Where should I invest some extra cash?

My wife and I have some accumulated cash (about $100,000) sitting in a very low interest rate savings account at a local credit union. We to put that money to work, and we are interested in investing it for the future - retirement, kid's education, etc. We both have 401(k) plans sponsored by our employers, and we are not currently "maxing out" our contributions. Also, we are planning on setting up a Roth IRA and a regular brokerage account. The Roth IRA will be used as a savings vehicle for when our kid goes to college in 15 years. Not so much interested in the 529 Plan. Does this sound like a good strategy, or are there other investments that we should be considering to help our money grow?

Financial Planning, 401(k), Asset Allocation
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July 2017
58% of people found this answer helpful

It is great you are thinking about the future and you are asking a good question.  When thinking about growing your assets, you have to consider the risk tolerance you have for the capital you are allocating.  With respect to the specific vehicles you mentioned, a Roth IRA is a great one because your assets grow tax free, versus a traditional (Regular IRA) one which grows tax deferred.  On the issue of 401K plans, it is usually a very good idea to max out your contributions, especially if you get a matching contribution from your employer.  Of course, that also depends on your tax situation.  Regarding the kinds of investments you should be considering, typically stocks (equities) have the highest returns over any kind of long time frame.  A low cost way to obtain the market return is to invest in indexes, there are plenty of funds which offer indexes like the S&P 500 or Dow or Nasdaq with minimal fees.  From a diversification standpoint, you probably want to spread your capital out with exposure to various asset classes.  A good rule of thumb is the younger you are, the more exposure to equities you want, and as you get older, the more you lower that exposure.  So at 20, you might be looking at 80-90% in stocks, the rest in cash and bonds.  As you move to 50, split it half and half.  Other asset classes to look at would be emerging market equities, emerging market bonds, corporate bonds, real estate (real estate investment trusts), small business loans, small business equity, venture capital, hedge funds, or some form of private equity.  You can get exposure to these other asset classes with a little research into each area.  I hope this helped answer your question.  

 

Yale Bock, CFA

President, Y H & C Investments

July 2017
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