Investment/Debt Related Questions

[Tri-CitiesVol]

After saving up during the covid student loan forbearance, we are ready to write a fat check once the Supreme Court makes their ruling and payments resume. With student loan debt paid off, that will just leave the mortgage (4.5%) and car loan (2.5%.) It has us thinking where our money would be better served, doubling up on loan payments or redirecting funds towards a side hustle.

I think I’m pretty well set for retirement, so ideally I’d like to start generating some passive income that we can use as travel or Vols season ticket money. Any tips for entering the rental property game? Any one with experience franchising businesses? Anyone here buy up property or mineral rights?

30 years old. Married to a target/amazon addict with a little one for context.

 

[Jax_Vol]

After saving up during the covid student loan forbearance, we are ready to write a fat check once the Supreme Court makes their ruling and payments resume. With student loan debt paid off, that will just leave the mortgage (4.5%) and car loan (2.5%.) It has us thinking where our money would be better served, doubling up on loan payments or redirecting funds towards a side hustle.

I think I’m pretty well set for retirement, so ideally I’d like to start generating some passive income that we can use as travel or Vols season ticket money. Any tips for entering the rental property game? Any one with experience franchising businesses? Anyone here buy up property or mineral rights?

30 years old. Married to a target/amazon addict with a little one for context.

Can you itemize on tax return? And, still deduct the house loan? I have had a loan in over a decade.

Traditionally, u pay off car loan. But, 2.5% is hard to beat.

Lakefront property is great investment. Are you making yearly ROTH contribuions? Exposure to stock market thru some index funds with a big name, safe investment company like a Vanguard, FiIdelity, type company?

If you are set for retirement at age 30, assuming you inherited a fortune?

 

[Thunder Good-Oil]

If the 2.5% car loan is fixed and the rate will never go up, DO NOT PAY IT OFF EARLY.

Same with the 4.5% mortgage. If it is a fixed rate then keep it. You can easily invest that money at a higher rate. Although, there is a tax calculation to consider. Your marginal tax rate and whether or not you are taking the standard deduction or itemizing are the key considerations.

As far as investing, there are two questions. The second is what to invest in. Index tracking and/or total market and/ or dividend generating ETFs are good ideas. But the primary, and most important thing, is to put the maximum amount that you can into a ROTH IRA and also put all that you can into a 401(k) (or similar defined contribution plan if you are government worker(s)) at least up to the amount that will be matched by the employer. If you have, or plan to have, kids then the tax advantaged, education savings plans should be taken advantage of as well.

If you want to seek advice on specific investments there is an all things stocks thread in The Pub that kicks that question around regularly.

Again - put every last penny that you can into a ROTH IRA and take advantage of the employer match on their defined contribution plans.

 

[95 Vol Alum]

Set for retirement at 30 seems like a stretch, Newt. What are you basing that on?

 

[Tri-CitiesVol]

I just meant I’ll have a double pension and double TSP (gov version of 401k.) I think the pensions will be enough that I shouldn’t have to take much out of my TSPs.

Wife has an IRA she contributes to and we both have acorns that estimates we’ll both have a couple hundred grand by 60. Will go back and read the replies on my next break. I appreciate the advice so far.

 

[Go aeiou]

Too simplified.
You don't know what life has in store for you. Personally and financially.
OTOH, all work and no play------ so enjoy life.

 

[McDad]

After saving up during the covid student loan forbearance, we are ready to write a fat check once the Supreme Court makes their ruling and payments resume. With student loan debt paid off, that will just leave the mortgage (4.5%) and car loan (2.5%.) It has us thinking where our money would be better served, doubling up on loan payments or redirecting funds towards a side hustle.

I think I’m pretty well set for retirement, so ideally I’d like to start generating some passive income that we can use as travel or Vols season ticket money. Any tips for entering the rental property game? Any one with experience franchising businesses? Anyone here buy up property or mineral rights?

30 years old. Married to a target/amazon addict with a little one for context.

First of all, this advice x 100:

If the 2.5% car loan is fixed and the rate will never go up, DO NOT PAY IT OFF EARLY.

Same with the 4.5% mortgage. If it is a fixed rate then keep it. You can easily invest that money at a higher rate.

Secondly, I find it challenging to find investment property which meets my criteria right now. Prices and interest rates are high. If you are new to that business, find someone local to guide and mentor you.

