What're you doing with your money in 2024? (Fixed version)

[farscott]

Similarly, we have our home at 2.25% and her rental condo at 2.7%. We also consolidated down to one vehicle, since my S.O. is fully remote. Along with her moving in with me last year and getting her condo up for rent, consolidating down to one vehicle allowed both of us to max the fedgov limits to our workplace defined contribution plans. This is a huge milestone for us.

Compared to what we thought about last year, we ended up not buying out her car lease's residual value in cash but instead took out a loan, regardless of the fact we could buy it in cash. We figured that since she's a contractor in IT and is now a landlord....and my income as a federal employee seems to be much more volatile with government shutdowns looming every other month....then we should maintain a much larger emergency fund than we normally would, enough to float us several months if we both went without pay and lost the renters. With that said, the car loan is around 7% interest, so she's paying it down within a year and I'm continuing to save into a HYSA to eventually buy the next car in cash.

Like last year, I still don't have the attention span for staggered/layered CDs and T-bills.

When you say you have the mortgage paid two months ahead...do you just have two months-worth sitting in an escrow or no? If the latter, how did you get them to keep it as two months advance payment instead of applying it to principle/interest?

BTW, I apologize I haven't gotten that 380 magazine out to you, yet. I've been travelling a lot over the last few months. Just got back from Africa and am leaving again this weekend. I'm hoping I'll be able to get it out this week.

On paying the mortgage ahead, I just paid two additional payments right after the mortgage was originated that were applied to principal and interest. So the payment that will be made on 01-FEB is the payment due on 01-APR. That is how it shows on the lender's website. I do not have an escrow account; that is the reason for the six-month T-Bills for taxes and insurance.

No worries on the magazine. Having a very small sense of your work, I figured you were probably somewhere well away from home.

[TGS]

Preparing for a recession seems to work out pretty decently even if there's no recession, or at least not the forecasted one. Yet? Maybe? No clue.

How do we best advantage ourselves for a bubble burst in the credit card industry? I'm not a financial guy but with the staggering levels of credit card debt at what they are and continuing to rise, it seems like an obvious place where something is going to correct itself in a pretty severe manner.

My S.O. came here with nothing but the clothes on her back. When she was a most-backwards caste kid growing up in India, her family was even homeless for a while when her father fell ill. So, she had a bit of a panic a few weeks ago when she looked at her 401k being pretty low. Gave her the whole, "The windshield is bigger than the rearview mirror for a reason" speech, and then had her look at the average per household and per capita consumer debt in America.

That's when she was finally convinced that she's not behind the curve at all, and actually quite far ahead of most Americans that started off with huge advantages. The current consumer debt is just absolutely jaw dropping.

[GJM]

I think the poll should be what you are planning to do for the next month or two, as opposed to the whole year, because there are so many potential significant world events going on, it could change your decision making!

5+ percent for CD's/T Bills seems amazing, until you reflect on the fact that the S&P 500 was up about 25 percent in 2023. If forced to pick for the year, I would say 50/50 exposure to cash equivalents like T bills and US equities is not unreasonable.

[MickAK]

How do we best advantage ourselves for a bubble burst in the credit card industry? I'm not a financial guy but with the staggering levels of credit card debt at what they are and continuing to rise, it seems like an obvious place where something is going to correct itself in a pretty severe manner.

I wouldn't have any idea. The card industry itself is pretty secured with their delinquency coverage. You could take out short positions in industry sectors that are only continuing because people are willing to bury themselves in debt but I've always viewed those positions as not amateur hour friendly to say the least.

You can make some pretty decent returns crowdfunding stuff like Prosper or similar personal loans with a mix of high interest high default risk and low interest low default risk but that's time intensive and can bite you in the ass. I've made some money doing it but I don't like investing in other peoples misery. I've found even if it don't math out if you like how you're investing you'll feel better about it, and there are enough things to stress out about.

