Jake wants investment cash flow until he’s eligible for his military pension in 10 years. Should he buy small multifamily properties right now, wait a few years and invest in syndications or should he invest in index funds through taxable accounts?
Andy in Palm Springs is shoveling money into a taxable brokerage account. He wants to use these investments to create another stream of income. But there’s a problem: his tax bill is going to be high. What should he do?
Anonymous is a U.S. citizen, lives in London, and can’t invest in index funds. Can he emulate the index fund experience by directly buying a huge number of individual stocks?
Former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode.
P.S. Got a question? Leave it here.
Jake asks (at 02:20 minutes)
My wife and I, ages 29 and 30, have approximately $500,000 in index funds: $300,000 is in retirement accounts and $200,000 in a taxable brokerage account. We do not have any debt nor do we own any real estate. We live in California and make about $175,000 combined.
I’m in the military and have about 10 years left until I’m eligible for the pension. My wife is a nurse.
When we move to another state, I also expect our income to decrease. Based on an 8 percent return and our current savings rate – about $90,000 to $100,000 annually – I expect to cross the million dollar mark in about four years.
I’ve been interested in real estate to diversify and add cash flow to my portfolio. I’m in the education phase and am considering investing in small multifamily properties now or waiting until I’m an accredited investor to invest in syndications.
If we do neither and continue investing in index funds, we will be fine before I exit the military. This is the ultimate goal as long as I access any necessary funds.
I know that all three options will get me there and that none of them are wrong – just looking for guidance through this process.
Do I start buying rental properties now, do I wait a few years and invest in syndications or do I keep throwing everything into index funds?
For the last option, at what point do I stop contributing to retirement accounts and only use taxable accounts so that the funds are easily accessible?
Is there a good way to calculate a safe withdrawal rate for the taxable account with a timeline for 20 years to cover the gap to 59 ½ vs. the typical 30 used by the 4% rule?
Andy asks (at 14:53 minutes):
I’m maxing out my tax-advantaged accounts, and I still have extra to invest. I want to build the balance in my taxable brokerage account, and eventually use this as a stream of income.
Here’s the problem: the types of investments that offer a nice stream of income are often tax-inefficient.
I’m wondering if tax-inefficient funds, like bond funds, high-dividend equity funds or even REIT’s could ever be a good fit in a taxable account.
I’m looking for a supplemental income stream, so … should I just accept the tax hit?
OR – would it be smarter to hold tax-efficient funds in my taxable account? If I did this, and I wanted to use those investments as an income stream, I’d have to occasionally sell off assets as they appreciate and qualify for long-term capital gains. Is this a good plan?
Anonymous asks (at 33:40 minutes)
I’m a US citizen, living and working in London. I’m a pretty high earner.
Outside of maxing out my 401k each year, my savings are mostly sitting in a bank account and I don’t know what to do with it.
I would like to invest in index funds but the UK and US tax laws make it functionally impossible to invest in index funds, hedge funds, or any bundle of securities. I’m not sure exactly when I’ll move back to the US so I’m not comfortable purchasing real estate.
The best option for my situation seems to be investing in individual stocks. I know this is risky but I also know that I can reduce the risk by diversifying by, for example, investing equally in the top 25 or 50 stocks in the S&P 500.
Does this sound like a good move? Are there any other investment opportunities for my situation?
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