Well, lucky us, we had some extra money this year to invest. There were a few things Karen and I had to consider which included:
- Interest rates for savings accounts are not keeping up with inflation.
- We already have a rainy day fund at the local credit union. Earning piss poor interest.
- We wanted to offset some of the taxes on our income this year.
- We do not have enough tax deductions for the past two years. This causes us to file taxes using the standard deductions. We still use a CPA firm for taxes.
- Did we want to have access to the money in the short term?
- What might the economy look like in the near future?
- Paying down debt vs. savings.
- We are maxed out on the matching portion of 401k at work.
Having considered all of the above, we decided to invest the extra money in our simple IRA account.
It was a good chance to sit down with our finance guy and ask a few questions. I had been thinking about the effects on world economics relative to the more recent expanding US oil industry in that there is a shift to domestic production. I had expected gas prices to drop and now I’m expecting this might improve the US economy to the point the Federal Reserve might increase interest rates. Our finance guy also believes interest rates may go up, but not by much. If that happens there could be a few more choices for our extra money. For one, would we want to invest more in short terms bonds. Or would CDs become popular again (not much chance of that says my finance guy). Don’t get me wrong, I do not participate in “market timing.” I have no idea for sure what the US stock markets will do so I just invest through dollar cost averaging by putting money in during both high and low market periods. Right now only 10% of our investment money is in bonds. Our finance guy wants to leave it that way for now. When we get closer to retirement there will be more of our money in bonds or other “safer” places than stock funds.
We have been paying down on our debt and have near term plans to increase what we put towards debt. We just could not see any reason to add the money to a savings account at such a low interest rate. So we decided adding to our simple IRA and taking advantage of the tax break made the most sense right now. The interest rate we are paying on our remaining debt is relatively low. We believe our rate of return in the IRA account will exceed the interest rate we are paying on the loans.
Karen is in the kitchen wrapping gifts. She has the radio turned up and I can hear her singing. Warms my heart!
You all have a good holiday!
(Update:) After adding to our simple IRA for the tax deduction we started paying even more against our home mortgage loan which has an interest rate of 3.5%. As we can’t make 3.5% using relatively safe investments, we decided to save by reducing debt. By 3/1/16 the monthly interest portion of our now tiny home loan has dropped to $79 a month. Once the loan is paid off we will be looking for a new place to stash money that will be used to buy our truck, RV or start a travel fund. I also received an 8% increase in pay at work. I applied most of that to fund a before tax flexible health care spending account. We put money in the fund each month before income taxes and then use it tax free for medical expenses.