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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August 2017
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In this artificially low interest rate environment, savings accounts, CDs, etc.. do not even keep up with inflation, but I think you have already figured that out.  You can thank the Central Banks including our Fed for this.  You can take the $100k to fund your brokerage account and begin to invest in a combination of stocks & bonds.  

You could use Exchange Traded Funds (ETFs) for easy diversification if you like, or a combination of individual stocks & ETFs.  For the bond portion, I would use bond ETFs for easy diversification & access.  If rates begin to rise in earnest, you could easily exit the ETF whereas individual bonds would be more difficult to exit without the spread widening on you.  At these levels though, I would want a sell discipline or exit strategy just in case the market changes character significantly. Not short term trading but mid to long term technical indicators.for a major reversal.

You are also correct that 529 Plans are not that great due to their limitations.  Roths are very flexible and a good idea.  But by the time the kids get to college, you may find you like the advantages of the Roths & take monies for college out of the taxable brokerage account.  Especially if you keep adding to it incrementally.

Regarding maxing out your 401ks, you do want balance - outside, accessible assets versus long term retirement assets.  A good balance would be 40-60 or somewhere in that range.  This will leave you flexible to invest in other assets classes not normally offered in 401ks.

Hope this helps and best of luck, Dan Stewart CFA®

July 2017
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