Thirdly, passive income is rarely completely passive. An important consideration is how much time you have to work on your side hustle. Also, you would be smart to do something you're already familiar with or really interested in.

 

[BearCat204]

Set for retirement at 30 seems like a stretch, Newt. What are you basing that on?

Did I miss something?

 

[95 Vol Alum]

Did I miss something?

He’s Newt reincarnate.

 

[BearCat204]

He’s Newt reincarnate.

I never put the two together.

 

[Tri-CitiesVol]

Can you itemize on tax return? And, still deduct the house loan? I have had a loan in over a decade.

Traditionally, u pay off car loan. But, 2.5% is hard to beat.

Lakefront property is great investment. Are you making yearly ROTH contribuions? Exposure to stock market thru some index funds with a big name, safe investment company like a Vanguard, FiIdelity, type company?

If you are set for retirement at age 30, assuming you inherited a fortune?

We are able to deduct a portion of the home and home related expenses due to wife’s LLC. Maxing out civilian TSP and I put 90% of my military earnings in the other. No fortune, just lucky enough that I’ll have a couple pensions should I stay healthy enough to complete my careers.

 

[Tri-CitiesVol]

First of all, this advice x 100:


Secondly, I find it challenging to find investment property which meets my criteria right now. Prices and interest rates are high. If you are new to that business, find someone local to guide and mentor you.

Thirdly, passive income is rarely completely passive. An important consideration is how much time you have to work on your side hustle. Also, you would be smart to do something you're already familiar with or really interested in.

Definitely don’t have much time available. If you have rental properties, do you take care of them yourself or have a management company?

 

[Tri-CitiesVol]

If the 2.5% car loan is fixed and the rate will never go up, DO NOT PAY IT OFF EARLY.

Same with the 4.5% mortgage. If it is a fixed rate then keep it. You can easily invest that money at a higher rate. Although, there is a tax calculation to consider. Your marginal tax rate and whether or not you are taking the standard deduction or itemizing are the key considerations.

As far as investing, there are two questions. The second is what to invest in. Index tracking and/or total market and/ or dividend generating ETFs are good ideas. But the primary, and most important thing, is to put the maximum amount that you can into a ROTH IRA and also put all that you can into a 401(k) (or similar defined contribution plan if you are government worker(s)) at least up to the amount that will be matched by the employer. If you have, or plan to have, kids then the tax advantaged, education savings plans should be taken advantage of as well.

If you want to seek advice on specific investments there is an all things stocks thread in The Pub that kicks that question around regularly.

Again - put every last penny that you can into a ROTH IRA and take advantage of the employer match on their defined contribution plans.

So returns>4.5%+tax paid on the profits? Or does my profit just get lumped into annual income? Any easy way to calculate what I’d have to make to make investing to negate the interest accruing on home.

 

[McDad]

Definitely don’t have much time available. If you have rental properties, do you take care of them yourself or have a management company?

Both, now. When I started I did most everything (screening, leases, light repairs) myself. I grew up in that business though. Now, I have someone do my screening and leases. And another person do my repair and remodeling.

If you don't have a lot of free time, I would not recommend residential leasing. You want something as "hands off" as possible and something you're in complete control of how much it demands your time each week.

 

[Thunder Good-Oil]

So returns>4.5%+tax paid on the profits? Or does my profit just get lumped into annual income? Any easy way to calculate what I’d have to make to make investing to negate the interest accruing on home.

The 4.5% mortgage is currently a tweener. At the current interest rates, it’s best to hang on to it. At least for a while. It’s well under market right now. If you do not itemize taxes then using your marginal tax rate (not the overall tax rate) you’ll need to do a bit better than 4.5% to break even. Right now, you probably shouldn’t pay it down (unless you have absolutely no idea where you want to invest idle cash). Once the Federal Reserve starts lowering rates, then look at it more closely.

Comparing to margin interest paid on investment accounts, 4.5% is currently a very good rate. You wouldn’t want to pay down 4.5% and then turn around and pay a broker 8% to borrow inside of an investment account. Speaking of margin on investments, don’t use it unless it is a very small amount. Margin calls are extremely disruptive.

