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Have maxed out retirement savings and have some cash on hand. Do I use my brokerage account?

Personal Finance & Money Asked on May 28, 2021

I have a few Fidelity accounts including a 401k, a Roth IRA, and a brokerage account.

My brokerage account is empty right now because I sold some Yahoo shares quite some time ago and moved that money out of that account – that was a long time ago. I haven’t really invested in stocks in this account so it remains with a very low balance.

My 401k I fund 20% of my check and have around 750k. My Roth contributions for the year are maxed out (I am allowed 6k per year) and have around 50k here. As far as emergency savings I have a good amount here as well enough to cover 2-3 years of expenses. I have 0 debt except for my house payment which I owe 1700 dollars a month with a remaining balance of 180k.

I’d like to take some of my savings and possibly hope to make some gains on it. Is it reasonable to use my fidelity brokerage account and invest in say a mutual fund I like FBCGX or a freedom blend like FHAPX. I’m 41 and don’t plan to retire until I am 60 so I don’t mind risk. I am thinking to invest around 50k and do not need this money for at least 8-10 years. Is this a sound plan?

2 Answers

Nobody can say with certainty that you'll be better off exposing your savings to market risk than collecting less than 1% interest in a savings account.

That said, your plan to invest via brokerage account aligns with many popular investment priority lists.

Many such lists are something like:

  • 401k to employer match
  • HSA to max
  • Repay high interest debt
  • IRA/Roth IRA to max
  • 401k to max
  • Repay medium interest debt
  • Non-retirement brokerage account investing
  • Repay low interest debt

It's not a one-size fits all list and there are plenty of variations. You have to decide what your priorities and goals are, but if you have only low interest debt and have maxed out your tax-advantaged retirement accounts then investing via brokerage account makes sense.

You could focus on paying off home debt faster if you feel better about guaranteed returns, but historically that money would be better used if exposed to some market risk. As far as balancing portfolio risk goes, make sure you're assessing across all the accounts. Similarly you could look for alternative investments like real-estate or starting a side business.

Correct answer by Hart CO on May 28, 2021

The fact is if you pay off the home completely, that is "just like" earning whatever percentage you are paying on the mortgage.

Let's say that is 4%.

With your amazing track record, it sounds like it will only take a year or three to do that.

Over just 2-3 years do you really think you can do better than that tidy and comfortable 4% ?

I say in this situation, in today's market, first utterly pay off the mortgage.

When that is done in a few years, have another go at figuring out how the heck to get any investment returns, in our era's era-of-no-returns.

Answered by Fattie on May 28, 2021

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