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Risk Now or Risk Later?

Started by sarrettblack, June 13, 2019, 11:48:46 AM

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Hi All! 

I currently have ~$200k in savings.  In 5ish years, I will be receiving ~$400k.  My question is whether I should be aggressive with my investments now or later.  I have a mortgage and student loan debt, as well as a 401k and IRA.  One one hand I could take some calculated risks with the $200k now and the $400k could act as a safety net of sorts.  On the other hand, I could use a more traditional investment approach now in order to develop a stronger financial foundation and takes some risks with $400k down the road.  Any thoughts or advice?  Is one approach more preferable than the other or does it just depend on the individual?


How old are you and what do you want to accomplish? If you can make $400k on your own, I would be willing to take a lot of risk if you have no debt and can continue to make this type of money.



I am 30 years old and want to get to a point where I can live off passive income.  The $200k and $400k was/will be a part of an inheritance (trust).  I have a ~$160k mortgage and ~$60k in student loans.


I'd pay off the mortgage and student loans immediately using the $200k (come up with the extra $20k in savings and get them gone).  Then use all the money you are saving and aggressively invest every month.  This is your "make life easy" card.  Check your food and entertainment spending, too. Are you blowing cash on a car payment?  Get all that in order, lower your expenses, eliminate the debt with the inheritance, and then STASH like crazy.  No new debt.  No car payments, no nonsense.

Why do I recommend this?  Because getting your expenses under control is the easiest way to work towards living off passive income.  Whack all your debt, become exceptional with your spending, and over the next 5 years put away as much as you can in a low cost index fund like VTSAX.  Make a game out of saving money.  Every extra dollar you can.  Invest it. When you get the other $400k, drop it in the same fund.  Likely at this point, you may very well have enough money, no debt, and the skills needed to live off the income passively.

And for the time being, no debt burden and a high cash flow is a VERY nice, relaxing way to live.  Ask me how I know...

I would not be very aggressive investor right now, as the markets are so up. But monthly investing to dividend stocks and P2P-lending would be my advice if you want to generate nice passive income. Time and asset diversification is the key.

I invest the same amount to low-cost index funds every month, although now I am taking things little bit more carefully since we are maybe at the peak of the bull run. There is no stress about timing the markets right when you invest the same sum every month.
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Don Bateman

I would likely pay off the student loan from the 200k. It is probably over 6% interest. That's high. The mortgage I may leave alone. Rates should be dropping again this year and if you haven't refinanced in the 3s yet, you will probably have the ability to later. As long as cash flow isn't a problem just pay the mortgage. If someone gave me 30 years to pay back 160k in the 3s I would do it. Also, if you have plenty of cash flow just increase your mortgage payments so help save on interest. I would invest the money you have in some cost effective/tax efficient etfs/mutual funds. At your age taking advantage of compounding interest is huge.

Money Ronin

Risk now--while you're young.

I could tell you where I think the stock market or real estate market is headed but I'm terrible at market timing; yet I'm a fairly successful investor.  Timing the market is just not that important when you are young and will have a lifetime to even out the ups and downs.  I'm a big believer of dollar cost averaging.  Here is my advice assuming you make a good income, can save a portion of your income, and you don't need to touch the money for 5 or more years:

1. Dollar cost average: Invest a steady amount of your savings and inheritance each month into a handful of ETFs or mutual funds.  You can find recommended low expense portfolios all over the Internet.  You're not a robot so buy a little more on days the stock market tanks.
2. Be aggressive: As long as you are in quality and well-diversified stocks, underweight bonds.  My portfolio has typically had only 0% to 10% bonds vs. stocks.  I don't care about volatility because I don't need the money; I'm investing for the long-term.
3. Pay off high interest debt: For example, credit card debt that has an interest rate of 10% or higher.  Probably pay off the student debt that's around 6%.  Do NOT pay off your mortgage which should be around 3.5% for a 30 year and even lower for an ARM; the interest is tax deductible making the effective interest rate even lower.  If, over the long-term, you can't get a return better than your mortgage interest rate, then you're just not doing it right.  Seek professional advice.
4. Real estate:  You can buy a REIT, a real estate ETF, or Crowd funding.  But if you really want high risk/reward, then invest directly in real estate.  The returns have by far beat the stock market for me, but it takes practice and experience.


I agree with those saying try paying off student loans and taking more risk now than later. How much risk is such a personal decision though.