Back to a number, IF YOU ITEMIZE YOUR PERSONAL RETURN (you’d need about $25,000 of itemized expenses to exceed the standard deduction), then I think that you reduce your MARGINAL tax rate by that percentage of the 4.5%. For instance, if you pay 20% income tax on each additional dollar earned, then the cost of your 4.5% loan is actually 4.5% x 80% (3.6%). Conversely, if you DO NOT ITEMIZE, then you need to make 4.5% PLUS a similar formula using your marginal tax rate to break even on investments using that extra cash. Say 4.5% plus the 20% (5.4%).

What it comes down to is what you can stomach and what a typical investment returns. Historically just the S & P 500 index will return about 10% plus.

S&P 500 Average Return

 

[Thunder Good-Oil]

Again, put the MAXIMUM ALLOWED into a Roth IRA. Even with very conservative investments the returns over 3 or 4 decades will be amazing.

Talk to the people at Charles Schwab. They can fill in a lot of your unknowns. Fidelity or Vanguard can as well. But IMO Schwab is the best. Don’t bother with Ameritrade as they will soon be fully integrated with their owner (Charles Schwab). E-trade is another option. They are owned by Morgan-Stanley and can add more sophisticated services as you get rich.

Stay away from the newbies that cater to small, high frequency trading accounts (RobinHood for one).

 

[BigOrangeMojo]

How much are the car notes? 2.5% is a great rate but it's really hard to save long term if it's on a $50-60K automobile. If you are paying $700-$900 a month for a car (no matter the interest rate), you are losing out on a lot of market appreciation.

Will echo the thoughts on Roth IRA. First two choices should be contributing up to employer's match in a 401k(or equivalent) and then maxing out Roth....

 

[Tri-CitiesVol]

How much are the car notes? 2.5% is a great rate but it's really hard to save long term if it's on a $50-60K automobile. If you are paying $700-$900 a month for a car (no matter the interest rate), you are losing out on a lot of market appreciation.

Will echo the thoughts on Roth IRA. First two choices should be contributing up to employer's match in a 401k(or equivalent) and then maxing out Roth....

35k left on the car. Just have had it a year or so.

I am maxing out my TSP. Looking more for ways to generate income now.

 

[mrorange211]

Get the hell out of ACORNS. Ther are taking most of your margin dude. That convenience ain't free.

 

[Thunder Good-Oil]

35k left on the car. Just have had it a year or so.

I am maxing out my TSP. Looking more for ways to generate income now.

Drive the car until the wheels fall off. Pay somebody to put them back on and drive it until they fall off again.

 

[Tri-CitiesVol]

Get the hell out of ACORNS. Ther are taking most of your margin dude. That convenience ain't free.

$3/month? I make that back each month with their bonus investments alone.

 

[Tri-CitiesVol]

Drive the car until the wheels fall off. Pay somebody to put them back on and drive it until they fall off again.

That’s the plan. Unfortunately it’s the wife’s work car, so the wheels are going to fall off much sooner than I’d like.

 

[mrorange211]

$3/month? I make that back each month with their bonus investments alone.

Sure, that's the member fee, but you need to check out the fund expense ratio. Most funds are 0.03 percent - 0.25 percent, but Bitcoin fund will cost 0.95 percent. That's your money, and the more you continue to put in, the more they will take. I understand the service, but you could do it independently and keep that money. By 65, that percentage is more $$$ than you think.

 

[JFreak]

I just meant I’ll have a double pension and double TSP (gov version of 401k.) I think the pensions will be enough that I shouldn’t have to take much out of my TSPs.

Wife has an IRA she contributes to and we both have acorns that estimates we’ll both have a couple hundred grand by 60. Will go back and read the replies on my next break. I appreciate the advice so far.

A lot of people are shocked when they find out their pension actually doesn't go that far. Taxes and healthcare (even TRICARE) will take out a good portion. Put your numbers into a pension calculator and see what the true value of your pension will be. Take that sum and add to your projected savings. I would say should have at least 2 million to live comfortably after 60 assuming your house is paid off. Inflation is generally predictable but obviously goes thru phases as well and is an important consideration.

For passive income strongly recommend stock market. Set it in SPY or something similar and never worry about it. No need to get fancy.

 

[Tri-CitiesVol]

All my contributions are Roth right now, but I read something in the past that there was an advantage of cycling them to traditional as I get closer to retirement age. Can anyone explain what the benefit to that is?