Advice on future investments

[brdsl]

I need some advice on investing for retirement, and overall wealth building.

Here is the skinny.
Age: 31

I have about 2k extra per month income
2 rental properties. both paid off.
Sufficient EF. Too big. 70% of net worth
I Max. Roth contrib.
Have a 403b option. Was contrib, no longer.
Mortgage 100k @5% 30 yrs. Just got yesterday
Pension

Two questions.

1) The 403b only has two options...managed funds (Edward Jones is the advisor, no other options...used to have Vanguard as option...no longer thanks to gov. regs) Or an annuity.

Would you contribute to the 403b, even with the fees?

2) How would you invest the extra income?

Thanks

[Savoir Faire-Demogague in NJ]

Looks like you are holding way too much cash.

I am curious though with two pieces of real estate, you say your cash holdings are 70% of your net worth? What are the numbers.
Just guessing that your rentals are worth maybe $300,000 combined??? That would mean you are holding $700,000 in cash.

What is offered in your 403B plan?

[sunuva]

I would say to avoid going the annuity road. However, what may be the particulars of the annuity that your company would be providing that as an option? I'm guessing it involves a long-term position with the company - and that is something I would attribute as high risk - both from you leaving and from the company making you leave. But that's only a guess.

[qofcc]

I'm curious why you would choose to own your investment properties mortgage free, while mortgaging your personal residence? That seems backward from a tax management and risk management standpoint even if the personal mortgage was at a slightly lower interest rate.

Are you looking to acquire more rental property or are you at the limit that you feel you can manage?

[2kids10horses]

How do you like being a landlord? If that is working out for you, and you like it, there is noting wrong with having more rentals.

I own about 10 rentals, free and clear, that I live off of. Anything other investing I do is gravy.

Max out the 403b, choose the best of the managed funds you can. Use Morningstar to help you decide.

There is nothing wrong with having a taxible investment account! Sure, it's nice to have your wealth grow tax free, but if you have to pay taxes, it means you're making money with your money, and that's not a bad thing.

I keep very little in cash, my emergency fund is invested in stocks. Could that mean that I might have to sell some stocks when they are down? Yes. I also have a Home Equity Line of Credit that I can use for a temporary source of funds if I need it.

I'll probably get flamed for this, but I think that once you have substantial financial assets in place, the need for a cash or cash equivalent emergency fund is diminished.

If I were to need cash, I could: draw on my equity line, sell some stocks, take out a mortgage on one or more of my rentals. Otherwise, I'd prefer to have my cash stay invested.

[brdsl]

SF - I agree, too much cash. I live in the midwest, houses are a lot cheaper. When you want to retire, you won't even have to move out of the country for cheaper living...just move to the midwest.

Offered in the plan...funds like American, Templeton, etc. Managed, loaded with fees, plus you have to pay Edward Jones to manage the 403b reporting.

sunuva - I agree with not going with the annuity.

qofcc - The first rental was a foreclosure. I didn't have proper financing setup through the bank, but the deal was too good to pass up. So, I paid cash. The second rental is my old residence. I bought it off an elderly individual, that needed the cash....it too was cheap.

Not the ideal situation, but I find life never comes to me in the perfect setup. I figured I could always take the cash out if needed later.

Oh yeah. The personal residence why a loan? I am looking to move my cash into investments instead of savings. The hope is to get a greater return on my money than (5% - mortgage deduction)...probably around 3.xx%

2kids - I don't mind the landlord part. The competition is getting stiff around here, and guys are overpaying. I always look for a steal. The overall goal is 30 units. One rent check for each day of the month.

I can't stay fully cash free....maybe later in life, but I am a little risk adverse still. Working on it though. 10 years ago, I thought saving to a million would get me there...ha ha

[qofcc]

I always look for a steal. The overall goal is 30 units.

If that's your goal, then don't look at the cash as too big of an emergency fund, look at it as funds kept liquid for investing.

[azphx1972]

I agree that, at 31 years of age, having 70% of your NW in cash is a bit much. If you enjoy landlording, now is a good time to buy if you can find some good deals. If not, check out some tax efficient Vanguard mutual funds or index funds with low expense ratios. As for the 403b, I'd also max it out if you can, unless the fees are absolutely ridiculous. Also make sure you have sufficient insurance coverage, an umbrella policy for 2-3 million should be pretty cheap. Other than that, it looks like you're doing great. Keep up the good work!

[brdsl]

If I invest through the 403b, at what % would the fees be too expensive?

There is no company contribution.

[azphx1972]

I would say anything over 1% could probably be considered excessive (especially if there's no match), and at that point I'd seriously contemplate investing in tax efficient Vanguard mutual funds (or ETFs) outside of your retirement accounts (after maxing out your ROTH IRA of course). If you do go that route, you may find this link to be of interest: money.cnn.com/2010/06/21/pf/mutual_funds.moneymag/index.htm

[brdsl]

az - thanks for the link. I am thinking keeping half of savings for RE, half in non-retirement investing accounts.

The 403b option was over 1%. I thought it was high....but I am used to Vanguard.

[azphx1972]

Holy cow, I've been spoiled by my 401k plan and Vanguard's fees too. The average expense ratio is apparently in the neighborhood of 1.5%.

www.ehow.com/info_7961169_average-expense-ratio-mutual-funds.html

And here I thought I was paying too much before converting my Vanguard mutual fund regular shares to admiral shares, which reduced my expense ratio from 0.32% to 0.20%.