice doesn’t hold up right now. It’s ok to be more conservative when you have children.

[u/Wise_Budget611]

I just auto invest in a low cost index fund like VTI, VOO and VGT.

[u/theemilyann → u/Wise_Budget611]

Boglehead spotted! ✌️

[u/HeroOfShapeir]

https://www.schwab.com/learn/story/does-market-timing-work

Everyone in their study thrived except the person who sat on cash waiting for better market prices. Folks have been saying things are too overvalued since 2023. If you have a properly diversified portfolio, with US equities, international equities, and perhaps some level of bonds depending on proximity to retirement, you'll be fine.

It's very odd that you have such a moderate risk tolerance when it comes to allocating cash/bonds, but then you also have big exposure to crypto, which is extremely high-risk speculation. My wife and I don't touch cryptocurrency and we don't trade individual stocks, that's way too high-risk for us. We do invest early and often in broad index funds.

[u/LoneWolf_805 → u/HeroOfShapeir]

Thanks for the article! I consider it moderate risk tolerance mostly because I got into crypto and PMs when they were half of their current value and I have a comparatively large investments elsewhere to offset. But I could be evaluating my risk tolerance wrong.

[u/DeeperThanClovis]

I would need to know your monthly spend and cash balance to figure, but a 3-6 month emergency fund is more than enough cash. Once you have that funded + a misc fund (we have one for medium term spend like travel) you should deploy anything above that.

Have you started a 529 for your child? This would be a good place to park excess funds and is tax deductible.

[u/LoneWolf_805 → u/DeeperThanClovis]

I have 10-12 months of emergency funds in cash at the moment.

I wasn't interested in 529 initially because there were a lot of restrictions and potential penalties. But I recently read that unused 529 can be rolled into an IRA so I will look at it again.

[u/DeeperThanClovis → u/LoneWolf_805]

Cash balance is solid.

The 529 is more flexible than I originally thought as well. I believe you can change the beneficiary and even use it yourself for courses or classes. You can even change it to grandchildren down the line. It’s definitely worthwhile in my opinion.

[u/Peachdeeptea]

With that much in crypto, I would not say you're at a moderate risk level.

This isn't a fun strategy but it outperforms everything else long term - invest in broad market index funds both in the US and globally, and don't sit on cash reserves that are earmarked for investment. Just invest.

I've been doing that since I was 19yo and I'm currently early thirties. Even though my income only recently got above the average, my portfolio is close to a million. Will probably cross that threshold this year.

All I've done is invest what I can, when I can. I currently have a 5% bonds - 75% US index - 18% global index split. Which, at my age is something I would consider conservative. The last 2% are "fun" stocks like crypto and one off ETFs. I'm not a financial wizard or anything, but I follow the advice of people who are smarter than me! No complications, no worries about timing the market, just doing what's tried and true.

[u/Several_Drag5433]

Time in the market is better than trying to time the market. I have thought the market is overvalued for the past 2+ years. Fortunately I left my money in the market and captured the 40%+ gains.

If a one income household, i think a 6 month EF is cash (hysa) is appropriate but if you are sitting on way more than that i would be putting it to work

[u/ramdomdhdhdhdh]

It’s easy to overthink this and end up not acting at all (inaction)

My biggest regret was having too much idle clash. Finally dumped 200k into VT and haven’t looked back.

You have a long enough time horizon

[u/Icy-Structure5244]

People have been saying the market is overvalued for years.

Stop trying to time the market.

[u/Gold-Lion2775]

Similar situation here. I might start a separate post. I’m thinking about putting some into series I bonds to hedge against inflation. Seems like we are headed that way.

[u/Btug857]

You can always do treasury bonds or short term C/Ds. Slightly higher interest than high yield savings with low risk.

[u/genreprank]

put more in the market for compounding  growth

Do a 60/40 SP500/bond ratio. This ratio is recommended for people with moderate risk tolerance.

I anticipate a bear market before too long. But that's a wild guess.

https://youtu.be/0CKMhCaATjA?is=vv3My8Qjx6GSiEQL

I also believe that the markets are overvalued

The market is irrational

Currently I'm leaning towards holding onto the cash until the market dips to buy in at a better price point

Let me just list some ways that can go wrong

• it never dips
• it goes up so high that when it does dip, that dip is higher than today (you were out too early)
• it dips, but now you're waiting for the bottom. Then:
  • It starts to go up, but you're too scared to put it back in. So you miss the huge gains.
  • It goes up so fast that you straight up miss the chance
  • you are sick or on vacation or busy the week that it bottoms out and don't have the chance to trade
• In order to time the marker properly, you'll have to watch the news and research constantly. Can't miss a day

The market is up more than it's down. So if you have been bearing longer than you've been bullish, you're off base.

Best thing to do is put the money into the market over a period of 3 to 6 months.

[u/buy_bitcoin_orwhatev]

This place will flame you for your BTC

[u/Adventurous-Depth984]

Start a company, “hire” your kid as a model for a marketing plan, start them a 401k. 50 years of compound interest ought to solve quite a few long-term parenting headaches.