[farscott]

I am in the camp that for every economic action, the pendulum swings back just as hard the other way. We have had unprecedented levels of liquidity and low interest rates during the COVID pandemic. The "swing the other way" means lending will eventually have to tighten. I fully expect things like limits for credit cards being slashed, tougher lending standards, and higher rates. Starting to see some of it, and it will lead to difficulty.

None of that bodes well for my employment, so I fully expect to lose my job in the next two years. As such, we are squirreling away as much as we can, opened up a few more credit accounts to keep the total credit high and utilization low, and cutting spending where we can.

[TGS]

I think the poll should be what you are planning to do for the next month or two, as opposed to the whole year, because there are so many potential significant world events going on, it could change your decision making!

No kidding. Don't overthink it. This thread is not a legally binding obligation on monetary allocations for the next 12 months.

It's a new year. It's just to get people talking about how they're going into the year with their goals, plans, and how products/vehicles have changed.

[GJM]

No kidding. Don't overthink it. This thread is not a legally binding obligation on monetary allocations for the next 12 months.

It's a new year. It's just to get people talking about how they're going into the year with their goals, plans, and how products/vehicles have changed.

I would never have guessed how 2023 turned out -- S&P up 25 percent, inflation starting to recede in Nov/Dec, and no recession. Am very curious how 2024 turns out!

[JCS]

Other.

Bitcoin.

[BehindBlueI's]

Other: Scrooge McDucking into it.

Honestly, nothing different. I'm still looking at a 7-10 year time line for retirement, so I'm just keeping on keeping on.

[0ddl0t]

The nominal return of CDs sounds impressive, but I don't like the after tax real rate of return. I'd pay an effective rate of ~20% state & federal taxes which eats 1.1% off the top of that 5.5% CD. After 3.4% inflation I'd therefore expect a real after tax rate of return of only ~1%. If I invested $50,000 I'd expect to gain just ~$500 after a year. On the plus side, I wouldn't have to do a thing aside from the initial deposit and my only real risk is if inflation exceeds 4.4%...

What I did last year and will probably do again is build an Accessory Dwelling Unit (ADU) on an existing rental property. A $200,000 ADU will comfortably rent for $2,000/mo or $24,000/year which becomes ~$15,000/year after deducting for anticipated vacancy rates ($1200), additional property taxes ($2,000), insurance ($1,000), maintenance ($2,500), and property management ($2,000). That's an 7.5% return before taxes. Because of corrupt tax loopholes, on top of my legitimate expenses I also get to deduct $7,000/year in depreciation even though virtually all residential real estate holds its value (or even appreciates). So I pay ~20% taxes on only $8,000 of the income ($1,600) for an after tax return of $13,400 or 6.7%. On the downside, I have considerably more risk (mostly month to month expense volatility) and even though I use a general contractor & property management, I still have to spend a few hours here and there.

Since I don't have $200k in cash to invest, I'd be looking to finance $150k of it at ~7.5% ($12,600/y). So a $50k investment would then return $2,400 after expenses and because of that $7,000 depreciation deduction I'd pay zero income taxes for a 4.8% cash on cash return. But I'd also pay off an average of $5,000/year over the course of a 30 year loan* which works out to an annual return of 14.8%. That's why debt that more than pays for itself is called leverage and can be addicting. To avoid over extending myself, I don't take on additional leverage unless I can withstand 6 months of zero revenue AND continue to make payments indefinitely if I were to have a sustained 50% vacancy rate. For many years this seemed overkill, but it sure helped me sleep at night with growing delinquencies and the eviction moratoriums during covid...

Cliff notes:

CD should earn ~1% real rate after taxes
100% cash ADU should earn ~6.7% after taxes (and because rents go up it should roughly maintain that with inflation)
75% financed ADU should earn ~14.8% after taxes with significant, but manageable, risk


*Because you mostly pay interest at the beginning of a mortgage your principal wouldn't actually decline $5,000 the first few years, but over the life of the loan that is what you would average